Kill the pig not the goose

The country’s recent investment rating upgrade from Fitch, followed by Standard and Poor’s and finally Moody’s, put President Aquino in an excellent position to showcase his accomplishments during the APEC Summit in Indonesia — the most impressive of which is sustaining GDP growth rate of 7+ percent for four consecutive quarters. President Noy declared the Philippines as the “best alternative investment site,” citing stable macroeconomic fundamentals, low interest rates and other positive indicators, with the World Bank raising Philippine growth forecasts while the rest of Asia is going through a slowdown.

The administration assured potential investors of “a stable environment” where businesses will grow, and DTI officials predicted that our “business friendly” ranking from the International Finance Corporation is expected to go even higher due to reforms like streamlined steps in setting up a business, even decreasing tax payments for certain sectors. 

The irony of it all however is that there is currently $12 billion worth of investments on hold because of the government’s “unfriendly” and “unreliable” posture towards the mining sector, creating a climate of uncertainty because of the continued delay in releasing a new mining policy, compounded by the DENR’s suspension of applications for new and expansion projects. In short, everything is in limbo in the mining sector — supposedly one of the “seven big winners” with high growth and employment potential according to the Joint Foreign Chambers.

Over 200,000 jobs will be lost if this atmosphere of uncertainty continues — and it has already started with the $6 billion Tampakan copper project of Swiss mining giant Glencore Xstrata with 900 workers laid off because operations are on hold since Xstrata is unable to make any investment decision pending government approval for its project, compounded by local politics and opposition by mining activists.

This is a clear sign of what “flip-flopping” can do when we change the rules midstream — turning off international investors because of the perception that we are unreliable as far as contracts and agreements are concerned. In fact, even the water concession contracts of two big local conglomerates — the Ayala Group and the Metro Pacific Group of Manny Pangilinan — are placed in a fix because they can’t push through with expansion and development projects due to the MWSS and its administrator’s populist move to slash water rates and renege on the terms and conditions of the concessionaire agreement. How can we attract foreign investors when we can’t even take care of our own local investors?

Mining companies have been asking for a single tax regime that would apply to all mining contracts — whether it is a mineral production sharing agreement (MPSA) or a financial or technical assistance agreement (FTAA). Both tax schemes however are based on the net income instead of the gross output of the mining company. Aside from the excise tax, these players also pay a dozen other taxes such as corporate income tax, property tax, local business taxes and fees, royalties for indigenous people, value added tax, etc. — something that the government and anti-mining groups conveniently ignore. Worse, the legitimate tax paying companies are penalized while government allows illegal miners to operate – resulting in 95 percent of gold being smuggled out of the country.

A report by the International Monetary Fund says the existing tax structure in the country is “not competitive internationally” — with tax companies shelling out 60 percent share to government — much higher than the 40-45 percent in leading mining countries like Canada, Chile, Australia and Peru. A new report by PricewaterhouseCoopers revealed that the gold industry contributed over $210 billion to the global economy last year. About 45 percent of the global economy is attributed to mining, and economists have noted the increasingly important role of the industry in the economic growth of Asia — a mineral rich region.

The Philippines is the fifth most mineralized country in the world and the third in terms of gold resources. Imagine, we are sitting on vast mineral reserves of copper, gold, nickel, aluminum and chromite estimated at $1.4 trillion — and we’re literally killing this jobs-generating industry that has a huge potential to contribute to our economy. In fact, there’s this strong perception that the administration is unsupportive of the industry because of pressure from anti-mining groups — which we can’t really understand since government can stand pat on issues like the Reproductive Health bill which to a certain extent was controversial and yet the President stood his ground. And then there was the Corona impeachment which P-Noy pursued despite cautionary advice that the move could rock his administration — which should not have really come as a surprise considering the legendary stubbornness of the President once he sets his mind on what he thinks is right.

We see it again in the issue of the pork. The President’s social fund is being questioned but he is standing pat and insists it is necessary — which we fully understand and totally support. The President should have the power to disburse emergency and social funds especially for the relief of victims of floods and other calamities due to typhoons.

We don’t know if it is populist posturing or if someone influential is keeping the President from recognizing the potential of the industry to generate jobs and contribute to the economy. P-Noy has made great strides in projecting an image of transparency and reform to the international community — and he has less than three years to sustain the momentum and leave a legacy to show potential investors that the country is indeed open for business. Let’s kill the “pig” but not the “goose” that literally lays the golden egg — creating jobs for thousands of Filipinos.

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