Wednesday, 26 October 2011

How to lose foreign investment

John Mangun
Business Mirror

TWO international reports about the Philippines appeared last week. The World Bank reported in its annual “Doing Business 2012” that the Philippines dropped two places to 136 in the world for “ease of doing business.”

A web site started by a woman who wrote “The Budget Traveler’s Guide to Sleeping in Airports” and the “Cheap Like Me Travel Society” voted Naia as the worst airport in the world.

Now, which one do you think got the most coverage and the most response from the Philippines’s political leaders?

One congressman urged “an emergency makeover of the Ninoy Aquino International Airport [Naia] complex.” A party-list representative “filed a resolution urging the House Committee on Transportation to look into the managerial problems besetting Naia.” A presidential spokesman stressed that the government’s priority was to rehabilitate the 30-year-old terminal.

The Philippines ranks behind Syria and Sudan and ahead of Madagascar and Cambodia. Nice global company we keep. I read the 212-page report. There was no mention if Rwanda (No. 50) and Botswana (No. 52) ranked higher because their airports are nicer to sleep in.

The Philippines has a great problem attracting investment, both foreign and domestic. Everyone knows that foreign investment could be the goose that lays the golden egg. The emphasis then has been to understand the problems with getting foreign investment in the country.

Recently, the talk has been about changes to the Constitution that would allow more foreign ownership of companies doing business in the Philippines. The country has a “Foreign Investment Negative List” regarding the percentage of foreign ownership of businesses in the Philippines. For example, the Negative List does not allow foreigners to engage in the “ownership, operation and management of cockpits” or the “manufacture, repair, stockpiling and/or distribution of nuclear weapons.” Those are probably sensible provisions.

There is one group that believes that if foreigners were allowed to own more of local companies, say 80 percent, they will be more inclined to do business in the country.

Singapore has a good economy and has good foreign investment. Singapore allows 100-percent foreign ownership. So that is the way the Philippines should go, right? Except Thailand has a good economy, good foreign investment, and the Alien Business Law, which is similar to the Philippines’s Negative List but in some ways is even more restrictive. So what is the difference between these two and the Philippines?

Singapore ranks No.1 in the world for “ease of doing business.” Thailand ranks No. 16. Again, the Philippines ranks 136.

Investment goes where it can make a profit. The second consideration is how difficult that profit is to make.

I will grant that both India (132) and Indonesia (129) are not high in the rankings but these are both countries with huge populations and, therefore, more profit to be made. Business money also has to balance the amount of profit with the difficulty of getting it.

In addition, Indonesia has a very effective and functioning (unlike the Philippines) Public-Private Partnership Program that brought in $1 trillion in foreign money in 2010 for 23 specific projects and an additional $700 million for 12 specific mining projects. I will not make any comment.

So why is it so hard to do business in this country? Setting up a business requires 15 separate steps (read government approvals) and takes 35 days. In Thailand there are only five steps requiring 29 days. Singapore has three steps and it’s over in three days. Indonesia takes longer, 45 days, but there are only eight procedures to go through.

But even in the Philippines, not all places are equal. The World Bank did an in-depth study of the Philippines this year. If you want to start a business, go to Mindanao. GenSan and Davao rank No. 1 and No. 2 for ease. Cebu was 7th. Don’t try to start in San Juan (25), Las Piñas (24), or Pasig (23). Instead, if you have to be in Metro Manila, set up shop in Taguig (3), Valenzuela (4), or Marikina (8).

The World Bank suggests the “losers” learn best practices from the “winners.”

When we spend or invest, we look also for time and money-saving convenience and efficiency. Convenience and efficiency does not describe the Philippines bureaucracy.

Karl Marx said, “For the bureaucrat, the world is a mere object to be manipulated by him” not to be served.

The saddest thing is that the Philippines has not made any substantial improvement since the reports started in 2004. But maybe by next year, Naia will be a better place to sleep at. Unfortunately, that may not exactly be the silver bullet that attracts more foreign or domestic investment.


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