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Consistency is needed

/ 01:08 AM September 27, 2012

I want to plagiarize today, except that I’ll give credit so I suppose that exonerates me. I’m going to summarize an article in The Economist of Sept. 15. It seems that with the positive business attitude now prevailing, the Department of Trade and Industry-Board of Investments has a great opportunity to go out and sell. But the first thing it must do is gain recognition that the Philippines even exists.

Here’s The Economist discussing Vietnam: “Now, with slower growth, huge business debts and more competition from places such as Cambodia, Indonesia and Myanmar, the problems loom large.”

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Why isn’t the Philippines even mentioned? Is Burma (Myanmar) really that attractive, or Cambodia? Aung San Suu Kyi is out, but surely there’s a very long way to go before you’d feel secure investing there. I find this a lot. It’s not that the Philippines is relegated to an also-ran position; it’s that it’s not mentioned at all when investment comparisons are made. I’ve never figured out why. The realities here are as good as elsewhere—and improving, if a true comparison is made.

The Economist also had this to say on Vietnam: “The whole episode (a bank scandal) reminded investors that after years of sloppy management and exuberant lending, Vietnam’s banks are in dire shape; and that corruption and waste pervade the economy. This was never a secret, but during the boom years in the middle of the past decade, when the economy was growing by 8 percent a year and foreign investment was pouring in, nobody much cared.” Philippine banks are in excellent shape, with a nonperforming loans ratio of a little over 2 percent, an annual average profit and asset growth (2008 to 2011) of 18 percent and 9 percent, respectively, and more money than they can lend out (mind you, they can be a bit more adventurous here and lend to more small entrepreneurs).

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“…[C]onfidence in the Vietnamese economy, especially among Western investors, is tumbling. Foreign direct investment into Vietnam, at $8 billion for the first seven months of the year, is a third lower than a year earlier.”

Confidence is tumbling? That $8 billion is juxtaposed against a mere $1 billion here. That’s a “tumble” we’d welcome.

The Economist continues: “The privileged place of the state enterprises—accounting for two-fifths of the country’s output—is chiefly responsible for all the graft, misallocation of resources and mad spending that drags Vietnam down. Foreign executives say it is a nightmare doing business there.”

“As in China, the Communists cling to the state enterprises as a means of keeping political control over the economy. Yet it means that politically connected but incompetent managers have been allowed to build up sprawling empires.”

Now, is that a better place to do business in than here? Why do so many think so when, as the numbers show, $42 billion went into Vietnam in the past decade, and $16 billion here? There’s a huge disconnect between perception and reality. Certainly, the Philippines is no idyll when wanting to start or do business, but others are little better. We’ve just read about Vietnam, but what about Thailand or Indonesia? (I’ll concede Singapore, Hong Kong, even Malaysia.)

My perception (and anecdotal evidence) is that the subsidiaries of multinationals here do as well as, or better than, subs of the same companies elsewhere. I’d like to research it but no one seems interested in funding that research.

Yet new business doesn’t come. There are a number of reasons, and I and many others have highlighted these interminably. Let me focus on just one in this column: consistency. You don’t invest for six years, you invest for 50 or 100 or even more (Nestlé has been here for 101 years, Coke 100). But Philippine administrations seem to think they must change the rules of the game to prove they are different.

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What’s happening in mining today is a perfect example of that. The rules were there. They were reasonable, understood, and accepted. Now they’ve been capriciously (that’s the correct word) changed. Even companies with existing operations have been affected as the furor over contract renewals surfaced with the release of EO 79’s implementing rules and regulations.

Contract sanctity is inviolate. It is a party’s word of honor to uphold an agreement; it cannot be unilaterally changed or, worse, cancelled. Corruption is the only valid reason to question a contract. Yet Philippine administrations, including this one, have shown themselves willing to change contracts for “the good of the nation.” And maybe such changes would be, but YOU CAN’T DO THEM. You have a contractual obligation to honor.

And don’t pretend it will be by mutual agreement. There’s nothing “mutual” about a government negotiating, just ask the independent power producers during GMA’s reign.

Even if the administration backtracks on the conditions of EO 79—and it certainly should, not just on the 25-year lease renewal, but on much else—the damage has been done: The Philippine government’s word can’t be trusted. Just ask Thales-Sumitomo, whose contract, signed by the government, has been in abeyance for over a year. Or BDC, who is suing the government for the cancellation of its contract to dredge Laguna de Bay. Maybe it wasn’t the best solution, but it was a signed contract. If there were valid reasons to cancel—and they’d have to be very strong—then full and immediate recompense must be made. There was no such thing.

It’s not just contracts, it’s all aspects of business. If you register to do business here, you are in effect entering into a contract with the government. You promise to operate ethically and honestly, to pay your taxes, to look after your  employees, and service your customers. The government in return promises to provide you a fair, decent environment within which to operate, where the rules are known and consistent.

Otherwise, you go to Vietnam.

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TAGS: Government, investment climate, investment laws, Peter Wallace
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