On 27 May 2008, the Joint Foreign Chambers of Commerce wrote to the Philippine President, complaining about the government's move to roll back the privatization of the country's dominant power producer. On 6 June, the Philippine senate blasted the joint chambers for 'interferring' in its decision-making. On 12 June, Ms. Arroyo, Philippines' President, expressed appreciation of the contributions that foreign investors made to the country in a barely publicized conference. This week, Ms. Arroyo is visiting the USA, trying to woo investors.
Today, the Asian edition of the Wall Street Journal runs an article with this caption : "Powering Down the Philippine Economy". The article reveals that several European ambassadors were preparing to file a diplomatic protest over the dressing down of the joint chambers a few days before Ms. Arroyo's expression of 'appreciation' on 12 June. The article also points out that the senators who lashed out at the foreign joint chambers were Arroyo's allies/minions, and that Arroyo even brought one of them with her to the USA.
A few days ago, a columnist of the Philippine Star, a popular local newspaper, argued in his article that the Philippines does not need foreign capital. It only needs better policies. I guess if you have better policies and a more business friendly bureaucracy, more local capital would be put to use, resulting in more jobs. You do not need foreign capital to survive. However, if you have foreign capital, you can grow faster. I do not see how anybody can argue with that. China closed its doors to foreigners in the nineteenth century. Since thirty years ago, it has learned to use foreign skills and capital to grow itself, without the fear of being taken for a ride.
Wednesday, June 25, 2008
Thursday, June 12, 2008
Businesses that Foreigners can Operate
The restrictions on foreigners operating business in the Philippines are mostly prescribed in a document called Foreign Investment Negative List. The list is further divided into List A and List B. Accompanying the list are various legislation and executive orders, such as Republican Act No. 8179 enacted in March 1996, and Executive Order 139 issued in 2002.
In essence, under the latest Negative List (5th), foreigners are not allowed to invest in the media, professional services (medical, engineering and so on), retail trade with paid-in capital of less than US$2.5 million, manufacturing of weapons and pyrotechnic devices. They may own up to 25% of companies that undertake publicly funded construction contract works. Foreigners may own up to 40% of businesses involved in mining or public utilities, and also businesses that supply the national police and the military, gambling operations or domestic enterprises with paid-in capital of less than US$200,000 (i.e. if the paid-in capital is above this amount, 100% foreign ownership is allowed provided the business is not in List B).
Foreigners may own upto 60% of financing companies or investment houses, provided they meet certain requirements.
In essence, under the latest Negative List (5th), foreigners are not allowed to invest in the media, professional services (medical, engineering and so on), retail trade with paid-in capital of less than US$2.5 million, manufacturing of weapons and pyrotechnic devices. They may own up to 25% of companies that undertake publicly funded construction contract works. Foreigners may own up to 40% of businesses involved in mining or public utilities, and also businesses that supply the national police and the military, gambling operations or domestic enterprises with paid-in capital of less than US$200,000 (i.e. if the paid-in capital is above this amount, 100% foreign ownership is allowed provided the business is not in List B).
Foreigners may own upto 60% of financing companies or investment houses, provided they meet certain requirements.
Monday, June 9, 2008
Self Interest and/or/versus Public interest
The Philippine senator who blasted the Joint Foreign Chambers of Commerce (JFC) for writing to the President regarding the country's power sector policy accused the foreign investors for caring only for their self interest, at the expense of the Philippine people.
For those not blinded by nationalistic feelings, you can read about the points made by the JFC in these press releases :
European Chamber of Commerce
US Chamber of Commerce
Yes, the foreigners may be after their own interest. They do not want the cost of energy to be too high for their factories in the Philippines. They may also want to buy the privatising assets for cheap. I guess if the Philippine government is being forced to sell assets for cheap, then there is valid reason for getting upset. At the same time, we must know what 'cheap' means. Some assets appreciate over time, like land. Others depreciate in value, by wear and tear. Some 'assets' can be operating at a loss, because of bad management and/or inadequate investment. If a badly managed power plant can be sold, and then managed properly and becomes profitable in the future, is there any victim here?
Investing in the distressed assets of a foreign country is always tricky. When the asset is in distress, the owner begs to sell. Yet the buyer will bear the risk of nationalistic sentiment when the situation improves. The foreign owner will be accused of exploitation, even though he took up a tremendous amount of risk by betting on a distressed asset, and invested in its turnaround. Examples are South Korean banks sold during the 1997 financial crisis to foreigners.
What is a good public policy regarding distressed/dilapidated public assets, when you do not have money to continue subsidizing or renew it?
For those not blinded by nationalistic feelings, you can read about the points made by the JFC in these press releases :
European Chamber of Commerce
US Chamber of Commerce
Yes, the foreigners may be after their own interest. They do not want the cost of energy to be too high for their factories in the Philippines. They may also want to buy the privatising assets for cheap. I guess if the Philippine government is being forced to sell assets for cheap, then there is valid reason for getting upset. At the same time, we must know what 'cheap' means. Some assets appreciate over time, like land. Others depreciate in value, by wear and tear. Some 'assets' can be operating at a loss, because of bad management and/or inadequate investment. If a badly managed power plant can be sold, and then managed properly and becomes profitable in the future, is there any victim here?
Investing in the distressed assets of a foreign country is always tricky. When the asset is in distress, the owner begs to sell. Yet the buyer will bear the risk of nationalistic sentiment when the situation improves. The foreign owner will be accused of exploitation, even though he took up a tremendous amount of risk by betting on a distressed asset, and invested in its turnaround. Examples are South Korean banks sold during the 1997 financial crisis to foreigners.
What is a good public policy regarding distressed/dilapidated public assets, when you do not have money to continue subsidizing or renew it?
Sunday, June 8, 2008
Expect Unpredictability
Businessmen from developed countries are used to knowing a country's holidays before a new year starts. In the Philippines, expect holidays to be changed a few days before the previously announced day. Philippines' Independence Day is on 12 June. On 28 May, the government announced that the holiday for Independence Day would be 9 June, while celebrations will be held on 12 June. The government made a proclamation earlier in the year that allows the President to move the observance of national holidays that fall within the middle of the week to the nearest Monday. Only May 1, Labor Day, is not covered by this law. However, exactly WHEN the President makes the decision is not prescribed. For all we know, she can declare it one day before the new holiday. Go plan your meetings, your schedules for shipping, your staff deployment, and then forget about them.
Expect nationalistic sentiment
Foreigners are expected to bring money into the Philippines, but they should not give advice, else they will be shown the door.
http://newsinfo.inquirer.net/inquirerheadlines/nation/view/20080607-141253/Foreign-chambers-bullied
This is not the first episode of such actions, and one should learn from it. For example, if someone is criticized by a business partner, what do you think a business person would do? a business person will first consider whether the criticism is valid or not. If it is not, he/she will ignore it, and do whatever is in his/her best interest. He/she would however not want to antagonize a business partner, since he/she can also profit from the business partner. Politicians in the Philippines do not think like a businessmen running a country. They may be very good businessmen running their own companies, or as politicians in keeping themselves popular and in power, but they certainly do not run the country like a business. Since economic growth of a country is analogous to profitability of a company, countries that do not act like a business cannot expect to be profitable. But some countries are content to be proud rather than smart.
http://newsinfo.inquirer.net/inquirerheadlines/nation/view/20080607-141253/Foreign-chambers-bullied
This is not the first episode of such actions, and one should learn from it. For example, if someone is criticized by a business partner, what do you think a business person would do? a business person will first consider whether the criticism is valid or not. If it is not, he/she will ignore it, and do whatever is in his/her best interest. He/she would however not want to antagonize a business partner, since he/she can also profit from the business partner. Politicians in the Philippines do not think like a businessmen running a country. They may be very good businessmen running their own companies, or as politicians in keeping themselves popular and in power, but they certainly do not run the country like a business. Since economic growth of a country is analogous to profitability of a company, countries that do not act like a business cannot expect to be profitable. But some countries are content to be proud rather than smart.
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