Where’s the tsunami?

Peter Wallace
Manila Standard

There is a re-awakened interest in investing in the Philippines. But it’s an interest that can just as quickly wane if government doesn’t take some dramatic steps to improve the conditions under which business must operate.

The first thing they must do is rationalize the myriad investment rules and incentives and come up with a set of policies that is friendly, consistent and stable. With absolutely no retroactive effect on anybody for anything—unless it’s for the better of the company.

This is something the Philippine government still has not learned: You can’t capriciously change the rules of the game midway if you want the players to stay on the field. Consistency of policies (and contracts, please note) must be inviolate. Then government needs to do something dramatic and observable to awaken investor interest to a much greater degree than now.

A couple of billion dollars of foreign investment is nothing. Vietnam is attracting 10 times that amount, and our most comparable neighbors (Thailand, Malaysia, and Indonesia) have been multiples ahead for years. This is where I have the biggest fight with the President: She refuses to look at reality when it’s negative.

I’m exactly the opposite, I look for what’s wrong so I can fix it. You can’t fix what’s broken if you don’t know it’s broken. Well, despite this recent flurry of interest, the attraction of the Philippines as an investment site is… well, broken.

A survey of multinational corporations I did showed these companies remained enthusiastic about putting up facilities in Asia, but not in the Philippines. About 90 percent of the respondents were supportive of new investments in Asia. In contrast, a majority of respondents (60 percent) were not supportive of new investments in the Philippines. The overwhelming choice as top investment location in Asia was China. Following far behind were Thailand, Vietnam, and India. The Philippines trailed at the fifth rank amongst eight comparable Asian economies. The last three, Korea, Singapore, and Hong Kong, already have all the investment they need.

Mrs. President, two big investments (Hanjin and Texas Instruments) do not make a tsunami. They’re just two big, unexpected waves that hit the shore. To get a steadier stream, much more should be done.

Inadequate infrastructure is certainly one of them. It’s always listed in the top three defects of the country. Hence focusing on providing adequate infrastructure makes the most logical sense. The other two top issues are the high level of corruption and the slow, convoluted bureaucracy. Both of which are far more difficult to deal with but needed to be dealt with, nonetheless, equally urgently.

Central through southern Luzon (including Metro Manila) accounts for some 56 percent of the country’s gross domestic product. More importantly, 63 percent of this is industrial economy. So it makes sense to concentrate limited resources in this area first. It should get priority infrastructure support even if this unfortunately must be at the expense of other regions for now. And this does seem to be the way the government is going or, at least, talking. And this is another problem I have: This is a government that is great at saying the right things but then fails to effectively do them. Well, it must do it now if the President truly wants to leave a favorable legacy.

But doing so under existing systems won’t work. This is so evidently shown by the inadequacy of the current infrastructure mix even after a decade and a half has lapsed since the enabling BOT law was passed in 1991. And despite the desire, and clearly, urgent need, for more infrastructure.

The government does not have the funds to accelerate infrastructure build-up even if it says it does. The levels needed well exceed the supply of money expected. And to go heavily into debt may make things look good now, but will rebound to the nation’s detriment later. So tapping private sector help makes a lot of sense. The private sector does (or can) have the money—and can help if properly encouraged (five to 10 years just to get a project started doesn’t encourage). So it must be tapped more aggressively by making it attractive to invest. Speed, consistency, transparency are essential to do this.

Something radically different needs to be tried.

We suggest hiring independent, well-known, reputable international entities to take over the normal government function of preparing, bidding-out, evaluating and awarding BOT projects.

The process, from solicitation to awarding, must be fully transparent. With set deadlines and timetables reflecting a much greater sense of urgency. An independent audit done by one of the major accounting firms should be part of the process to make it more transparent. This could bring five to ten years down to one.

Once a decision is made, no objection will be permitted via the issuing of temporary restraining orders, etc. Only an appeal (but not a restraining order) to a relevant court will be allowed, and then only on the provision that should the challenger win and take over the project (which by then may have started), he will fully reimburse the other party for all work done to date. If he fails in his bid, he will reimburse the legal costs incurred by the winning bidder. That should deter all but the really serious challengers.

Owners of land required for a project must surrender that land (the Law of Eminent Domain must prevail) but be paid immediately its fair market value plus a premium of, say, 50 percent (even 100 percent) to compensate for the dislocation (the cost is negligible compared to the benefit to the economy of a completed project). If he still refuses, the land must be forcibly taken.

Squatters will be relocated without right to oppose, but will be provided with alternative income sources at least equal to, or better than what they currently earn.

Congress should be requested to pass the necessary laws to achieve the above. And to pass a law similar to RA 7648 or the Electric Power Crisis Act of 1993 that provided then-President Fidel Ramos with emergency powers to fast-track provision of electric power. Congress should cooperate by passing that law within three months.

We then suggest that this system and its attendant powers be used to rush the construction of an integrated road and rail system that interconnects the key economic centers from Tarlac to Batangas in one seamless model. Such a model exists in the Comprehensive and Integrated Infrastructure Program, not as a “seamless whole” but as disjointed bits with disjointed timing being addressed in a disjointed fashion. I read somewhere recently that the government has shelved the construction of overpasses along C5 because it doesn’t have the money. Vehicles and pedestrians crossing C5 traffic do not give a seamless system. It’s a seam full of holes. If they can’t even build a few overpasses how on earth can they be talking grandiose Luzon-wide projects?

Once a seamless system is completed it should be possible to transport a container from Batangas to Clark in less than three hours, or from the furthermost tip of Calabarzon (Quezon) to Manila port in two hours—instead of the current average of at least four to five hours—plus nine to 15 hours of truck ban. A ban that would not exist if there were decent roads. It should be possible for someone living in Cavite to get to work in Makati in 30 minutes. And I’d like a bypass around Los Baños—for purely personal, selfish reasons. But it is needed by many others too as the horrendous traffic through highlights.

There are two principal components of this proposed system: One is an expressway system that seamlessly connects all key centers in a manner that provides uninterrupted traffic flow. And that means right into Makati not the edges of Edsa. The other is to complete the light rail system so that commuters can travel from their homes to work swiftly and efficiently.

In doing this, all provincial buses will transfer passengers at specially designed terminals at the Northern and Southern edges of the Greater Manila Area onto the LRT system. Modern, smaller shuttle buses would move people from the city stations to their place of work and back. While the PNR lines would be upgraded and the squatters removed, as is happening.

In both systems a single e-pass or swipe card would be used that would be useable on any part of the system no matter who is operating it. Related to this, why on earth do you need different e-passes for North and South Luzon Expressways? What idiot in government (I use the word deliberately) did not see this and force it through: One e-pass for all toll roads. It’s a no brainer, and it’s still not too late to standardize. But government can pick up the cost of its failure to ensure this by supplying standardized e-passes to those who already have them free of charge.

We venture to suggest that if real, genuine attention is given to this seamless North-South linkage of all road and rail in the Luzon area, not only would there be a resurgence of new investment but the cost of day-to-day operations would fall sufficiently as to lead to much more rapid growth in existing businesses (where there’s been no growth for the past nine months), provide savings to export businesses reeling from an overly strong peso, and put the economy on track for real sustained growth.

The President might even achieve the 7-percent growth she has called for. And if she reduces corruption by just half, and the pace and complexity of the bureaucracy by a similar amount she may even have built the foundation for her successor to achieve 8 percent.

The difference between what I’m talking about and the government’s plans is speed. With the changes I suggest key projects could be started within 12 months, not five to seven years.

Comment to my columns can be sent to plw@mydestiny.net or text to 0920-929-2929