• An appetite for risk?



    A large part of the Philippines way of doing business is to ignore the rules and throw money at whatever is to be developed on the assurance that friends and connections can ensure the success of the investment despite non-compliance with the regulations. Some foreign investors try to play the same game but that generally ends up with disastrous results. In short it is not a level playing field.

    To follow the rules is a tedious, very lengthy and very expensive process fraught with wrong turnings and going back to start again. But it is the only way for the discerning investor without the right connections, and even then there remain risks of policy changes and political interference that can turn things downside up. Suggestions of wide ranging nationalisation, whilst possibly good for society, do not do much to reduce the perceptions of risk to foreign investors.

    The rules and their enforcement have to be applied in an even-handed way so that not only foreign money can come in and challenge the rule of the oligarchs, but entrepreneurial Filipinos without massive bags of cash or high level connections can also have the opportunity to build businesses.

    In the absence of such a level playing field, the rules and political rumours become tools for the oligarchs to retain their stranglehold on development of the Philippines economy and industry. Money and connections will always trump professionalism even if the development needs are bankable.

    The risks to foreign investors, or even Filipino entrepreneurs, are very high. But those who embark on investing in the Philippines rationalise this by saying that the rewards can also be very high (provided that things don’t change too much and threaten the returns). Policy stability is therefore very important indeed. For if policy is perceived to be uncertain or unclear and the rules continue to be ignorable by certain sectors, then rule by oligarchs will continue ad infinitum.

    Nationalisation is indeed one way to bring the high fliers down to earth. But nationalisation is anti any private investment and it would take a long time to build up the resources within a nationalised industrial base to produce enough for the further investment that is so desperately needed, particularly in infrastructure. So wholesale nationalisation is not the answer and the business tyranny of the elite does not suit a society which strives for greater egalitarianism. A middle way is required.

    The middle way is not about the availability of finance or about the lack of skills or opportunities, it’s about a level playing field, a dependable policy environment and a regulatory regime which enforces fairly and which does not allow itself to be bullied or influenced by power plays. A dose of selective and limited intelligent nationalisation may also be administered in order to bring about cohesion in industry sectors and to serve the people with the necessities at prices that they can actually afford, or provide necessities for those who really can’t afford to pay, free of charge (this last a truly heretical statement in a Philippines context!).

    To engineer a redistribution of wealth through changes in taxation whilst valid will itself be just a dream until the playing field is levelled. Power plays will trump the taxman as they do everything else.

    If the wings of the elite are clipped then domestic investment may become less attractive to them and they will just hoard their money or put it somewhere else. In fact from some newspaper reports a bit of hoarding is already going on. So where is the investment money to be found? Government can invest in a quasi-nationalised sort of way or in the much-vaunted public private partnership schemes, but these may become less attractive to the domestic market if the playing field is level. Otherwise the Philippines should look to foreign direct investment as a platform from which to allow the latent entrepreneurism of the Filipino to grow and prosper. Official development assistance can make a contribution but without structural change these ODA initiatives will just founder because they too will be unable to deal with the power plays—“we retuned the money because there just aren’t any projects that match our requirements,” or the market has just disappeared.

    If the Philippines is to develop and prosper as it can, then business opportunity must be opened up to encourage fair competition within a predictable policy environment. Until then the risk profile of the Philippines will only be attractive to locals with money and power who can ignore the rules with impunity, and just perhaps it may also be attractive to that new breed of businessmen who have been catapulted to riches following the demise of central planning and state ownership of the means of production. Those guys certainly know how to play and win in less developed economies, particularly in economies that may be contemplating moving back to the point from which they themselves have so recently graduated.

    * * *

    Mike can be contacted at mawootton@gmail.com


    Please follow our commenting guidelines.

    Comments are closed.