• Economic miracles . . .

    Mike Wootton

    Mike Wootton

    You have to wonder what some of these international financial pundits are smoking these days. Following in the footsteps of Standard and Poor’s and Fitch, we now have an organization called Capital Economics from United Kingdom lauding the “strong fundamentals” [what a pompous-sounding phrase]of the Philippines; “business climate improving,” a new anti-corruption and “reform minded” government, and a “developing manufacturing sector.” It also opined that a change of leadership in 2016 would be a “setback for the nation.” I have to guess that none of the people who pronounce on these wondrous economic developments have actually been here for long enough to understand how things really are. Also noticeable that no mention seems to have been made of jobs or unemployment.

    According to the World Bank as well as some of the intelligentsia, there is a good likelihood of an upcoming real estate- and construction-led bubble, and the Manila Electric Co. (Meralco) is investing in an 800-megawatt power plant in Singapore, and International Container Terminals Services Inc. (ICTSI) is putting its money into a Nigerian port development. No doubt, there are some other of the Philippines big names who are using their massive liquidity to develop anywhere other than in their home country. The best that can be said is that the overseas investments by both Meralco and ICTSI will create more jobs for overseas Filipino workers who can earn abroad and remit back to the family at home to spend on consumption, making for even more economic progress in this consumption- and debt-led economy.

    Most of the big ticket development initiatives here in the Philippines become bogged down in a morass of government inefficiency or just simple inaction, or are challenged for some vague reason or other founded on the small print of whatever-regulation-suits-the-purpose sufficient to stop somebody else actually making some progress. The frequency with which major development initiatives get cancelled or put on ice, thanks to some mysteries behind the scenes maneuvering at the last minute, is remarkable. The Philippines business environment is much better at stopping things developing than it is at making progress happen. Better to invest elsewhere where the chances of actually progressing are better than here—like Nigeria.

    So if this is a business environment which has improved such as to send the international bankers and financial traders into paroxysms of excitement about the stellar growth of the Philippines economy, then good luck to them. They obviously know more than the local business people and investors do about doing business in the Philippines.

    But this is all very confusing. I know my own investor experience and what a trial that has been, and continues to be. One thing for sure is that rationality has absolutely nothing to do with investing in the Philippines, personal objectives, whatever they may be continuously trump rationality and only those in the know will have any idea of who has personal objectives, which run counter to somebody else’s getting a return on their investment.

    Apparently according to at least one local investment banker, the Philippines “does not need FDI [foreign direct investment], there is plenty of money here.” A rather unusual statement given that the rest of the world depends a lot on foreign direct investment, but then it was made by a banker. I haven’t noticed too many new eager foreign investors snooping around here recently. There is an ever widening gulf between the views of the bankers and financial people and actual business decision making and some would say; well, it’s about time there was a realization that bankers, despite their powerful position in having other people’s money at their disposal, don’t actually know what to do with it. By extension, neither are they equipped to advise other people what to do with their money. Banking is not a risk business at all; bank people cannot assess business risks in areas about which they know nothing. They are not even very good at studying trends and buying and selling, although they do excel at debt collection and stiffing people for usurious interest rates on consumer finance. HSBC took it upon themselves the other week in the United Kingdom to require customers who wished to withdraw “large sums” from their own accounts to prove complete with documentation, what the money was going to be used for! This was claimed to be in pursuit of protecting the customers interests—ha! Protecting your interest by not allowing you to withdraw your own money.

    Anyway, back to the mixed signals about the Philippines as an “outstanding” investment destination. Well, I think that it is an excruciatingly difficult investment destination, the business climate is not getting better—it is getting worse; a rule of law is nonexistent, there are more empty condominiums than can be counted, unemployment and poverty are at stellar levels, endemic corruption is accepted as normal, and even the local oligarchs are perhaps seeing better prospects in investing abroad. But perhaps the bankers know better, and in any event the Philippines apparently does not need FDI so any potential investors may as well look elsewhere, at least until such time as most of the local capital has taken flight.

    Mike can be contacted at mawootton@gmail.com


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    1. Spain and Ireland and the USA had a similar property boom. All financed by loans, which the buyers could not service,and too few buyers. The end result was a collapse in property prices, lots of repossessions by lenders, and huge debts left with the banks. The economies collapsed, and had to be bailed out by governments. I hope we are not heading for the same “burst bubble” here.

    2. I know very well what’s happening now in the Philippines. We have a current government which is reform oriented and a determined and honest President who only wants to see change. Things are not as fast but they are happening and progressing.
      Pnoy is one of the best presidents we have for a long time. He did not want to be one, but we thrust him to take that role. We are happy with his achievements so far. There are plenty of problems to deal with, but we know we are moving in the right direction.

    3. With AEC right around the corner, developed Asian countries are poised to take the lion’s share of an active economy, they have spent and used billions of their government funds building infrastructures while preparing their people for the change in paradigm shift on the regional economic cooperation.

      Philippines will lag behind, mainly due to cost of power and poor infrastructures, manufacturing industries will never be competitive in such an environment, the only bright spot into this is the export of human resources, skilled professional Filipinos will take flight to the advantage of other Asian countries, leaving Philippines to fend for itself.

      With increasing numbers of OFW, more remittances will pour in which will encourage investment in condominium and housing units, this is the only positive side that will come from losing local labor, but it is not going to be sustainable as job markets will eventually contract as more labor moves freely about in the region and becomes competitive.

      Unless the problems of infrastructure and cost of power are not addressed, foreign investments will go elsewhere making high paying local jobs scant , and local investors will not be able to sustain growth then will eventually fall into debt – a way for the economy to fold in on itself.

    4. Mr.Wooton,if you notice, construction of condominiums are sprouting from Metro Manila and surrounding cities in Luzun.You go to Visayan cities like cebu,bacolod,iloilo, and even Mindanao,like davao,cagayan de oro,butuan not tomention other cities. This is like miracles,it doesn’t happened before. And what is weird is that most of this projects are finaced by local business people. Not only in real estate,new big industrial projects are going on like,power plants,Industial economic zones,shipbuildings,tourism projects, and so on and on, thereis not enough space to mention all the ongoing projects in the country today. If you cannot consider this as an Economic Miracles,I think you just closed your eyes and you pretend that nothing happened unless you don’t want to accept what’s going on.
      This also good news for International business because even though these are mostly financed locally,it is a fact that they hired international technical consultants of these projects,That means international business is also booming,there is a domino effects for ecocomic miracles that is happening now in the Philippines.

      • jenny monteagudo on

        @ Mr. John… you are perfectly correct in your observation that there are a lot of condominiums being built anywhere in the country but i think you missed the point. do you know how much of this condo units are actually occupied? do you know how many filipinos are unemployed considering the massive economic development you mentioned? do you know how many filipinos are living below the poverty line? the number of pinoys living below the poverty line may have decreased in 2013 but this is because they maintained the poverty benchmark at the 2009 level…