Attracting investors

October 26, 2011 at 13:44

This is a re-posted editorial piece.

With higher labor costs in China’s eastern coastal cities, attracting investors may be tough at this point. But then again, the investors they need are probably already there so that places like Shanghai and Guangdong don’t have to worry too much.

Actually, one other serious problem for those who now have manufacturing facilities in the coastal areas is availability of labor. It is no longer as easy to get migrants from the farm areas deep inside China to move to the coastal cities. Development has started to happen closer to where they live.

Attracting investors however, is still a top priority as you travel inwards. In Xinjiang, for instance, they have established two special economic zones precisely to encourage investors who will help diversify the region’s economy from its large dependence on agriculture. But even those outside the zones are pampered with low cost land leases and enough fiscal incentives that would have driven Finance Secretary Purisima up the wall.

I was pleasantly surprised to see that in far away Xinjiang, the Philippine flag is proudly flying in front of the factory of Liwayway Marketing Corporation, the Filipino company manufacturing Oishi snacks and now diversifying to candies and fruit juices as well. Chinoy taipan Carlos Chan said they decided to set up the Xinjiang factory because it simply made sense. They were given generous incentives and they will save on distribution costs by being right there in the region where the products will be sold.

The reception accorded to Mr. Chan by local officials from the time we landed at Urumqi and later on at Yining gave me an idea of how they continually court investors, even those who are already there so that they will invest more. In Yining, an hour’s plane ride from Urumqi, the welcome was befitting a visiting foreign dignitary. Yining is just about a hundred kilometers from the border with Kazakhstan and one of the province’s two special economic zones is there. It would be easy to produce goods that could be sold to Central Asian republics from there.

The pitch was pretty straightforward: they have the raw materials from the area’s thriving agricultural sector for Mr. Chan’s food products. They have the fiscal and other incentives. They have the infrastructure already in place and still being feverishly built. They have the manpower. And they are energy rich, sitting as they do, on a large coal deposit being gasified to natural gas.

Indeed, its abundant energy resource is one of Yining’s attractions. We visited a fairly large private sector owned coal gasification plant. The Kingho Group will provide natural gas produced from coal mined in the area via the second, third and fourth West-to-East pipelines that brings natural gas from some Central Asian republics to cities all over China. It would seem that abundant, reliable and affordable power is a strong incentive to locate there.

One other thing we should learn from the Chinese is how they handle the investors they do attract even after they seal the deal. Local governments compete with each other for investors and they do roll out the red carpet and do what they can to make investors happy. This is so unlike our LGUs where local bureaucrats even as low as the barangay captain look at investors as milking cows, mga baka in local parlance, fair targets for extortion.

Mr. Chan once related to me a story that is simply amazing. He said a few years after he established his first factories in China he received a check in the mail from a government office for a fairly significant sum of money. He was surprised and so he asked what that was about. He was told that he overpaid his fees and the check was simply to give his overpayment back. Used to doing business in the Philippines, he was pleasantly surprised. I was too, when I heard that story.

Back here, the approach of our economic managers to investors is largely theoretical. We do have the ability to draw up impressive concepts and dazzle prospects with our glitzy Power Point Presentations. But we do not have a comprehensive program that would carry out our promises. We have problems with follow through.

Even our PPP program is now being derisively referred to by the foreign business community and many locals too as the Power Point Program. We made the mistake of launching a raw but unoriginal concept. P-Noy’s economic managers made him promise more than we are capable of delivering, destroying his credibility and the country’s. We offered 10 or 11 projects for this year and we will be lucky to have two that will actually get going. Mar Roxas told me none of his department’s PPP projects were ready for implementation when he took over, more than a year after P-Noy took power.

When I was attending the Senior Business Economics Program of the then Center for Research and Communication (now University of Asia and the Pacific) in the early 80s, one of our professors related the story of how a trade mission to Thailand he was a part of was given a tour of the factories put up by investors they have attracted. Our trade mission was understandably impressed with Thailand’s success. One of the Filipino delegates gathered the guts to ask their hosts what their secret was. You know what it was? They said they studied our investment incentives program but the difference was, they implemented it well.

You can imagine why I felt worried for my country after I saw how a remote Chinese region was carrying out their program to attract investors. I saw the nice infrastructure – the long stretches of good roads and the ubiquitous construction equipment ready to build still more roads and more infrastructure – and I knew we have a lot of catching up to do… even with far off Yining.

Yes, Yining has a civilized airport. Well, it was something like the Iloilo airport so at least we can say we are starting to get there. But the Manila Domestic Terminal, which is still being used by a few carriers, looks totally disgraceful in comparison.

We cannot start to attract the investors we need, all the fiscal concessions DOF is willing to grant notwithstanding, unless we have the infrastructure in place and the LGUs become a lot less corrupt and instead become a lot friendlier and helpful to business. Unless we have this change of attitude among our officials, our investment incentives program is just wishful thinking.

On the national level, I still don’t see enough evidence that P-Noy’s economic managers are working with a sense of urgency to get things right. The failed launch of the PPP is proof of that. It is still government by press release, propaganda no one believes anyway.

We need to go beyond the promises and the PPP (Power Point Presentations). We need to see DTI Sec Greg Domingo talking to a convention hall full of Governors and Mayors and inspiring them to be patriotic for once, stop harassing investors and be business friendly. We need to see all those DOTC projects rolling out at last. What we don’t need is the constant bickering on whether we are giving too many incentives to investors.

A good measure of success is that P1.7 trillion in SDA accounts at the BSP. The economic managers must convince the local investors who own that money that it is time to unfreeze their funds and invest them in the local economy. Then and only then can we can start to go on foreign road shows to convince foreign investors that the Philippines is too good an opportunity to miss.

Think about this: Yining is over five hours away by air from Shanghai while Manila is just a little over three hours away. But my guess is, unless we do what we must with dispatch, Yining will get more investors in the next five years. While there are other factors that may attract investors to this remote Chinese region, it surely doesn’t have the advantage we have of being at the gateway to Asia and a well educated English speaking work force. How can we lose? I no longer want to answer that. It is just too depressing.

By: Boo Chanco – Demand and Supply
Source: The Philippine Star, October 19, 2011
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