Wanted: Filipino investments

By Cielito Habito

MANILA, Philippines -- Philippine central bank figures released last week tell us that inflows of net foreign direct investment (i.e., not counting portfolio investments or "hot money") from January to July grew a whopping 70 percent over the same period last year, even better than the 50-percent growth posted last year. It would seem from the numbers that attracting foreign investments has not been a major hurdle lately.

But we have a problem. When we add foreign and domestic investments together to get total investments in our economy, the number had been falling continuously from quarter to quarter since early 2005, with the negative growth turning only slightly positive in recent quarters.

What does all this tell us? It takes simple arithmetic to figure out that the domestic part of investment must have been falling rather steeply over the last two years.

Dramatic contrast
Why this dramatic contrast between the behavior of foreign and Filipino investors? Do foreign investors know something that Filipino business people don't? Do foreigners have better faith in our economy's longer term potentials, and are manifesting that confidence in dollar votes for our future? Are Filipino investors too short-sighted and inordinately deterred by short-term distractions--as Malacañang would prefer to characterize our persistent woes on the political and governance front?

Or is it actually the other way around? Do Filipino business people know our country more intimately than their foreign counterparts, and know something that the latter don't? Are Filipinos better-informed and more attuned to our economy's true outlook--and are manifesting it through their own peso votes (or lack of it) for our future? The answer, of course, is for the investors themselves to tell.

Falling far behind
Whichever way it is, the cold hard fact is that we are lagging behind our Southeast Asian neighbors in the way we are investing in our own economy. Between 2002 and 2005, our annual investment growth averaged only 0.6 percent. Compare that to 3 percent in Malaysia, 4 percent in Indonesia, 11 percent in Vietnam and Thailand, and a zooming 20 percent in Cambodia! Have you been to Cambodia lately? The way tourism is booming there and with the rapid facelift Phnom Penh and Siem Reap are undergoing, we may be seeing yet another neighbor threatening to pass us by! And given more recent investment figures, we may be falling even farther behind our neighbors.

Viewed in this light, the government is right in lining up massive investments in infrastructure for the years ahead. I have already pointed out before that our extraordinary jump to 7.5-percent GDP growth is explained entirely by the steep double-digit growth in government spending, both in regular expenses and especially in infrastructure. The government has obviously been trying to pump-prime the economy. The problem is that the pump, so far, refuses to be primed. Private domestic investment has yet to follow the government's lead.

Critical link
Where do we need the investments most? With 61 percent of our 2.8 million unemployed never having gone beyond high school, I have constantly argued that agriculture (including agribusiness) and tourism will be our best bet for creating these much-needed jobs relatively quickly. There remains great job creation potential both within and near our country's farms. A critical link is agri-processing enterprises, which would expand the markets for our farm products, especially nontraditional and high-value crops, both here at home and overseas.

Local governments can play a much stronger role in fostering the right environment to attract more investments to strengthen this critical link. Over the years, our main obstacle in agriculture has been an overcentralized approach to the sector that is prone to inefficiency and graft. Worse, that overcentralized bureaucracy has had the most unstable leadership among major government departments in recent memory.

More than infra
As for tourism, our problem, as I have constantly maintained, lies more in policy and less in infrastructure. With rapidly rising numbers of affluent Chinese and Indian tourists coming out of those countries' zooming economies, there should be great opportunities for a massive increase in our tourism-related jobs. But it seems we are willingly foregoing the opportunities in the way we continue to make it more costly and difficult for those tourists to fly into the Philippines. And this we are doing by unnecessarily limiting the airline seats available, all because our seemingly captured policymakers choose to put the profits of the already lucrative dominant domestic carriers above the wider national interest. (Wonder why Cambodia has been getting far more tourists than we do?)

We can unleash far more job-creating investments by both Filipinos and foreigners than what we manage to get now. But first, our leaders must take to heart what investors appear to be saying loud and clear: Infrastructure investments are good, but what we need, more than anything else, is good governance.