Not by tax perks alone

Our officials through several administrations have the mistaken notion that by offering tax perks, investors will come flocking here. Well, it is a necessary first step because our tax system is not competitive with our regional peers. But after introducing tax reform, we still need to address other matters before we can truly attract foreign direct investors. And, no… charter change won’t do much good either and may destabilize.

It is too early for folks like Finance Secretary Ben Diokno to say we will be the next economic tiger… and that we will be the fastest growing economy in the region and in the world. In our dreams, perhaps. Libre naman mangarap.

I was watching Cathy Yap’s interview with Stevie CuUnjieng, an internationally experienced investment banker on YouTube, and he is, as always, brutally correct to say investors choose Vietnam because of our iffy and expensive power supply and poorly trained workforce. Then, he said something that’s probably surprising: even second tier universities in Vietnam produce graduates comparable to if not better than graduates of our top tier universities. And they produce more graduates of technical courses too.

Our corrupt and self-serving political leaders are our most lethal disadvantage… as well as bureaucrats prone to excessive regulation.

And Stevie brought up another important point: we suck in implementing anything.

For an unbiased view, I asked Chat GPT to tell me why Vietnam is favored by investors over the Philippines. Here are some points:

“Over the past decade, Vietnam’s steady economic expansion has been supported by various factors, such as a strong manufacturing sector, export-oriented industries, and favorable government policies encouraging foreign investment. Investors are attracted to Vietnam’s stable and predictable economic environment, which provides a fertile ground for business opportunities.

“Vietnam has enhanced its business environment by implementing economic reforms and liberalizing trade policies. The government has actively encouraged foreign investment through various incentives, including tax breaks, streamlined bureaucracy, and improved infrastructure.

“Additionally, the ease of doing business in Vietnam has been consistently rising in the World Bank’s Ease of Doing Business Index. Such pro-business policies and reforms create a conducive atmosphere for investors, ensuring a smoother entry and operation in the market.

“Vietnam boasts a young and vibrant workforce, which is a valuable asset for investors seeking a competitive advantage. The country’s labor force is known for its adaptability, strong work ethic, and relatively lower wage costs compared to its regional counterparts. This pool of talent has enabled businesses to improve productivity and efficiency while maintaining cost-effectiveness, a factor that significantly influences investor decision-making.

“Political stability and predictability are essential considerations for investors when evaluating potential destinations for their capital. While the Philippines has faced occasional political uncertainties, Vietnam’s stable political landscape provides investors with a sense of security and confidence in their long-term investment plans.

“Additionally, Vietnam’s membership in various trade agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), further enhances its trade prospects and opens doors to a vast consumer base.

“Vietnam’s growing middle class and rapidly increasing consumer spending have attracted considerable attention from multinational companies. With over 96 million people, the country represents a significant market for various goods and services. The burgeoning middle-income population presents an array of opportunities across sectors such as retail, e-commerce, healthcare, and education, luring investors seeking to tap into this expanding consumer base.”

I asked Chat GPT to list the factors investors look for in a country aside from tax perks. Here is a summary with my comments:

“Political stability is paramount for investors. They seek countries with consistent and predictable political environments, where changes in government or policies are minimal, reducing the risk of sudden disruptions to their investments.”

This is a problem for us because we do not have a top-grade bureaucracy. Every change of administration changes officials up to assistant secretary level and even lower. Even tourism campaigns are changed.

“Investors look for countries with transparent and investor-friendly legal systems. A robust legal and regulatory framework ensures the protection of property rights, contract enforcement, and dispute resolution, giving investors confidence in the rule of law.”

Oh, we have the best justice system money can buy.

“Market size and potential: The size and potential of a country’s market are critical factors. A large consumer base with increasing purchasing power represents significant growth opportunities for businesses and investors.”

Demographic dividend should be to our advantage, but due to bad education and training, the mass of young Filipinos may not have the buying power to continually feed our consumer driven economy.

“Well-developed infrastructure, including transportation networks, energy supply, and communication systems, is vital for efficient business operations. Investors prefer countries with modern and reliable infrastructure that supports their investment plans.”

All these are work in progress for us. It took us 10 years to build a four-kilometer LRT extension to Antipolo with no right of way issues. No high hopes here.

“Countries that are well-integrated into global supply chains and have access to regional and international markets offer investors valuable opportunities for trade and expansion.”

We are inward oriented. We fear foreign trade.

“An educated and skilled workforce is essential for business success. Investors seek countries with a labor force that possesses the necessary skills, knowledge, and adaptability to meet industry demands.”

The quality of our workforce has deteriorated. Failure in education and training is discernible. Ability to speak English isn’t everything. Besides, we are losing that too.

“A favorable business environment, characterized by low corruption, ease of doing business, and minimal red tape, encourages investors to establish and operate their businesses with confidence.”

An eternal source of frustration for our own business sector.

“Countries that offer strong investment protection and participate in bilateral investment treaties (BITs) or other international agreements provide investors with additional assurances for their investments.”

We are whimsical in investment protection. Duterte cancelled an international contract covering water distribution in Metro Manila because he wanted to.

There are other things we will take up next week that investors look for in a country. Suffice it to say that we have lots of homework to do before we can proclaim to the world that we will soon be an economic tiger.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco