Build more factories and infrastructure, not just condos

A successful society is characterized by a rising living standard for its population, increasing investment in factories and basic infrastructure, and the generation of additional surplus, which is invested in generating new discoveries in science and technology. — Robert Trout

We in the Philippines are fortunate to be in the world’s economically most dynamic region of Asia despite economic turmoil in Europe and the USA; all indicators show that 2012 will still be a period of steady growth for us here. Hopefully, the government and private sector can work together to push for faster Philippine economic growth with bold reforms and initiatives.

I have nothing against a real estate boom; in fact I am in the realty business developing middle-class townhouses, but instead of building too many condominiums and townhouses to the point of a future glut, why doesn’t the government initiate bold policies encouraging entrepreneurs to build more factories to boost employment, rural development and more exports?

Instead of big business groups investing mostly in power plants or infrastructure projects with the government support, why not encourage them to also invest in modern corporate farming as well as support small rural farmers to maximize the Philippines’ agricultural potential?

Instead of the Philippines becoming just a fast-rising top exporter of raw materials to the factories of China and other industrial powers, why doesn’t government give more support and new incentives for our top and legitimate mining firms to go into processing plants so that we export higher-value goods and metals for the factories of China and other countries?

At a recent dinner, I was seated beside Caroline Tanchay, chairwoman of Oriental Peninsula Resources Group, which owns publicly listed Citinickel and Development Corp. (Citinickel). I asked the young mother and entrepreneur her views on politics; her only comment was that she hopes President Noynoy Aquino will succeed in reforming Philippine society “for the sake of long-term social and economic progress.”

2012 ‘A Flat Year’; Will 2013 be better economically?

On the Philippine economy, Tanchay said she is optimistic that growth will continue despite global economic uncertainties, although she frankly said that the mining industry “might become flat in 2012 if Europe and the US do not recover economically.”  

Her fearless forecast for the Philippine and world economic situations? The feng shui or geomancy enthusiast said: “We business people small or big should be patient, persevere, work hard and maybe be a bit conservative with loans in 2012. Next year is a metal year. Although it’s the year of the dragon, there’s no fire element, so I foresee 2012 to be a flat year. But the economic outlook for 2013 is better, because there’s fire, it’s a fire year, the economy will be better in 2013, so there will be more activities and more investments.”

She said that the mining industry alone is a source of good news for the country in terms of exports, new jobs and growth. She pointed out that the two dozen mining firms in the Philippines contribute a total of P88 billion in taxes per year to the government and gives jobs to 200,000 to 300,000 employees.

When I asked about ecological concerns raised by some environmental activists or non-governmental organizations (NGOs), Tanchay said that their firm Oriental Peninsula Resources, Nickel Asia of the Zamora family, Philex Mining of Manny Pangilinan and others are responsible miners. She cited the examples of Australia and Canada as positive examples of progressive countries that have engaged in responsible mining operations beneficial to all.

Tanchay explained that in the case of her firm alone, they have touched only 25 hectares of a 2,200-hectare mining area. She said, “We have cut about 200 trees and we’ve planted 250,000 seedlings. Responsible mining companies, not only ours, help provide rural communities with a water supply, social development, roads, etc.”

We Should Export  Processed Metals Instead Of Just Raw Materials

When asked for suggestions on how we can accelerate Philippine economic growth or encourage more local and foreign investments, Tanchay said she hopes the government will support more industries.

For example, she said that her firm Oriental Peninsula Resources started operating its mine in March this year in southern Palawan where there is no tourism (all tourism sites are in the north). Their declared net income by the third quarter of 2011 was approximately P580 million and this figure might go to P700 million by the end of the year. However, she pointed out that if mining exporters like her firm could go into processing of raw materials like nickel instead of just exporting raw materials, their net incomes could easily become 10 times higher!

What are the obstacles for mining firms or other investors like her to go into processing operations or factories? Tanchay said that if her firm would like to put up a ferro-nickel processing plant, she’d be competing with China’s processing plants in terms of basic infrastructure and electric power costs.

She said building factories in the provinces requires a lot of power and at competitive costs. She said that electric power in the rural provinces of China costs about P2.50 per kilowatt hour, while here in provinces the rate ranges from P6 upwards. She added: “The problem is not only the high power costs, but often there’s no power in the provinces for these proposed industrial ventures.”

Less Red Tape For Gov’t Permits, Reform Labor Laws

Another challenge to investors that Caroline Tanchay hopes can be reformed is the long and difficult process to obtain various government permits for a factory. She said that in China, such permits are issued after only one month; here it will take investors like her more than a year. She also laments that some environmental NGOs do not understand and appreciate the ecological safeguards and modern technologies of the Philippines’ top mining firms, and they also unnecessarily politicize the issue and try to block factories.

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Another entrepreneur, Sonny Choi of Cagayan de Oro City, a Philippine STAR reader and father of Sisters Napkins co-owner Aileen Go, also suggests to our government leaders the need to encourage more local industries in the Philippines instead of being just an importing nation. He said hopefully the high electric power costs can be brought down to support more factories; we also need better basic infrastructure like lowering high shipping costs and reforming our seaports.

He also suggested that our labor laws be reformed to be similar to those in the United States or other democratic countries, where employers can terminate employees anytime as long as just compensation is paid according to length of employment. This would eliminate the need for small- and medium-scale enterprises hiring workers only for six-month contracts.  He said, “This labor situation is not only bad for investors who really want to hire, train and retain good people for the long-term, it is also bad for workers.”

For a happy new year and a better economic future, the Philippines should build more factories, develop more modern farms and build better infrastructure.

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