Ford Motor Co.
recently announced that it will close its manufacturing plant in Sta. Rosa,
Laguna at the end of the year. This comes at a time when signs are looking up
for the Philippine economy’s near term future.
It is a business decision, the announcement says. It is
part of a restructuring decision of the whole Ford Motor Co. international
operations.
“Footloose, marginal and internal to Ford.” Ford is a
name brand and a good investor to have in manufacturing. But the reality is
that Ford’s factory in the country is a small presence from that company’s
standpoint.
The investment in Sta. Rosa Laguna was a second earnest
effort to establish a future long term presence in the country. The first was a
car body stamping plant in the country’s first processing zone which closed in
1983.
Market prospects did not produce the original
expectations twice around. It has been hampered by limited local demand and a
small export market to other parts of ASEAN.
Ford’s presence in Southeast Asia, like those of other
American companies, has been a weak one. Competition with the Japanese car
industry, and now with South Korea’s, has contributed to that weakening. Ford,
along with the other American car makers, is still re-engineering its cars to
compete effectively in terms of cost and performance.
Ford’s Philippine presence is even smaller and marginal.
From the viewpoint of the entire Ford Motor Co., it is essentially a footloose
operation that headquarters could cut off easily The plant has an employment of
only 450 workers.
The Philippine Ford group explained that this move is
part of a larger restructuring of Ford’s regional manufacturing operations to
improve efficiencies and better leverage of economies of scale. Explaining even
further, it refers to a lack of a broad supply base in the Philippines.”
“Investment departures send a policy message.” Any
investment closure by a name brand which has salutary advertising impact for
the country invites questions about the investment climate. Even in a time of
improving expectations, it is an event not to be ignored.
In the last decade or so, there was the case of Colgate
Palmolive, Procter and Gamble and other drug and consumer manufacturing plants
which moved to our ASEAN neighbors. They were restructuring their operations in
part to take advantage of the new ASEAN free trade region.
Among the electronic companies, Intel closed its large
semiconductor assembly plant. Toshiba also closed its laptop assembly and Acer,
a large computer assembly, sold its plant in Subic that led to closure. But
every case of investment departure sends a signal about an aspect (or aspects)
of the host country’s economic policies or situation.
“Inadequate reform response.” The Aquino administration
has kept focus on anti-corruption measures as its main reform issue. Further,
it keeps harping on the need to improve infrastructure as a main bottleneck.
True, these are important factors.
But far more structural issues in policy reforms have to
be attended to. It has a weak long term vision. At the very least, the
President does not seem to have it.
I can cite three major gaps in economic policies that the
administration needs to be pro-active in, but which, by its words and action,
still appear to be either one of neglect, inadequate effort, or flat denial.
First, on the issue of the reform of the restrictive
provisions of the constitutional provisions, President Aquino has given
negative signals.
Second, there is no leadership in pointing out what’s
wrong with the country’s labor market policies. The country surely shows a
mismatch between high labor standards with the incidence of high unemployment
of the poor. They are left out of economic progress. Using today’s current
buzzwords, there is exclusive, not inclusive, growth being experienced.
Third, even though electricity price penalizes production
costs in the country, there is no effective plan in place to bring down the
cost of electricity aligned with those of our neighbors so we could be
competitive.
“Lessons from Thailand.” Philippine policy-makers who
want to strengthen the inflow of investments in manufacturing and industry
should heed lessons that our neighbors offer to us. The problem has been
structural for the Philippines for decades. To them, their experience has been
a breeze in getting foreign FDI to come in. We have to make headway in
reforming the policy problems.
When it began to industrialize, Thailand had very liberal
encouragement for foreign direct investments. We were actually ahead of
Thailand, nay, ahead of any major country in ASEAN in the promotion of
industrialization. We were confident but we stuck to our policies of qualified
entry of foreign investments because of the constitutional restrictions.
In the meantime, all our ASEAN partners learned from us
by mimicking many of our policies. Except that they discerned. They kept those
policies that they liked and they discarded those restrictive that we were
keeping as part of our policies.
Where they found our investment policies cumbersome and
full of complicated rules and definitions, they simplified theirs. Where we had
rules that separated various markets – like differentiating the incentives for
local domestic production and those for general promotion – they unified their
rules, made them more inclusive and of general application to level the playing
field.
In short, their policies were more liberal, more open and
more conducive. Ours were full of grand policy statements that had mazes of
definitions and qualifications. We had many good lawyers. They only had
businessmen.
Hence, their FDI policies were more attractive to
business and ours were restrictive that required unraveling with the help of
lawyers. But Thai lawyers today are probably more prosperous than Filipino
lawyers.
Another way of saying this is that they devised national
policies that were simpler, leveling the playing field for all investors so
that foreign investors were almost on the same footing as those for their own
nationals. Foreign investors found it easier to set up businesses.
The result was continuous influx of FDIs. That cumulation
of FDIs over time created a large base of manufacturing operations in industry
over a wide area of the economy. When big industrial investors came into the
country, supplier companies of those large foreign companies followed suit.
As the manufacturing industries deepened, the domestic
supply chain in industry became more diversified. This is one reason why the
export industries from industry have been able to have a larger impact on
domestic economic procession.
Gerardo P. Sicat
The Philippine Star
Business & Investment Opportunities
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