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Agence France-Presse
Inquirer.net

MANILA, Philippines — Foreign direct investments in the Philippines plunged 56.3 percent from a year earlier to $1.1 billion in the eight months to August amid the global financial crisis, the central bank said Monday.

For August, net FDI inflows rose 58 percent to $128 million, a central bank statement said.

The January-August total was significantly lower than the year-earlier level of $2.49 billion, “partly reflecting the more challenging global financial environment,” the bank said.

Ma. Elisa P. Osorio
Philippine Star

Foreign businessmen are supporting the Charter change (Cha-cha) but only with regards to amendments in the economic provisions.

The government should reconsider its position on banning foreigners from owning land in the country if they would like to encourage more investments, a Japanese businessman said.

“There should be room in some industries for foreign corporations to own land. It would be good for particular industries,” Toshifumi Inami, president of the Japanese Chamber of Commerce and Industry said.

Inami noted that there may be some industries, particularly those requiring heavy investments, that should be exempted from the country’s 60-40 rule. Under the constitution, foreigners are not allowed to own land in the country.

Meanwhile, European Chamber of Commerce in the Philippines (ECCP) executive vice president Henry Schumacher said the government must remove the foreign ownership restriction in the constitution because it is one of the reasons why investors are hesitant to enter the country.

“I don’t understand Filipinos can own land in Germany but we cannot do the same here,” Schumacher noted.

For its part, the German Philippine Chamber of Commerce and Industry likewise called on the government to remove restrictions on foreign ownership in order to encourage more foreign investors.

Roland Odenthal, president of the German Chamber, said one of the main obstacles of foreign investors is the 60-40 rule. “It would be better if the grandfather rule can be removed,” Odenthal said.

The same sentiment was echoed by Norway Ambassador Stale Torstein Risa who said the country must change its constitution and allow foreigners to own land. “The 60-40 ownership rule is a hindrance to investments,” Risa said in a previous interview.

“If the Philippines would like to be competitive then you should allow foreign ownership. The Philippines will be a good solid business environment if the 60-40 rule is removed,” the Ambassador added.

Risa said this is the time for the Philippines to improve itself in order to attract the attention of foreign businessmen because fellow ASEAN countries are also aggressively seeking out foreign investments.

Risa said investors would be more comfortable to put in their money if they are the owners of the property.

Risa said investors, especially those that need to build expensive infrastructure must feel secure in their investments. He said not owning the land is a major concern and may lead businessmen to be more cautious in infusing their money in the country.

Daxim Lucas
Philippine Daily Inquirer

Philippine mutual funds have been pummeled by the global financial crisis, with those of Philam Asset Management Inc. and the Government Service Insurance System (GSIS) among the hardest hit, according to an industry report.

The latest report of the Investment Company Association of the Philippines (ICAP), which tracks the performance of 40 mutual funds operating in the financial system, said the worst performer in the balanced fund category as of Oct. 20 was Philam Fund Inc., which lost 30.63 percent of its value since the start of the year.

This was followed by GSIS Mutual Fund Inc., whose value has declined by 29.66 percent for 2008, the report said.

A balanced fund starts as a pool of cash that clients entrust to fund managers to invest equally between stocks and bonds. Ideally, the nature of balanced funds protects them against sharp declines in either kind of securities.

GSIS Mutual Fund is managed by Philam fund managers according to parameters set by the GSIS, the state-run pension fund for government employees.

On a year-on-year basis, the performance of the Philam Fund and GSIS Mutual Fund are even worse, showing declines of 33.58 percent and 32.88 percent, respectively.

According to the ICAP data, however, mutual funds invested purely in the stock market showed poorer returns in both year-to-date and year-on-year performance reviews, mainly because stocks have taken the brunt of the global market meltdown.

The worst performer in this category is Philippine Stock Index Fund Corp., whose holdings follow closely the performance of the stock market. The ICAP data showed that it was down 43.03 percent since the start of the year and 45.98 percent from a year earlier.

This was followed by another Philam product—Philam Strategic Growth Fund Inc.—which has dropped 35.55 percent since the start of the year, and a total of 39.04 percent from a year earlier.

In general, funds invested in bonds, either peso- or dollar-denominated, performed better, either breaking even or showing only slight declines during the period.

The notable exceptions were Philam Dollar Bond Fund Inc., whose value dropped 10.79 percent since the start of the year, and Grepalife Dollar Bond Fund Corp., which registered a 12.33-percent decline in value.

A mutual fund official who spoke on condition of anonymity said the weak performance of mutual funds could often be aggravated by large client redemption, which forces fund managers to sell their holdings in bonds and stocks.

These “selldowns” to satisfy cash redemption further drive down the prices of remaining assets held by the funds, which in turn, results in a lower net asset value reported to the ICAP.

With editing by INQUIRER.net

Ben Arnold O. De Vera, Researcher
Manila Times

FILIPINO businesses are seeking greater state intervention in the economy as the global meltdown threatened to claim a growing number of domestic industries.

In its draft 34th Philippine Business Conference Resolutions, a copy of which was furnished reporters, members of the Philippine Chamber of Commerce and Industry (PCCI) have proposed a stronger hand with regard to controlling prices and the use of land, expediting reforms in the energy sector and public infrastructure build-up, as well as greater leeway in the matter of taxation.

The tone of the document reflects the global shift to greater state intervention amid the volatility in financial markets.

In the agriculture sector, the group wants the government to permanently ban the conversion of farmland into non-agriculture use to shield the country from high food prices worldwide. PCCI also called for cuts in tariffs on farm inputs and greater government promotion of locally made products abroad. To protect Filipinos from the influx of substandard and hazardous items, the group sought tighter quality and sanitary and phytosanitary requirements, as well as forging bilateral quarantine agreements with trading partners.

In the energy sector, PCCI wants the government to declare petroleum as a strategic commodity thereby expediting the issuance of clearances and permits required under the Indigenous People’s Resource Act and expedite the privatization of state-owned power plants to facilitate the shift to an open-access regime.

On the matter of public infrastructure, the group called for a permanent 50-centavo charge on text messaging, development of the Batangas-Clark-Subic corridor to decongest Metro Manila’s ports, cut shipping costs, expand air access, and expedite the expansion of the country’s mass transit system. The chamber also urged requiring contracts to tap homegrown talents and resources.

In terms of taxation, it wants government to delete a provision in the Tax Amnesty Law requiring the publication of the names of taxpayers availing of the amnesty, as well as relaxing rules on the frequency of tax payments.

The PCCI is set to present today its proposals to President Arroyo, who will speak during the concluding rites of the three-day conference.

Fernando Fajardo
Cebu Daily News

In last week’s forum in Manila of the National Competitiveness Council, Trade Secretary Peter Favila was reported to have told industry leaders and local government executives that restrictive economic provisions of the Constitution must be amended to erase biases against foreign investors. Accordingly, one such restrictive provision is the ownership of land that is limited to Filipinos. Agree or disagree?

The news report citing this issue written by Max de Leon for Business Mirror was circulated by email in Cebu among the members of Cebu Business Club and other concerned business people in Cebu. It interesting to see what they had to say about the issue. Gordon Alan Joseph said only a few words when he e-mailed the news item to his friends in business: Please let somebody inform him (Favila) that the World Bank says otherwise. But Ben Dapat was more expressive in his reaction.

Here is Ben’s line: Ownership of land is not the foremost obstacle to having foreign investments come to the Philippines. There are certain areas that ownership of land may be vital to them, but not all kinds of businesses. But these are taken cared of by the Long-Term Lease Law or the Special Economic Zones Law or any special law that may be passed. And not all kinds of foreign direct investments are desirable in our Country. Rich countries who want to locate in our Country for whatever reason may do so if we open our land resources to foreigners at the expense of the Filipinos. Has anyone heard about the many claims on the Spratleys? Is this the kind of foreign investments that we want? We are already strangers and economically oppressed in our own land right now by “Filipinos” who don’t even pay the right taxes on their businesses, if at all. And we have a very large population and increasing every day.”

Roger Lim agrees to everything that Ben said but he added more: I have been working with foreign-owned companies virtually all my life. Land ownership was never a serious impediment in our investing in the country. It is not absolutely necessary. It falls under the category of “it’s something nice to have”. For as long as the opportunity to make a decent return on investment is available, and repatriation of profits is allowable, even with tax, investors will come. When, the company I was working with decided to invest in India in 1986, India was more restrictive than the Philippines but many companies came. Call it the Herd factor.

Roger also has something to say about the judiciary: Many people forget that the judiciary is also an important factor that foreign investors take into consideration. It is in their top 5 of the list of ten items on their check list. Can they get a fair shake? Corruption that can be costed as expediting expense, and does expedite transactions, does not drive away foreign investors. The under-the-table extortion and unfair competition is the one that discourages foreign investors. That’s the kind of corruption and judiciary that we have. Favila may not know what he is talking about.

So there you are my dear about how some of our businessmen in Cebu think of foreign ownership of land. It’s a non-issue as far as attracting foreign investments is concerned.

The Japanese is one of the major, if not the biggest, investors in the country. So before I wrote this piece I tried to look for materials that had something so say about what factors they considered before committing to invest. This led me to an IMF article, “Japanese Foreign Direct Investment in East Asia with Particular Focus on ASEAN4,” written by Shujiro Urata of Waseda University in 2002.

Based on a survey, for Asia as a whole, Urata listed the following factors determining Japanese FDI: On top is the prospects of increase in local demand, followed by availability of low wage labor, prospects of increase in regional demand, presence of other Japanese firms, industry promotion by host government, good infrastructure, capability to produce products for the Japanese market, cheap land/finance, availability of locally produced parts, and availability of engineers.

Based on my readings, however, those who think of maintaining our wages at the lowest possible level to attract FDI will be surprised to know that it is not entirely correct because labor cost is better appreciated only if adjusted for productivity.

Similarly, cheap land as a factor for attracting foreign investment does also imply that foreign investors are interested in buying land because the same land can be rented on a long- term basis or can be had under other arrangements as what is being done in most of the economic zones in Asia. Finally, China which had attracted the biggest part of the FDI in Asia, does not rest its case in allowing foreigners to own land. Market size is its number one attraction, along with low wage labor, adjusted for productivity, of course.

Alexander Villafania
INQUIRER.net

MANILA, Philippines — The Philippines’ business process outsourcing industry remains safe from the effects of the recent financial debacle in the United States, according to executives from private and government agencies.

The Business Process Association of the Philippines (BPAP) said the industry will only suffer a “cooling down” effect as some US companies cancel their outsourcing contracts.

However, this will be offset by an influx of new contracts.

BPAP Chief Executive Officer Oscar Sañez told INQUIRER.net that the slowdown will vary in effect among companies in the Philippines, especially those who have US clients.

He said that the BPO business in the country is in better shape against other industries because of new clients coming in. Some of the industries, particularly the banking and financial sectors, would undergo changes that can affect BPO providers’ clientele.

Sañez added that there is no indication as to when the US financial crisis will abate.

Nevertheless, there are investors also from the US, Europe, India, Singapore and Australia exploring possible investments in the Philippines. Some of these are companies that have not done offshore outsourcing projects.

“The Philippines should continue to benefit from what’s happening around us given our industry’s stronger popularity and proven pedigree of success. This explains why we are continuously strengthening our marketing programs to make the country ‘top-of-mind’ choice for outsourcing,” Sañez said.

In a separate interview, Commission on Information and Communications Technology (CICT) Commissioner Monchito Ibrahim said the Philippines will have an “unfair” share of the global BPO business during this time as global firms move towards outsourcing their operations to the Philippines, instead of other countries.

“It is all the more imperative [for global firms] to streamline their operations. Outsourcing is the right thing to do and the Philippines is in the forefront,” Ibrahim said.

Ibrahim said that if there is one thing that the BPO industry should worry about in the Philippines is getting more manpower to fill in jobs.

BPAP projects that the industry would need about 1 million employees for the industry by 2010.

Ibrahim said the government is encouraging industries to move their operators beyond the cities and to other provinces in the country where there are skilled workers who could fill in their human resource requirements.

Ibrahim said provincial areas are starting to be developed to create good environments for BPO investments.

Joyce Pangco Pañares
Manila Standard

President Arroyo has vowed to prevent a wage spiral after a major export sector, the semi-conductor and electronics industry, warned of a flat growth for the rest of the year.

Speaking at the chief executive officers’ forum of the Semiconductor and Electronics Industries in the Philippines Inc., Mrs. Arroyo said her administration will do its best to hold off demands for wage increases by addressing the rise in food and fuel prices amid the credit crisis in the United States.

“We’ve been working hard to make sure food supplies remain stable and to put food on the table for every Filipino in order to avoid demands for a wage hike and therefore keep you competitive,” the President said.

SEIPI’s 242 member-companies produce two-thirds of the country’s exports, cornering 18 percent of the global electronics market. Philippine exports last year reached 431 billion.

Mrs. Arroyo downplayed the “conservative” projection of SEIPI of a flat growth for 2008, saying there is still room for the industry to grow given the interventions done by the government by spending more on agriculture and infrastructure projects.

Mrs. Arroyo noted that SEIPI booked a negative 22-percent growth rate when she first took over the presidency in 2001 but the industry managed to grow by 2 percent on a year-on-year basis since then.

“A continuation of these efforts will help us weather the global storm and make sure that we are able to achieve the economic rebound that we are projecting next year. You will recover even more now because we can see the investments now under gestation,” she said.

New investments that are expected to boost industry growth next year include the Texas Instruments’ project, which will come onstream in January with a $3 billion annual market.

Trade Secretary Peter Favila, for his part, said he is meeting officials of five top manufacturing firms from Taipei who have signified their intention to do business in the Philippines in December.

In his presentation, SEIPI chairman Arthur Young said the semiconductor industry is “still reeling from an eventful and turbulent first three quarters.”

“Early indicators do not show a health Christmas, the demand is slow and we expect a flat growth this year,” Young said, even as he added that the industry will be able to rebound by next year, with sales expected to reach a historic high.

While the US used to be its biggest market in 2001, the industry has managed to diversify, thus reducing its dependence on the US market which is beset by a financial crisis.

Sine 2006, China cornered the biggest chunk of Philippine semiconductor and electronics exports at 26 percent, followed by the European Union, Japan and the US.

Ma. Elisa P. Osorio
Philippine Star

The government through the Commission on Audit (COA) should not examine the books of private companies like the oil firms because it will set a bad precedent and might even discourage potential foreign investors, the Joint Foreign Chambers (JFC) said.

In a letter to Executive Secretary Eduardo Ermita, JFC said the proposed COA audit on oil firms is not part of the mandate of the said government agency.

“The oil companies and we, the Joint Foreign Chambers, are extremely wary, however, over the proposed COA audit. We do not believe this is part of COA’s mandate under Section 2, Article IX-D of the Philippine Constitution,” the letter stated.

According to the foreign businessmen, any attempt by government, through the COA, to audit private business would set a negative precedent.

“This initiative by the government to expand the scope of the COA into private business could seriously affect foreign investor sentiments towards setting up shop in the Philippines, harming the efforts the government is already making to attract investment to the country,” the letter further said.

The JFC cleared that auditing oil firms is acceptable as long as it is done by private institutions. In May, private firms conducted an impartial and objective review of the oil companies pricing structure among others.

Oil companies are also subjected to very stringent reportorial requirements that include the submission of industry and company specific information to the Securities and Exchange Commission (SEC), the Bureau of Customs and the Department of Energy (DOE) on a monthly and quarterly basis.

“We reiterate our position that private international oil companies do not object to being audited, but we are concerned with the government expanding the scope of the COA to include privately-held business concerns. Such actions would clearly harm the perceptions of the Philippines as an investment destination,” the letter said.

Earlier, local industries warned the government that auditing oil firms could send the wrong signal to potential investors that the state is intervening in deregulated industries.

Jesus L. Arranza, president of the Federation of Philippine Industries (FPI) urged the COA to reconsider its plan to check the books of the oil companies.

“The oil industry is already deregulated so having the oil players audited by the COA could be construed as a state intervention,” he said.

Instead, Arranza said if the government must look into the financial books of the oil firms it can hire an independent auditing firm.

“The same result can be achieved by asking independent auditors to conduct the audit, with the Departments of Energy, Justice and other concerned government agencies sitting as observers,” Arranza said.

He explained that looking into the books of oil firms may be justified because this would safeguard the welfare of Filipino consumers against possible abuses. However, Arranza said COA is not the appropriate party to conduct the audit.

Ted. P. Torres
Philippine Star

Japan has extended a ¥24.8 billion (approximately P10.2 billion) official development assistance (ODA) loan to the Philippines to fund its Environment Development Program with the Development Bank of the Philippines (DBP) as the conduit bank.

The amount will be channeled to local government units (LGUs), government-owned and controlled corporations, water districts, private corporations and water service providers.

The project will also provide DBP and other relevant organizations with technical assistance in order to mobilize, encourage and support activities and investments in environment-friendly projects, thus contributing to the protection of the environment and the conservation of natural resources.

It is also designed to target numerous sectors, including water resources, sanitation, new and renewable energy, industrial pollution control and solid waste management.

Japan is the biggest provider of ODA funds to the Philippines. The loan package has concessionary rates and long repayment terms.

Meanwhile, the World Bank reported that it has received $6.1 billion in pledges for the Climate Investment Funds.

According to the World Bank, the Climate Investment Funds is a pair of international investment instruments designed to provide interim, scaled-up funding to help developing countries in their efforts to mitigate increases in greenhouse gas (GHG) emissions and adapt to climate change.

The pledges come from industrialized countries — Australia, France, Germany, Japan, The Netherlands, Sweden, Switzerland, the United Kingdom and the United States.

World Bank Group president Robert B. Zoellick said the fund was a concrete step towards the challenge of global climate change which would likewise led to poverty alleviation.

“Today, we are uniting to fight global climate change, but it is just the beginning,” Zoellick said.

The Climate Investment Funds were created through a consultative process involving a series of multi-stakeholder design meetings and taking account of extensive global climate change consultations held by the World Bank Group over the past nine months. Consultations took place with potential recipients and donors, the United Nations family, other multilateral development banks (MDBs), civil society organizations and the private sector.

Two trust funds are being created under the Climate Investment Funds.

The Clean Technology Fund will invest in projects and programs in developing countries that contribute to the demonstration, deployment and transfer of low-carbon technologies. The projects or programs must have a significant potential for long-term greenhouse gas savings.

Des Ferriols
Philippine Star

The Bangko Sentral ng Pilipinas (BSP) expects a dramatic drop in portfolio investment or “hot money” flow into the local equities market this year as a result of the US financial meltdown.

The BSP said portfolio investments may drop to only about $700 million this year from $3.5 billion in 2007.

The BSP, however, said it is retaining its revised projected foreign direct investments of $2.6 billion for 2008.

The BSP’s original foreign direct investment projection for 2008 was $4.2 billion but this had to be trimmed down to reflect delayed projects as investors await for more developments in the global economy.

Net foreign portfolio investments, however, are expected to reach only $700 million this year, against the original projected net inflow of $1.1 billion.

Last year, portfolio inflows amounted to a total of $3.5 billion, fueled by investor enthusiasm over the country’s fiscal consolidation and unexpectedly robust economic expansion.

Hot money flows have been severely affected by adverse investor sentiments stemming from the meltdown in the US financial market that led to the collapse of what used to be its sturdiest financial institutions.

Heavy portfolio outflows, according to the BSP, would be stemmed only by the resilience of investments in dollar-denominated Philippine bonds, even as the stock market suffered from heavy withdrawals.

On the other hand, foreign direct investments, according to the BSP, would suffer from the impact of a slower demand in developed markets which had discouraged direct investments into industries that are expected to attract investors this year, such as mining.

The BSP said inflows from foreign direct and portfolio investments would slow down considerably compared with original projections because of the shifting investor sentiments and market prospects.

The BSP said financing conditions this year would be dramatically different, reflecting the difficulties in the US credit sector. “There will definitely be tougher financing conditions and that will affect investments,” officials said.

According to BSP’s economic statistics director Illuminada Sicat, foreign direct investments reached $2.7 billion last year but the BSP is expecting a surge of investments in the mining sector this year.

However, Sicat said a number of mining projects have been delayed as investors adopted a wait-and-see attitude until demand for minerals start picking up again in the developed markets.

Sicat said not all reasons for the delay in mining investments were market-related. She said there were also issues in environmental clearances and various compliance issues that delayed some projects.

“So some projects were put off,” she said. This indicated, however, that the same investments would still come into the country, possibly next year.