The restrictive economic provisions of the 1987 Philippine Constitution will be the white dinosaur in the room when the ASEAN Economic Integration is launched in 2015. The Pearl of the Orient Seas is also Asia’s Old Man of the Sea.
The Philippines will play lip service to economic integration while in reality remaining non-compliant with the terms of the economic integration which includes allowing 100% foreign ownership of companies that are from ASEAN countries and for these ASEAN companies to be treated equally as locally owned businesses in the respective ASEAN member countries.
The Philippine strategy, however, remains to be the “Old Man of the Sea”. Yup – from Sinbad’s playbook.
The Old Man of the Sea in the Sinbad tales was said to trick a traveller into letting him ride on his shoulders while the traveller transported him across a stream.However, the Old Man would then not release his grip, forcing his victim to transport him wherever he pleased and allowing his victim little rest. The Old Man’s victims all eventually died of this miserable treatment.
While other ASEAN members look at each other as strategic economic partners, the Philippine businesses look at their ASEAN counterparts much like a sabretooth tiger looking for a mutton at worst – or as a serf for the “Old Man of the Sea”, at best.
The constitutional requirement that a foreign investor MUST partner with a Filipino national is COMPULSORY and has no exceptions. The second COMPULSORY requirement is that a foreign investor cannot own more than 40%.
Much like the travelers the Old Man of the Sea rode on, the foreign investors are tricked by Filipino businesses into believing they are fully participating in the local economy and allow the Filipino businessmen to ride on their shoulders by presenting themselves as joint venture partners to the foreign investor.
When the foreign investors receive their authorization to do business they find out they cannot do as they please and are forced to do business in sectors they don’t want to engage in – and eventually they incur loses while their local partners incur profits. The foreign joint venture partners eventually fold up and sell their remaining assets to their local partners.
What’s going to happen next?
The economic growth in the truly integrated ASEAN economies will be more inclusive and equitable. The harmonized investment and trade regulatory regime will provide more opportunities for matching various players throughout the ASEAN supply and demand chain – except the Philippines, where growth remains the domain of a few select Filipino families.
The middle class of these ASEAN countries will grow and become more affluent. There will be more ASEAN billionaires.
The integrated economies will also be recipients of high value Chinese manufacturing as it becomes more expensive to do business in the mainland. More Japanese businesses and residents will leave Japan as Fukushima’s long term health effects come into question. The welcoming open and integrated economies will become beneficiaries of Japanese manufacturing knowhow.
The ability to absorb Japanese technology transfer becomes very important in gaining competitive advantage given that Japan is facing a demographic winter and China will be following soon.
The harmonized framework allows minimizing the complexity in ASEAN-wide operations. For instance, production of one component in Malaysia, another component in Thailand, another component in Indonesia, all assembled in Vietnam, packaged and stored/distributed via Singapore, and customer service in Cebu/Philippines. ASEAN businesses can be taxed under one low flat rate under the corporate HQ while regional operations can be tax-free.
The markets of the ASEAN 2015 will be more complex than the economies of US and Europe – which have become mostly inbound. ASEAN will have a good mix of inbound and outbound trade flows.
“Business as usual” – in the Philippines
Unlike its truly integrated ASEAN counterparts, the Philippine economy will continue to be plagued with higher cost of doing business – regulatory fees, electricity, telecom, water, real estate.
The high cost is the result of a highly restrictive business environment – leading to a limited number of providers.
Given a limited number of providers – naturally leads to a relatively limited number of jobs needed by a lot of people – and you have the recipe for unemployment and underemployment.
Throw the limited supply against the soaring demand from a 90 million-strong consumer base with GDP per capita of $2587 or roughly a market worth $51.7B (PhP 2.3 Trillion). Divide it among the 300 families that control the economy – that’s a chunk that’s potentially worth roughly $172.3M (PhP 7,7B) per family. For the rest, the PHL will keep on with its jobless growth, high unemployment, underemployment, hunger, and poverty.
The rest of Filipinos will continue on a slow miserable death while the local elite, like the Old Man of the Sea, ride on the necks of Filipino consumers and job-seekers.
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