The rewards dwarf the risks in the Philippines
HIGH GROUND By William M. Esposo 2006-10-16
WHEN I’m asked about the prospects of investing in the Philippines, I always cite a lesson from a management group dynamics session: “If you want total risk, go into a jungle. If you want total security, then go to jail where you will have three meals daily, a roof over your head and a guard watching you 24 hours a day.” As in business, the greater the risk, the greater the reward—so the theory goes.

In the Philippines, the dynamics of risk and reward is very much alive and exciting. Any businessman who is able to effectively harness his best shot at risk management can most surely reap handsome rewards. It’s almost akin to prospecting for diamonds in the inhospitable jungles and environment of untamed Africa: after surmounting the obstacles, you literally hit pay dirt.

Because media naturally highlights the negative, outsiders will tend to have an exaggerated impression of the dangers investors must face in the Philippines. Just consider the following:

1. The US, UK and Australia—who had made the lives of Iraqis even worse now than they had ever been under Saddam Hussein—have the gall to release travel advisories every now and then, in effect branding the Philippines as a high-risk “terror haven.”

2. A World Bank study released by its private sector development arm, International Finance Corporation and made available to investors, underlines the problem of red tape: in Manila you need to take 23 steps to secure licenses, permits and other business prerequisites and can expect around 197 days before you would have completed all requirements. The average in the East Asia Pacific is only 17 steps.

3. You will also be told that over 40% of Filipinos live below the poverty line and are hungry—so where is the market?

4. With 85% of national wealth controlled by 3%, who wouldn’t conclude that this yawning disparity will not eventually unleash events meant to even out the score? A tenacious Muslim separatist rebellion in the south island of Mindanao and an equally determined Communist insurgency all over the country certainly give this scenario some credence. Add to that the festering 2004 polls legitimacy issue hounding Madame Gloria Macapagal Arroyo.

5. It certainly does not help that we are ranked as one of the most corrupt countries in the world. This image certainly paints a picture of depravity in its many forms—from grand larceny to moral turpitude. Two decades of rule by Philippine dictator Ferdinand Marcos did much to tarnish our image. Current leaders have even stretched the limits and even added to the negatives.

6. Not to forget the issue of personal safety. Thanks to a hyperactive media, the world knows, as much as we locals do, about the dark and gory world of the Philippine underworld. There are the kidnappings, homicides that include the more gruesome family massacres, rampant drug trade, burglaries and the most common of all petty crimes in the modern world—cellular phone snatching that leads to an occasional homicide when the victim meets up with the vicious, desperate hoodlums who are likely drug addicts.

7. In some cases, graft and corruption have even made our legislative and justice system vulnerable to interpreting laws so that these would fulfill a subjective agenda. This can result in making rules, regulations, policies and laws governing business and investments vulnerable to self-serving interpretations and unpredictable outcomes.

Admittedly, investing in the Philippines is not for the faint of heart. But so are most highly profitable and competitive business ventures. And if you are a businessman who knows risk and how to manage it, you may join ranks with world-class winners like Procter and Gamble, Unilever, Colgate, McDonald’s, Coca Cola, Nokia, Sony, Panasonic, Toyota, Mitsubishi, Pizza Hut, and countless other marketers of global brands who continue to prosper in the local business environment.

This is the truth: Losers shy away from doing business in the Philippines because of the risk. Winners rush to get into the Philippines precisely because of the risk that promises extraordinary rewards. The Chinese have a saying: “The best time to invest is when there is blood in the streets.” In Wall Street, the wise investor will buy when the price of a promising stock is at its lowest.

What do the winners see in the Philippines? Consider the following:

1. The Philippines has a population of 85 million. That means selling a lot of hamburgers, cell phones, sodas, toothpastes, laundry and bath soaps, pizzas, shirts, and trousers.

2. Official statistics has never been an accurate guide to Philippine absorptive capacity for goods and services. Most of the 40 million or so who live below the poverty line are also part of a well-rooted informal and unregistered business sector. Statistically-derived predictions had forecasted a collapse in 1983, following the economic slowdown that resulted after the assassination of Benigno Aquino Jr. But this did not happen because of native Filipino resiliency and its enterprising outgrowth known as the underground economy.

3. The Philippines boasts of an enviable combination of manpower and natural resources. The imbalance in society—the wealth gap—is due to the lopsided access to opportunities. Given the breaks, the Filipino has proved time and again that he is world-class. Over 8 million Filipinos running the households and industries of the world as overseas workers repatriate over US$8 billion a year. Among Asians, Filipinos are one of the most proficient in the English language. Mining is just one of the natural resources of the country that is attracting foreign investors. Deuterium, the future of energy, is said to be in enormous quantity in the Mindanao deep.

4. It is no coincidence that Filipino nurses and caregivers are in great demand all over the world. A long tradition of respect for elders in a culture that is predominantly Christian, combined with the Filipinos’ gentle and warm nature, prime them to be among the world’s best workers in professions that require care and nurturing. Trustworthy and loyal, Filipinos will return a debt of gratitude, even if this sometimes means overstepping acceptable bounds in order to accommodate a friend or kin. Relationships count a lot in the hierarchy of values of a Filipino. Many of his admirable traits in fact render him vulnerable to exploitation.

5. Given the means, Filipinos like to spend. This does not impact well on the capability of the country to generate domestic savings for investments but it does affirm the viability of Filipinos as a promising consumer market.

6. The lack of infrastructure is in fact an enormous source of business. In the 1980s, telecommunications was cited as one of the great barriers that discouraged investors. From the 1990s up to today, telecommunications has been the most profitable and consistent money maker. Losers see an impediment. Winners see possibilities, opportunities and profits that will come from a green field.

7. The Filipino has an outstanding capacity for forbearance and accommodation, one trait most Westerners fail to comprehend. Given a situation that would have normally aroused violent upheaval, the Filipino will be more circumspect and will most likely seek to compromise. When the world witnessed on television the first day of the 1986 four-day People Power Revolt that ousted Marcos, many thought they were seeing the making of a massacre or a developing civil war. Instead, Filipinos showed the world a sterling model for active non-violent activism by which to remove despots. In short, the risk is not as bad as it seems.

8. The Muslim and Communist insurgencies are confined to localities far removed from business areas. They do not seek out tourists and businessmen whether they are American or other nationality. The insurgents snipe at US armed forces personnel because they are undoubtedly enemies of their cause. But in no case is the Philippines even comparable to what is happening in Iraq and Afghanistan today.

Let’s not go far. Let me share with you my own experience in doing business in the Philippines. Of six businesses that I invested in since 1981—outside of purchases in the stock market—I have enjoyed cash dividends that, percentage-wise, are unheard of in countries like the United States. My biggest regret was not having invested more in these ventures.

The supreme ironies for me are the investments I made in 1995 in properties in Australia’s Gold Coast and in 1998 in a Los Angeles-based entertainment program distribution company. I experienced a 30% loss from the investment in the properties in Australia. I never realized a profit from that investment in Los Angeles, prompting me and my partners to close the company early last year.

Wise money should seriously consider the Philippines. The wise investor who rakes it in big time is the one who has seen beyond what the figures and the country data say. Philippine manpower today will be hard to appraise in its totality because much of our skilled manpower has been placed overseas. Remaining manpower has still to be harnessed to its full potential, the main impediment being lack of job opportunities.

The Filipino has what it takes to be a winner. Before Ferdinand Marcos became president in 1965, the Philippines enjoyed an economy that was second only to Japan in Asia. Greatness is not alien to Filipinos though sadly, this may not be said of its current crop of leaders. To overlook the sheer potential of the Filipino is to overlook the single biggest winning factor in doing business in the Philippines.

The norm of evaluating success by track record or statistical and quantitative analysis will not spot the more important qualitative intangibles that make a whole world of difference in business success. Henry Ford was not backed by a track record when his first automobiles rolled out of Ford Motors. When flying machines had only been stuff for fiction, the Wright brothers defied the limits of conventional science to bring the world its first airplane. The formula remains unchanged: instincts plus creativity make up the foundation for momentous ventures.

Lastly, one’s decision to invest in the Philippines would be made despite, and not because of, President Gloria Macapagal-Arroyo. Macapagal-Arroyo’s discredited regime and mismanagement will have made that choice like buying platinum at its worst price level.

I have long given up on Gloria Macapagal-Arroyo. But I have never given up on the Philippines!

You may email William M. Esposo at:

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