It is not uncommon for businesses to consolidate their operations and workforce in order to remain viable in the very competitive global market.
Honda Motors Corp. recently announced its decision to close its plant in Sta. Rosa, Laguna, ending an almost 30-year operation in the Philippines, due to consolidation.
It said closing the Sta. Rosa plant was necessary to meet customer’s needs through “efficient allocation and distribution of resources.”
Nokia closed its R&D facility at UP-Ayala Land Technohub to consolidate in fewer locations, and Wells Fargo closed its tech operations here and moved it to India.
Closing plants and transferring and consolidating operations between plants are everyday realities in an effort to cut costs and boost efficiency. Critics, including the workers who lose their jobs in the process, can hem and haw all they want but they cannot change this cost-savings approach, because it is financially effective for most companies with worldwide operations.
The only thing the government can do is mitigate the impact of these closures, make sure workers receive their just compensation, and more importantly, through correct policies and regulations, create an atmosphere that makes the Philippines favorable to investors and businesses, so they do not leave and instead consolidate their operations and workforce here in our country, instead of transferring them to our neighbors in the region.
For instance, the Joint Foreign Chambers of Commerce in a 2015 policy brief titled, “Manufacturing: Creating Millions of Better Jobs,” called for the opening of new domestic/export enterprise zones, improved labor policies and increased training for labor requirements of low- and high-value manufacturing jobs.
The JFC said the Philippines could seize the opportunity of being a favorable manufacturing destination like Bangladesh, Cambodia, Indonesia and Vietnam, if the government can lessen the costs of doing business here.
The government should also look at its tax reforms to determine whether these are able to help our country become a favored investment destination, while supporting the revenue-raising capacity of government agencies and ensuring the sustainability of public spending.
India, for example, has become a highly competitive investment destination after slashing its corporate taxes. Its rates are now lower than China and most Southeast Asian countries, making it very attractive for foreign companies to set up operations in the country.
Our tax systems should be adapted to globalization and technological change. There is no “one-size-fits-all” tax system to facilitate inclusive growth but the government has to verify if the new Corporate Income Tax and Incentives Rationalization Act and the Tax Reform for Acceleration and Inclusion truly have a positive impact on economic growth, investment and employment.
There have been other complaints from foreign investors, for sure, like the lack of infrastructure, the high cost of electricity, corruption and the wishy-washy state policies.
The Philippines still has one of the highest costs of electricity in Asia, if not the world. Although households bear the brunt of high electricity prices, business is just as affected. Costlier electricity due to higher generation charges further drive firms, including those in export-processing zones, to hire less workers or just move their operations to other countries.
High power rates might make it even more difficult for many firms to cope with the sudden fall in export sales due to global troubles like Covid-19, and force them to cut some more on their labor costs, as well as weigh down on non-exporting firms already reeling from the decline in consumer spending due to harsh economic conditions.
The abundance of our natural resources should make electricity here cheaper but it hasn’t. The Institute for Energy Economics and Financial Analysis (IEEFA) said in a report that our country’s heavy reliance on coal and other imported fossil fuels, high financing costs and uncompetitive market structures have contributed to making our electricity prices very expensive. It also said renewable energy, which our country has in abundance, could cut our electricity rates by 30 percent.
Business cost is the biggest driver of investment growth, but factored into that cost of doing business is politics, including the stability or instability of our institutions and our democratic way of life. Political instability also drives away potential investors. Laws, regulations, and contracts that are malleable and a government that changes the rules on a whim also drives away investors.
Make no mistake, foreign investors and analysts are watching with keen eyes what is happening to Maynilad Water Services and Manila Water and their agreements with the government, as well as ABS-CBN’s franchise renewal.
Investors look for a stable and predictable political environment. This is where the Philippine government often fails. Our flip-flop policies make for a very unstable regulatory environment, and this turns off a lot of investors as well.
Image Credits: Jimbo Albano