The Hanjin Tragedy! Internally-Driven Economy For Inclusive National Growth (Second of 2-Parts)

In May 2006, the entry of South Korean shipbuilding giant Hanjin Heavy Industries and Construction Philippines (HHIC) in the Philippines with a project worth $2.3-B was heralded as the crowning glory of the country’s program to invite Foreign Direct Investments (FDI).

It was a perceived as a major boost to the Philippine Economy as the shipbuilding and construction projects employed almost 30,000 Filipinos.

Eleven years after its celebrated investments in the Philippines and after building over 120 ships, Hanjin filed for bankruptcy leaving behind a staggering $1.4-B in bank debts.

The cruel joke here is that the Philippines which dreamed of economically benefiting from the Hanjin Investments ended up holding an empty bag.

Almost 30,000 workers lost their jobs while local banks scrambled to recover the $412-M in loans extended to Hanjin.

The most tragic episode of this story is that the Philippine government-owned Land Bank of the Philippines was one of the lenders for Hanjin extending a loan of $85-M .

The P4.2-B Hanjin exposure of Land Bank, the country’s agricultural bank would have been more than enough to fund a cattle development program with 80,000 heads or an Individual Quick Freezing (IQF) and processing facilities to boost Mindanao’s agriculture.

I am presenting the Hanjin foreign investments tragedy, which is not isolated as some people suggest, to emphasize that while FDIs could indeed help boost the economy, the best option for us still is to prop up our homegrown industries, especially in the area of agriculture because it is capable of providing stable jobs.

The Hanjin experience tells us that nations may stop buying ships but people will never stop eating and it is in food production where the Philippines has a major edge over other countries in the region.

So, what are my arguments in insisting that we should boost our local industries and provide them funding support?

1. FDIs are external economic boosters who could come and go, largely depending on the profitability of their venture in the country and geopolitical factors. Example: What if the US and China would go to war over the South China Sea issue? We side with the Americans, Chinese FDIs would leave; We side with the Chinese, American FDIs would leave;

2. FDIs offer skin-deep economic benefits, mainly jobs that they create. Other than that, the effects are hardly felt in the countryside. Example: The CaLaBaR provinces of Calabarzon have among the lowest poverty incidence in the country because these are the investment areas of the FDIs. Cross over to Quezon Province and Bicol Region and you will see poverty levels higher than the national average. The logical explanation to this is that the CALABAR-based FDIs do not utilize the resources available in Quezon and Bicol, thus the benefits of their operations are mainly confined to providing jobs rather than income-generating opportunities for the rural areas.

3. FDIs are often projected to come in awash with cash ready to splurge on investments to prop up the economy. That is not always the case. Example: When I sat in the board of Land Bank as Agriculture Secretary, I questioned a loan proposal which would have granted a company with a foreign sounding name over P1-B in loans. I warned that if the company would fail in its project and leave, Land Bank would be holding an empty bag which was what happened with the Hanjin exposure.

To sum up the points that I am trying to raise, let me emphasize that I welcome FDIs, especially those who would like to put up their investments in the Export Processing Zones because they indeed could contribute to generating employment.

But to project FDIs as the saviour of Philippine economy to the point that we tinker with the Constitution to accomodate them is not quite accurate.

The most ideal set up for us is still boosting our homegrown industries from the status of backyard livelihood projects into well-funded agro-industrial activities.

This could be done by first reviewing our economic policies especially on our dependence on imported products which the Filipinos could very well produce.

Flooding the market with imports stunts the growth of agriculture and local industries.

Propping up local producers and industries is not Protectionism but Practical Nation Bulding.

Government banks should focus more on funding local industries and I am glad that the Mindanao Development Authority’s banking partner, the Development Bank of the Philippines is already doing this.

This was actually what got the ire of President Rody Duterte when he learned about the Hanjin exposure of Land Bank.

He was incensed by the fact that it is very difficult for ordinary farmers to borrow small amount and so easy for the agricultural bank to extend a P4.2-B loan to a foreign shipbuilder.

Our best option for faster and sustainable economy recovery and long term growth is to focus on local industries to bring about internally-driven and inclusive progress.

Local industries will provide jobs in the countryside and use our resources.

Sigurado din ako, itaga man sa bato, na hindi lalayas ang mga kumpanyang Pilipino maski tumaob man ang kaldero.

#economicsofthefarmboy!

#GovernanceIsCommonSense!

#KungGustoMaramingParaan!

(Photo of Hanjin Shipyard downloaded from the Manila Bulletin.)