Why is the Philippines on the radar screen?

The catch phrase of 2007 seems to be “The Philippines is back on the radar screen.”

It is good to see the world financial community taking notice of what this country is all about when it comes to investing. And it is all about one word: profitability.

We like to say that justice is, or should be, blind. In truth, it is money that is blind. It’s unbiased, totally objective, giving no regard to nationality or location. Its only thought and focus is profitability, and that is why the Philippines is on the radar screen.

In yesterday’s issue of BusinessMirror, Ms. Honey Madrilejos-Reyes wrote this in an article: “Total earnings of companies listed at the Philippine Stock Exchange (PSE) grew 41.4 percent to P148.75 billion from January to June this year from P105.2 billion during the similar period a year ago, according to research by the bourse. The study was based on unaudited financial statements of 229 listed companies received by the PSE as of September 6, which included firms that belong to the SME (small- and medium-sized enterprise) Board.”

More than a FORTY-PERCENT increase in profits over last year—that is the story of the Philippines and the global financial radar.

Money looks at profitability when it seeks a home. All the high-powered and brilliant money managers are not as powerful or brilliant as we believe or they believe. They are more like the captains of wind-powered sailing ships. The ship’s captain is only able to move the vessel in the direction the wind is blowing. A better captain can take full advantage of the wind’s forces, but ultimately, it is the wind that determines the direction and speed of the ship.

Now our job in the public and private sector is to create an environment that allows the financial wind to blow strongly and surely and, therefore, allow invested money to be profitable.

The government has a crucial role to play in nurturing investment, and that role may not be exactly what you might think. For independent and free capital to make a profit, the government must not compete with the private sector and must not stifle money that wants to work.

We enjoy an immense variety of choice and pricing in telecommunications because President Ramos deregulated the telecom sector. Previously PLDT may have been a “private” company, but it held a government-sanctioned monopoly. We also enjoy very high electricity costs because power generation is virtually a government-controlled monopoly with little private-sector competition. Government competition against the private sector is bad; competition between private- sector companies good. This creates a strong financial wind for money to progress forward profitability. This is the reason why the Philippines is on the radar.

Now look at those earnings numbers again: 40-percent increase. Bear in mind that for most of these companies, profitability is after paying the government billions in taxes. All that tax money could have been spent by those private corporations on innovation, expansion and improvement. A reasonable amount of taxation is fine. Too much taxation and the government will suffocate private business. Too much individual taxation and there is no incentive to work harder and make more.

The two above-mentioned ideas can be called financial reform and fiscal policy, but money does not care how we get there. It only cares that it does not have to compete with the government to make a profit and is not strangled by the government when trying to make a profit. That is the environment that money is attracted to because that is the environment in which it thrives and prospers.

Money is also very sensitive about how it is used. Money never goes to any place where it knows that it will be used foolishly.

Historically, Filipino companies have been some of the most successful on the planet in terms of operation profitability. Over the years, in spite of high transportation costs, energy expenses and relatively high taxes, publicly listed Filipino companies have turned in a net profit envied by companies in other nations. This fact is not something you will see on the pages of the international financial press because they look at the total amount of profit. However, the profit-to-revenue numbers are impressive. Our problem has always been (and still persists) that the vast majority of our local firms are small in comparison with other countries.

You can buy Meralco, the whole company, for $2 billion. Or ABS-CBN for $500 million. Or giant San Miguel for less than $3 billion. By comparison, cell-phone maker Nokia is valued at $150 billion and Microsoft can be purchased for $250 billion.

We are on the radar screen because making money is what that radar shows, and the Philippines’ image is getting bigger and brighter. 

E-mail comments to mangun@email.com.

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It is good to see the world financial community taking notice of what this country is all about when it comes to investing. And it is all about one word: profitability.

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