Investment opportunities in the Philippines

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Part of The American Chamber of Commerce Journal

Title: Investment opportunities in the Philippines
Creator: Mendinueto, S. R.
Language: English
Source: The American Chamber of Commerce Journal Volume XXV (No. 7) July 1949
Year: 1949
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Fulltext: THE following article, “Investment Opportunities in the Philippines”, by Director of Commerce S. R. Mendinueto, published in this special four-page section of the American Chamber of Commerce Jour nal, serves as an introduction to a series of articles which will aim at presenting a concise and authoritative survey of a number of investment fields in the Philippines which are believed to be especial ly premising. Investment Opportunities in the Philippines By S. R. Mendinueto Director of Commerce THE Philippines today offers manifold and bright opportunities for new investment in di verse fields of activity. The havoc and de struction which th i last Pacific war wrought to the national economy has increased tremendously these investment opportunities which have been awaiting enterprising capital. These opportunities embrace such basic industries as agriculture, fishing, lumber ing, mining, and manufacturing. In addition, invest ments in transportation (especially water and aerial) and communications, building construction, trading, and other numerous services contributing to the re habilitation of the country’s economy promise to be no less profitable than in manufacturing and other basic industries. So far as the natural resources and.potentialities of the Philippines are concerned, it may be pointed out that this country has vast undeveloped areas with enough raw materials and manpower to become a great producing and manufacturing nation. The truth is that the Filipinos are just beginning to tap the country’s economic wealth. To blaze the trail to economic progress and prosperity, the Philippine Government has blueprinted and is now sponsoring both short-range and long-range economic programs designed to bolster up production of agricultural and industrial products and to establish new and vital in dustries, the ultimate goal being not only to supply the maximum domestic needs but also to utilize the surplus products for export. Time and again, the Philippine Government has frankly admitted the nation’s need of foreign capital, especially American capital, and technical know-how. In this connection, it may be pointed out that the following conditions existing here besides the rich ness of the Islands’ natural resources and abundant labor supply, are favorable to foreign investment: (1) the financial stability of the Philippine Govern ment; (2) the sound currency secured by pegging the Philippine peso to the American dollar; (3) pre ferential trade relations with the United States for the next 25 years; (4) parity rights granted to Ame rican citizens, enabling them to enjoy the same pri vileges as the Filipinos in the development of the natural resources and the operation of public utili ties; (5) four-year exemption from taxes allowed by Republic Act No. 35 to new and necessary industries; (6) the hundreds of millions of pesos still to come in during the next two years from the War Damage Commission and other United States agencies; and (7) the adherence of the Filipino people to the de mocratic way of life and their hospitable attitude to ward foreign investors, especially American. AS in ar.y other country, there are certain restric tions in the Philippines on'the freedom of for eign investment, which are in the nature of safe guards against any possible ruthless or excessive ex ploitation of the country’s natural resources by any one, whether Filipino or alien, and those which are adopted as measures to maintain mutually just rela tionship between the Philippines and other countries. The Philippine Constitution, for instance, provides that no in,diyic|ua.l can purchase more than 144 hec tares of public land, that no corporation can buy more than 1,024 hectares of land, and that not more than 1,024 hectares of public land can be leased to an individual^1 Corporation, or association, and, if for grazing purposes, not more than 2,000 hectares. Cer tain other safeguards affecting the mining, forestry, and other industries are more or less common to other countries. AMONG the most promising fields of business activity in the Philippines are the following: Cattle-raising — Philippine imports of meat products before the war averaged 4,500 tons annual ly, valued at £2,600,000. Local production of meat (largely swine and carabao) in 1937 was 75,000 me tric tons. The livestock population suffered consi derable damage during the war. Cattle were reduced from 1,300,000 head to about 800,000; carabaos, from 2,900,000 to 2,000,000; and hogs, from 4,300,000 to 4,000,000. The Philippine Government has appro priated £2,500,000 to replace losses of cattle, carabaos, horses, and swine. The island of Mindanao offers favorable pros pects for the development of the cattle industry be cause of its extensive virgin lands, where grasses and legumes suitable for cattle-feed grow in abund ance. It is believed that the development of beef herds on this island would accelerate meat produc tion to the extent of supplying domestic requirements and possibly leaving a surplus for exports. Commercial fishing — Before the war the Phil ippines imported an average' of 15,000 tons of fish products Valued at £3,000,000, while the annual com mercial in-shore catch amounted to about 21,000 tons, plus the additional 25,000 tons of bangus produced in salt-water fishponds. The total annual requirements of fish from all sources are estimated at 54,000 tons. Prior to the war about 50% of the fish caught and distributed in the local markets was controlled by the Japanese. Since liberation, considerable progress has been made in the rehabilitation of the fishing industry, which is now almost wholly in the hands of the Fil ipinos; however, the supply of fish food still falls short of the normal domestic requirements, as indi cated by the high prices of fish in Manila, which are from 3.5 to 5 times pre-war. Further development and expansion of the fishing industry is being given particular attention by the Philippine Government through the recently created Bureau of Fisheries, formerly a small unit in the Department of Agricul ture and Commerce. For the fiscal year ending June 30, 1948, the Bureau of Fisheries reported a total catch of 19,717,740 kilos of fish of different types by commercial fishing boats of three tons or over, as compared to 18,640,252 kilos for the preceding fiscal year. The importance of the fishing industry in Phil ippine economy may be gauged by the fact that next to rice, fish is the most important element in the Fil ipino diet. As the waters of the Philippines teem with the richest varieties of fish that can be found in any single fishing ground in the world of the same area, it goes without saying that commercial fishing offers one of the most profitable investments in this country. Chemical production— The manufacture of in dustrial chemicals, such as sulphuric acid, caustic soda, soda ash, chlorine, nitric acid, hydrochloric acid, synthetic oil, and fertilizers offers further wide possi bilities for investment. There is practically no chemical manufacturing industry in this country at present; all requirements for industrial chemicals are being sup plied by imports, which ran to £20,000,000 annually before the war, and to £40,000,000 in 1946. It is al together possible that these products may be profit ably manufactured locally, as raw materials in the form of limestone, salt, fibers, starches, and poten tial sources of hydraulic power are available. The domestic production of chemicals will assume greater importance when the hydro-electric projects of the Philippine Government will have been set into opera tion. Under Republic Act No. 216, the proceeds of the proposed £176,000,000 loan being applied for from the World Export-Import Bank, have been earmarked for the following hydro-electric projects: 1. Construction of complete hydro-electric power plants at: (a) Ambuklao, Mountain Province .. P 48,000,000.00 (b) Itogon, Mountain Province .... 70,000,000.00 (c) Maria Cristina, Lanao ................. 23,400,000.00 (d) Lumot River, Laguna ................. 6,000,000.00 2. Erection and construction of a fertil izer plant ................................................. 28,600,000.00 Total ......................... P176,000,000.00 Of these projects the construction of the Lumot • hydro-electrict plant project has been started, and it was announced by the National Power Corporation that before the end of 1951 the plant will be in ser vice and will bring into the Manila area its entire 50,000,000 KWH. Manufacture of paints and varnishes — Paints, pigments, and varnishes were imported into the Phil ippines before the war at the rate of 5,000 tons year ly, valued at £1,800,000. In 1946, imports of these products reached a total of £3,800,000, as against £9,000,000 in 1948. Domestic production of paints before the war was negligible, being confined to 3 small plants producing 1,500 tons a year. The man ufacture of paints and varnishes appears feasible in view of the availability of raw materials suitable for the purpose. Philippine forest abound in gums and resins, while turpentine could be gathered from the Benguet pines. Lumbang nuts produce an oil simi lar to tung oil. In 1938, production of lumbang oil amounted to £310,000 for 2,000 tons of nuts. With the building boom still going on, which promises to gather greater momentum as more materials become available and costs go down, an industry to produce paints for local use faces bright prospects. Manufacture of paper products — The average yearly importation of paper in this country before the war was valued at £9,300,000. In 1946, paper imports reached a total of £23,000,000; £38,887,246 in 1947; and £44,714,054 in 1948, comprising news print, wrapping paper, book and printing paper, wall board, insulating paper, and kraft paper. There was one paper mill operated in connection with a sugar centra) before the war, which produced 15 tons of cellulose and 10 tons of paper per day from bagasse. The possibilities for investment in the paper and related industries appear bright in view of the avail ability of raw materials in the form of abaca waste, cogon grass, bagasse, and wood pulp. Increased local demand for newsprint, book and printing paper, pa per containers, etc., offers sufficient justification to the development of the paper industry in this country. At present, there is only one operating local paper mill, the one owned by the National Development Company, and it produces only wrapping paper. This began operating only shortly before the end of June, 1949. Manufacture of miscellaneous products — Oppor tunities for sound investments are also present in the manufacture of soap and toilet preparations, shoes and leather, glass and glassware, ceramic and clay products, wooden and rattan funiture, and plastics. These products, except the last one, are being pro duced locally on a small scale. These industries are at best still in the handicraft stage, but with suffi cient capital and technical skill they could be deve loped and expanded for supplying local demand and for purpose of export. Local production of soap before the war was 20,000 tons a year, while the output for toilet pre parations amounted to about Pl,400,000. In 1946, soap and toilet preparations valued at P13,800,000 were imported, compared to P14,000,000 in 1948. With increasing demand for these products, oppor tunities for investment in this line of activity can not be overlooked. Recently, a large American man ufacturer of cosmetic and toilet preparations estab lished a factory at Polo, Bulacan. Shoe manufacturing is an old industry in the Philippines. There were 3 plants in Manila before the war producing a combined output of 3,000 pairs daily, in addition to about 2,000 small shoe-and-slipper making shops with an aggregate production of 5,000 pairs a day. Two of. the big pre-war factories as well as a considerable number of small shops, were destroyed during the war. With an increased popu lation, present requirements for shoes exceed those of pre-war days, thereby necessitating additional facil ities to supply the demand. The establishment of a modern shoe factory with a productive capacity of 5,000 pairs a day, would seem to be a good opportun ity for investment. Two pre-war shoe factories have already resumed operation. The Philippine bottle-making industry was des troyed during the war. There were 16 glass factories operating in 1941, two of which were making bottles, and their combined output was value at P657,000 a year. Before the war, glassware imports exceeded Pl,000,000. Because of the increased demand for toilet preparations and for tableware and glass con tainers, aS well as the increased consumption of soft drinks and native wines, present requirements for bottles offer a bright prospect for investment in this industry. A bottling factory owned by Don Andres Soriano was established recently. Ceramic and clay products, mostly fire-brick and kitchenware, were imported into this country in 1946 in the amount of P2,400,000. Before the war, bricks and tiles valued at P758.000 were produced locally. De posits of clay and kaolin as well as chromite are known to exist in this country, and with these raw materials the production of ceramic and clay products could b.e further developed to provide for construction requirements. The manufacture of wooden and rattan furni ture is an outstanding Philippine industry. The ex cellent quality and workmanship of Philippine-made furniture are well known. Production of wooden fur niture in 1938 was valued at P4,400,000, while the output of rattan furniture before the war amounted in value to approximately Pl,000,000. The Philippines produces exceptional kinds of hardwoods suitable for furniture-making. In 1941, rattan furniture was ex ported to the United States and other countries in the amount of P530,595. After the war, exports of rat tan furniture amounted to P980,788 in 1946; P947,32$ in 1947; and Pl,311,722 in 1948. With the present demand for furniture to replace that destroyed or taken out of the country during the war, and the possibilities for export, there are ample opportunities for the expansion of this industry. Lumbering — Lumber is an important item in the reconstruction projects for the restoration of nume rous public, commercial, and residential buildings destroyed or damaged during the war. Present re quirements in lumber for construction and recon struction have been estimated at 4,500,000,000 board feet. Pre-war production of lumber and timber to taled 941,604,499 board feet, valued at P46,272,000, of which 754,000,000 board feet were used locally and the rest exported to foreign countries. It is believed that if more logging equipment could be installed and additional sawmills of higher capacity operated, the Philippine lumber industry could be brought up to an annual production of 2,000,000,000 board feet, an out put which could cope with domestic reconstruction re quirements. With the lifting of the ban for lumber exports in late June, a very lucrative business in lumber and timber production avraits enterprising investors who could put up the necessary capital and provide the ingenuity in intensively developing this industry. Mining — Extensive deposits of gold, silver, iron, copper, manganese, and chrome are found in the Phil ippines. In addition thereto, such non-metallic min erals as asbestos, gypsum, sulphur, limestone, clay, marble and building stones, coal, petroleum and as phalt, existing in greater or lesser quantities, com prise the mineral wealth of this country. In 1940, the total gold production amounted to P76,563,888; chromite, P2,661,764; iron, P5,633,728; copper, P3,487,701; manganese, Pl,287,Oil; silver, Pl,874,701. The total invested capital in all mines in 1940 was P156,000,000. The milling industry, however, suffered considerable devastation during the war, the plants being demolished or carried away by the enemy. Today, efforts -are being made to rehabilitate, the industry, but so far only a few of the pre-war companies have reported production. The Surigao Consolidated produced 19,148 tons of gold (mine ore) worth P279,253 in 1947, and 69,473 tons, valued at Pl,386,002, in 1948. Benguet-Balatoc and Taysan re ported no production in 1947, but in 1948 they pro duced 406,146 and 5,753 tons valued at P5,637,327 and P256,729, respectively. Atok Big Wedge also produced 91,599 tons worth P4,066,494 in 1947, and 157,146 tons, worth P4,618,016, in 1948. Mindanao Mother Lode likewise reported 11,400 tons valued at P444,246 in 1947, and 68,700 tons, worth P2,670,779, in 1948. Of the base metals, Acoje registered 10,000 tons, worth P330,000, in 1948, but none in 1947. Consoli dated Mining produced 189,499 tons, valued at P3,319,489, and 39,099 tons, worth P4,409,881, in 1947 and 1948, respectively. Lepanto also produced P2,033,600 worth of base metals in 1948 only. The value of mineral production totaled P8,109,482 in 1947, and P21,342,324 in 1948. The resumption of production of high-grade gold, silver, copper, asbestos, and lead, and the replace ment of equipment, reconstruction of buildings and mills, and the development of new mines are esti mated conservatively to require an investment of about P40,000,000. The recovery of the mining in dustry, which is retarded by lack of machinery, equip ment, and other essential supplies, offers an oppor tunity for sound investment. 'T'HE foregoing lines of industrial activities have A been presented, in a nutshell, as suggestive of the trends in post-war investment possibilities in the Philippines. It was intended merely to give a gen eral view of the industrial resources and potentiali ties of this country, awaiting the capital, technical skill, and ingenuity of future investors. It would be well, however, for any prospective investor to make a further study of other branches of industry or business which may appeal to him, as possibly show ing even better prospects for investment. SPECIAL SUPPLEMENT American Chamber of Commerce Journal for July, 1949 IV