Crossroads (Toward Philippine economic and social progress)
Philippine Star, 22 July 2015


In 2007-2009, one of South Korea’s shipbuilding companies – Hanjin – made a bold plan to build a $2 billion shipbuilding operation in northern Mindanao.

The project would create new direct employment potential of 40,000 skilled industrial workers. This was in addition to Hanjin’s $1 billion Subic Bay shipbuilding investment that was already in construction at the time.

Hanjin is a South Korean company with wide contracting experience in road-building in the Philippines. It constructed the improvement of the Butuan-Iligan road project in northern Mindanao.

Hanjin: The biggest foreign direct investment in industry in Mindanao. This is also the largest industrial foreign investment ever attracted to the Phividec industrial estate. Since 1974, this government industrial estate has been struggling to find good investment locators.

The government under President Gloria Macapagal Arroyo raised the stakes by converting Phividec into a special economic zone in 2008 to make it easier to accommodate a large investor.

The 3,000 hectare Phividec had set aside a large area to be dedicated to the shipbuilding plant amounting to 441 hectares that spans two municipalities along the coast – Tagaloan and Villanueva.

According to the Hanjin plan, by 2010, the Phividec facility would be building ocean-going vessels. They expected that by 2012, Hanjin in Phividec would be earning $1.7 billion in exports of ocean-going vessels.

The project failed to see the light of day. Local politics and the insensitive acts of local government officials killed the project. They interceded in the critical steps toward the construction of the project.

During my visit to Mindanao last May, I inquired about the failed Hanjin project from government and business officials. I also reviewed the press reports on the subject.

In reassessing the case of the discontinued Hanjin shipbuilding project, I blame the failure of the project squarely on the local mayors of the municipalities of Tagaloan and Villanueva. These municipalities bordered the Hanjin shipbuilding project from east and west.

The local mayors played to the hilt their local power over a major investor to the point the investor decided to stop the project cold.

The stakes for Cagayan de Oro were high. At full capacity, if the Koreans had succeeded in building its shipyard venture in Phividec, the Korean investor would provide employment opportunities for skilled industrial workers – engineers, welders, metal workers, among others.

In fact, that was not the only prize. The potential influx of Koreans to the region would open it up to more potential foreign investors. In fact, a lot of Korean companies had been exploring business opportunities in the Cagayan de Oro region. They were looking forward to good times with the Hanjin project leading the way.

The agricultural hinterlands of Misamis Oriental and Bukidnon provinces would also benefit. Korean companies in agriculture were exploring business opportunities.

When the Hanjin project was canceled, the interest of foreign investors, especially from South Korea, also waned considerably.

The Hanjin episode. When the construction phase of the project was about to begin, many tensions developed. They revolved on local politics and on the role of the local government to give permits. The local politicians played their role to the hilt.

For one, the local governments can give the local permits for construction to go ahead barring any provision of law. The Phividec, a national government agency, which had the mandate to deal with this issue, failed to assert its right to insulate the foreign investor from having to deal with local politicians in the construction of their facilities.

The local leaders played hardball with the investor. The local leaders employed the traditional squeeze tactics on business proponents especially as the construction of the facility was about to begin.

They demanded  the company employ locals as a first priority. The company would agree, but subject to skills and qualifications. The company would also train workers. They would set up a training center to improve skills.

The environmental issue was a subject of concern the local mayors could capitalize on. An environmental permit was needed from the Department of Environment. The national agencies could have coordinated on this issue, to set the proper environmental parameters and approve them.

As the construction phase was about to begin, the motives of the local politicians became apparent. They withheld approvals because they also wanted direct benefits from the project.

For instance, as the project would begin to build, a large amount of contracts for materials are involved. One could begin with sand and gravel where the local government had a lot of say.

There were reports that unreasonable demands on the provision of such supplies at onerous price were being made on the investor. The local government permit system was being made hostage to the extraction of contracts from the investor for the supply of construction materials.

Playing hardball tactics was a narrow, short-term view of the benefits. Instead of being helpful, the local mayors became obstructionists. Instead of helping to facilitate the project, in a high drama, they played a high stakes drama of playing to local issues.

All this led Hanjin to call it quits. It abandoned the project entirely.

Poor management of the FDI attraction process. A project that is as large and with regional and national importance should not be left to the whims of local politicians playing their little games.

The national government should have managed the process fully. In this instance, the Phividec should have played a strong hand and settled the major local issues with the national government agencies so the project would go through. Both failed to do their job and let local issues trump the project.

The reason the PEZA has been successful as a government agency in attracting foreign direct investors is that it insulates the investor from having to deal with local politicians.

It is inevitable foreign investors have to have cordial relations with the local community and its leaders. That happens when they do not have excessive day-to-day interactions in their operations.

That makes for a more peaceful industrial climate. The communities benefit because employment is generated and economic activity goes on unimpeded.