* This is my article in BusinessWorld on July 27, 2017.
Aside from frequently cussing and cursing or threatening people with state-sponsored murders over his anti-drugs war, President Rodrigo R. Duterte (PRRD) is not exactly known for articulating policies on industrialization. But during the State of the Nation Address (SONA) this year, he was able to coherently explain his dreams for the country.
See also:
BWorld 143, Coal power and economic development, August 09, 2017
BWorld 144, Individual liberty vs state coercion and taxation, August 10, 2017
BWorld 145, Energy agenda of China’s Belt and Road Initiative, August 11, 2017
Aside from frequently cussing and cursing or threatening people with state-sponsored murders over his anti-drugs war, President Rodrigo R. Duterte (PRRD) is not exactly known for articulating policies on industrialization. But during the State of the Nation Address (SONA) this year, he was able to coherently explain his dreams for the country.
“That is why I say that it is not enough that we mine
this wealth. What is more important is that we convert the raw material thereof
into finished products for international and local purposes. That way, it will
not only be the few who are the rich but also the poor who are many who will
benefit therefrom.
Therefore, I call on our industrialists, investors [and]
commercial barons to put up factories and manufacturing establishments right
here in the Philippines to process our raw materials into finished products....
if possible, we shall put a stop to the extraction and exportation of our
mineral resources to foreign nations for processing abroad and importing them
back to the Philippines in the form of consumer goods at prices twice or thrice
the value of the original raw materials foreign corporations pay for them.”
This is an understandable concern and aspiration.
And this has been articulated by many other previous
administrations and Presidents in the past. For instance, former President
Fidel V. Ramos articulated it partly at the Mining Act of 1995. Former
President Gloria Arroyo articulated it in Executive Order (EO) 270 in January
2004.
Is the Philippines ready now to undertake this
mining-to-industrialization quickly?
In December 2010, the Philippine Institute for
Development Studies (PIDS) produced a paper by Dr. Danilo C. Israel, “National
Industrialization in Philippine Mining: Review and Suggestions,” PIDS
Discussion Paper Series No. 2010-35 (Revised).
The 53-page paper gives a number of useful data about the
sector. It concluded that “judging by experience, the search for national
industrialization in the mining sector would be difficult. In the past, the
record of the Philippines in this regard was one of failure. This, however,
should not prevent the country from attempting once again especially given the
importance of industrialization to the growth of the economy.”
It added, “the knowledge base of the country required to
pursue the national industrialization strategy is poor. The following studies
therefore were suggested: a) value chain analysis for the mining sector and its
sub-sectors, including but not limited to the copper, nickel, gold and chromite
industries; b) development of community-based small and medium-scale operations
in mining including the technology, financial, institutional and other forms of
government support that could be provided to them...”
What are the stages of supply chain from mineral
extraction to finished products? In one illustration, Dr. Israel identified
these nine stages.
(1) Exploration stage, locating the ore to be mined, (2)
Development stage, preparation of the mining project before (3) actual Mining
and extraction of the ore, (4) Milling and concentration stage, the separation
of the desirable minerals in the ore from the undesirable contents, (5) Marketing
and transportation, shipping and selling of the desirable minerals to buyers or
users, (6) Smelting, the treatment of the desirable minerals to produce impure
metal, (7) Refining the impure metal and afterwards built into metal structures
by cutting, bending, and assembling, technically referred to as the (8)
Semi-fabrication and (9) Fabrication stages.
The country is currently engaged in stages (1) to (5),
perhaps up to (6), depending on the metallic products. So the challenge is to
find investors, local and foreign who can do stages (6) to (9). And it will not
be easy to attract these large investors who need large requirements before
they bring in their money and technologies.
Dr. Israel said that there should be a “comparative
advantage” for the country to make this possible. This advantage includes the
following: (a) location of mineral deposits to be processed; (b) relative
factor costs and input prices; (c) availability of processing technology, (d)
distance from major markets and the associated transport costs, and (e) the
security of supply.
He cited Glance et al. (1992) who said that factors that
affect the costs of a prospective processing location and activities are: (a)
the cost of meeting environmental regulation which can vary from site to site
of operations, (b) market for by products as the profitability of smelting and
refining often depends on the ability of processors to sell by-products, and
(c) government intervention, which can directly or indirectly distort
investment decisions and trade flows.
The last item, government intervention, is very
important. Interventions can span from A to Z, from where to explore and mine
and where not, how to do it, how much payments in taxes, fees, permits, bonds,
mandatory funds and contributions, both local and national.
Seemingly not mentioned in Dr. Israel’s paper is the role
of electricity -- cheap, stable supply of electricity that is available 24/7.
Intermittent energy like wind-solar will be a disincentive for
mining-to-industrialization development because they are heavily dependent on
the weather, not on consumer demand.
Plenty of big and reliable base-load plants from coal
power have been installed in recent years. This means 24/7 of cheap, stable
electricity is assured now and the medium-term.
The industrialization dream has been restated and the
energy infrastructure has been set up.
What the President should assure now is the rule of law,
stability of policies, that there will be no more Gina Lopez type of government
officials whose happiness rests on how many mining companies he/she has
suspended and/or closed. His threat of “tax mining to death” during the SONA is
a new source of uncertainty that can complicate his dreams of
industrialization.
------------See also:
BWorld 143, Coal power and economic development, August 09, 2017
BWorld 144, Individual liberty vs state coercion and taxation, August 10, 2017
BWorld 145, Energy agenda of China’s Belt and Road Initiative, August 11, 2017
No comments:
Post a Comment