Wednesday, June 20, 2007

Scandal in Philippine ports!

ON Tuesday, Malacañang ordered all government agencies to seek approval from the National Economic and Development Authority (Neda) Board before they can raise fees for their services.

This was in reaction to the World Bank study and exporters’ complaints that the Philippines right now has the highest port charges and fees in Asia. Sounds good, but is that the only thing that the dwellers of the Palace could do? Why are they so afraid to address the real problem?
Also, the government is supposedly investigating the $20/50 dollar per container “security fees” being levied on traders by the Bureau of Customs (BOC) while not lifting a finger to stop an imposition that should certainly be creating havoc on the competitiveness of the country’s exporters. This is a classic case of the policymakers pretending to do something while not doing anything.

For a developing—nay, Third World—country, we shouldn’t be charging needlessly high shipping fees in order to encourage manufacturers and exporters to export our way out of misery. That’s almost a classic formula adopted by our Asian neighbors in their transformation into tiger and dragon economies, starting with Japan, South Korea and Singapore, among others. Not only should a country have competitive (read: cheap and of good quality) export products, the support structures should also be efficient (read: cheap but quality service). It’s a great irony, therefore, why we can’t seem to get this so simple wisdom by charging fees so high we are actually killing our own export industries.

According to the World Bank study, the handling cost in the Philippines totals $1,336 per 20-ton container as against $848 in Thailand, $382 in Singapore and $335 in China. Yes, the country’s port authorities are charging fees four times higher than in Singapore and China, whose ports are among the busiest in the world! And it keeps on rising because the BOC has also started charging “security” fess. It seems like we are not content with having the highest electricity rate in Asia, and the most expensive international long-distance calls—we also want the notoriety of having the most expensive port services.

Why this perverse policy environment? It’s because we have a long-standing policy environment that nurtures monopolies and oligopolies through our one-port, one-operator rule. On top of this is the cruel policy by Maritime Industry Authority that encourages oligopolies in interisland shipping supposedly because of some vague “cabotage” rule. When you have monopolies and oligopolies in arrastre and port operations as well as interisland shipping, buttressed no less than by government regulatory bodies (Marina and the Philippine Ports Authority), you certainly would have higher freight and port handling costs. That’s one of the main reasons why over the years, we have failed to evolve durable manufacturing industries.

With high port and shipping costs, many companies are constrained to grow and be globally competitive. No wonder why our entrepreneurs would rather content themselves with speculating in real estate and in putting their money in services that have less links with the rest of the economy. Managers of these industries do not require dealing with the ports and customs authorities, many of whom reek with corruption.

And of course, many bureaucrats in these agencies—Customs, PPA, and Marina—would really be really be more inclined to make money for this sleazy tangle with monopolists and oligopolists for them to think about public interest.

Too bad for the ordinary people, because it means the Philippine economy would never be able to build factories and businesses that would create more jobs. Too bad for Mindanaoans because that island’s economic potentials will always be stymied by the high cost of shipping goods from Mindanao ports to major markets in the Visayas, Luzon and to other parts of the world. Almost two decades ago, integrators were complaining that it’s cheaper for them to buy corn from Argentina than to ship them from Bukidnon and South Cotabato. That World Bank study confirms that this problem is valid even until now. Through the years, the government and the policymakers of this country simply ignored this problem, and it seems it is bent on compounding it with the new “security fees” that would surely make exporting and trading in the Philippines more expensive.

Certainly, the solution is clear. We have to deregulate and open up shipping and port operations to instill greater competition in these businesses. Policymakers should also look into putting greater transparency and public accountability in the operations of the government’s regulatory bodies.

These reforms are long overdue because these agencies have become a burden to society. In the first quarter of the year, for instance, the country’s GDP grew 6.9 percent, a proof that economic activities have expanded. And yet, the government’s tax collection has even declined, leading people with little choice but suspect that corrupt bureaucrats have become too greedy to pocket the gains. Now, we suspect that the rising charges in the ports are probably one of those ways to fleece the economy even more. The policymakers should act to address the problem.
No, giving a lame order for agencies to seek Neda Board permission before increasing fees isn’t good enough. It’s far from good enough. If the Executive is truly serious about addressing the ironic situation of the high cost of doing business vis-à-vis a dearth of revenue, it should look at the larger issues, such as those raised in this space. Otherwise, it’s all more smoke blown to cloud the real story. (Originally prepared as editorial for BusinessMirror, 21 June 2007).


Resty Odon said...

hey where is this blog been hiding all along?

vanni said...

The Mindanao Economic Development Council or MEDCo has conducted a study on this. They found out there is a need for consolidation of logistics.

It goes this way, many goods are being sent to Mindanao in high volume. However, when the cargo boat makes a turn around & go back to Manila, it carries a lesser no. or lesser volume of goods.

Hence, the cargo boat owner has to compensate for the low volume (low profit in shipping goods to Manila from Mindanao) by charging higher fees both ways (to equalize & make the charging of the cost of shipping uniform).

Therefore, we need to put more cargo or consolidate the hauling of goods from Mindanao in one place, say Cagayan de Oro, so that the shipping will achieve economies of scale. More cargoes mean that the owner of these boats can better spread the cost of shipping or hauling these goods to a greater number of people.