The name of the company is Atradius Credito y Caucion S.A. de Seguros y Reaseguros and, of course, you have never heard of it. It was founded in 1925 in the Netherlands for the purpose of improving trade with that country.
During the last nearly 100 years, Atradius has evolved into an international conglomerate—through acquisitions and mergers in Germany, the Netherlands and Spain providing “credit insurance, bonding and collections products [that] help protect companies throughout the world from payment risks associated with selling products and services on trade credit.”
That might seem rather dry and uninteresting, but it is a $5-billion corporation that makes sure companies involved in every aspect of global trade gets paid on time and in full. Its business is genuinely a big deal. Not only does it act in the area of goods trade, but also when a foreign company wants to sell its services abroad. If you are going to build a multimillion-dollar airport in Mozambique or a railway project in the Philippines, Atradius is the go-to source to find out, and perhaps insure, you will get paid so you do not have to sue the government or a private company.
Further, they do general country reports for their clients to help in the decision making on how a particular country is doing and why—or why not—you should do business there. At the end of March 2019, Atradius did its 2019 review of the Philippines, offering some interesting insights.
With all the sometimes virulent criticism of President Duterte’s “Build, Build, Build,” the report starts with an interesting conclusion that may shake the foundations of thinking by “certain quarters.”
Ask the local experts and particularly the “think tanks” and you will usually get the same answers as to why investments—local and foreign—in the Philippines are weak and undeveloped. These range from government corruption and high power rates to keeping the oligarchs’ stranglehold on the economy, and the always popular “it’s the 60/40 ownership restrictions.”
Atradius starts its report thus: “Major infrastructure investment is necessary in order to increase private investments and to safeguard high economic growth rates in the long term.”
It adds: “Since 2012 economic growth has been persistently high,” but “infrastructure bottlenecks affected private investment.”
Further, and this may upset some, “Massive shortfalls in infrastructure have so far prevented more investment in manufacturing. Indeed, rail networks, ports, roads, airports and power-generation developments are necessary in order to increase private investments and to safeguard high economic growth rates in the long term.”
When it comes to the government finances, “With the improvement of the tax base due to a tax reform (obviously the TRAIN law) the fiscal deficits and public finances are expected to remain at an acceptable level, supporting continued government spending. The external macroeconomic situation is good, with manageable foreign debt and ample liquidity.”
Note that the liquidity issues will improve even more as the Bangko Sentral ng Pilipinas continues to lower banks’ reserve requirements and potentially cut base interest rates.
Needless to say, the Constitutional restriction to foreign ownership is not mentioned. Perhaps more importantly, Atradius speaks more to the issue of weak local investment rather than foreign as a risk to economic prosperity.
If you are considering investing in the Philippines, these are the sectors of concern to Atradius: Automotive, steel and textiles (lack of raw materials), and electronics because of the global slowdown. The bright spots are agriculture, services and consumer durables.
The bottom line is that better infrastructure will create more investment. “Build, Build, Build” and the money will come.
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