Solution to the Poor V: Domestic Capital

Doing business in the Philippines is expensive. The electricity rate in the Philippines is only second to Japan. This is due to antiquated power generating processes and shortsighted contracts signed by the Ramos administration with private power generating companies, giving these companies discretion to set the price for electricity that they produce. As a result, it is tough to build a globally competitive business. The reality of globalization is that local businesses no longer just compete with local competitors, but also any other country that can produce the same good/service at a cheaper price and higher quality. As such, local businesses either close their doors or set up shop elsewhere where production costs are much cheaper.

Another reason for lack of domestic capital is due to the low savings rate by Filipinos. Many would argue that most people are barely making both ends meet, as such there is nothing left to save in the bank. However if people can afford to feed their texting habit then they can afford to save some money in the bank. It is the misplaced consumerism that our countrymen practice that is keeping savings rate in the nation low, lowering bank’s capacity to lend out money. Since banks have limited capital to lend out, small to medium size enterprises are locked out of the capital market since banks would rather focus their capital lending activities to the biggest enterprises in the Philippines to reduce their risk.

Ordinary citizens have no control over the price of electricity and lack of infrastructure in the Philippines, but we do have control over our spending. Before you buy anything, please think long and hard if you really need to make that purchase. Since our government is failing in developing the infrastructure within the country, we should do our part to help Filipino entrepreneurs access capital by increasing our savings. Sounds simple, and yet it is something concrete that we can do to help our economy.