San Carlos University Speech

January 29, 2004 by John L. Gokongwei, Jr.
 

Maayong hapon sa inyong tanan.

His Eminence, Cardinal Ricardo Vidal, Rev. Father Roderick C. Salazar, Jr., President, University of San Carlos, Rev. Father Ben Nebres, President, Ateneo de Manila University, Senator John Osmena,Secretary Cesar Purisima, Dept. of Trade and Industry, Governor Pablo Garcia, Honorable Members of Congress from Cebu, [Congressman Raul del Mar, Congressman Simeon Kintanar, Congressman Antonio Cuenco, Congresswoman Clavell Asas Martinez, Congressman Joseph Ace Durano, Congressman Eduardo Gullas, Congressman Nerissa Soon-Ruiz, Congressman Antonio Yapha, Mayor Tomas Osmena, The Members of the Board of Trustees, Administrative Managers, Deans and Members of the Faculty, University of San Carlos, Distinguished Guest, Ladies and Gentlemen.

After an absence of 62 years, I am back in the school that I love-- where I finished my elementary school and high school. They say that England was built in the playing fields of Eton. I, meanwhile, was molded in the playing fields, classrooms, and chapels of San Carlos.

In San Carlos, I formed memorable friendships with Mario Mendezona, Paquito Borromeo, Dr. John Lim, Dr. Roberto Tojong, Ramiro Valenzuela, Roberto Estevez, Totoy Avellana, Dr. Mike Celdran, Chiling Garcia, Guillermo Gervacio, Jesus Go, Pepito Moras, and many others.

I learned from the Society of the Divine World the values that have guided me through the years.

First, discipline. I remember Father Smith, the head of discipline, punishing me for running past his office one day while classes were ongoing. The rule was never to run, but to walk slowly along corridors. My punishment was to stand in the corner of his office for three hours with my arms outstretched as if waiting to be crucified. He may have been a terror, but he taught me the value of discipline.

Second, love for learning. While I excelled in Math and Science, my favorite subjects were English, History, and Music taught by Fathers Krueger and Gries. I even learned to play the flute, a skill which I have—with deep regret-- since forgotten. I remember getting my first case of hives during our elementary school graduation rites. I was gunning for the gold and was very nervous that I would not get it. Fortunately, I did. The second time I got hives was when the girl I wanted to marry did not respond positively at first. Today, she is my wife, Elizabeth.

I would like to thank the following teachers-- Mr. Espiritu, Captain Trinidad, Mr. Fernandez, and Judge Militante, who is with us today and others.

Third, a Christian education. I remember attending a 5-minute prayer everyday. In fact, I was an altar boy. From San Carlos, I learned the importance of charity. Today, the Gokongwei Brothers Foundation gives every year a sum equivalent to 3 percent of JG Summit’s profit to educate talented Filipinos from all over the archipelago in engineering and the sciences, and to support education through donations to deserving institutions. Our school offers free advanced technical programs like industrial electronics, \process instrumentation, and others because we believe in the importance of practical sciences to bring this country further.

While in San Carlos, I never thought I would ever be an entrepreneur. I wanted to become a fighter pilot instead. But a series of events-- the death of my father and the outbreak of the War soon after-- forced me to drop out of school, and make a living selling candles, soap and thread in Cebu. I was 15 and I was supporting my family. Now, we are running an airline, Cebu Pacific.

Since then, I have not stopped working. From selling these commodities, I have graduated to more complex businesses. JG Summit, the company I founded, is engaged in seven core businesses. These are food manufacturing, textile manufacturing, petrochemicals, realestate, telecommunications, airlines, and banking. We are now the only Filipino multinational with operations in China, Singapore, Hongkong, Indonesia, Malaysia, Thailand, and this year, Vietnam. And within five years, we will fly Cebu Pacific Air to the US and Europe, and make sure that the word “Cebu” is on everybody’s lips.

My 62 years as an entrepreneur operating in many industries across Asia has given me a unique understanding of how business operates in different countries. I would like to share with you what I have learned today, if you would indulge me.

The question most asked of me as a businessman is whether the Filipino entrepreneur will survive in the new world? The answer to this is very important because we are faced with globalization through WTO and AFTA, where trade barriers will come tumbling down, and we will have to fight much stronger rivals.

Let me be more specific. We are now facing a preview of what the WTO and AFTA will bring. The AFTA lowers taxes of almost all imports to 5 percent and below. This means that cheap imports will soon flood our countries—rubber tires, garments, textiles and garments from Indonesia, petrochemicals from Singapore and Thailand, and many other products from various countries--making many local industries unviable. It also means that multinational companies will continue to move their factories overseas along with jobs, where they can manufacture more cheaply and efficiently.

In fact, Thailand can produce candies at a much cheaper price than here. With the almost-zero trade barriers, branded candies, some of them Filipino in origin, will be made there and exported to us. This will be a very common scenario in the future if we do not change. If this continues, we will be a country that creates nothing and imports everything.

I compare the Philippines to Thailand because of our similarities. We have almost the same population size. We have 86 million people, Thailand has 62 million. We share the same racial mix. We share the same abundant natural resources of fertile soil, palm oil, coconuts, and others. But why does the average Thai earn more than twice the average Filipino?

Therefore, the answer to this question—Can the Filipino slug it out in the boxing ring of the global economy?—is maybe. We may have a productive and educated labor force, but we do not have an effective entrepreneurial class who are the main drivers of growth in any country. Who else will create jobs after all? Sadly, in the Philippines, we have too few entrepreneurs and the few we have are wary of foreign competition.

We can only grow entrepreneurs and become a contender like Manny Pacquiao—a Filipino I admire immensely for being a world champ-- if risks are lessened and the following conditions are put in place.

First, access to capital, both short-term and long-term.

In Thailand where we operate a very profitable food manufacturing business, we borrow at rates as low as 2.3 percent for short term loans. Meanwhile, in the Philippines, we can only borrow at seven to eight percent. This means that the average Thai businessman is able to borrow money for a third the cost of his Filipino counterpart.

Even more important is access to long-term peso financing or financing payable in five years and longer. In Thailand, entrepreneurs can borrow at 5 percent for long-term. This allows them to build competitive industry and develop tourism necessary for any country’s development. That is why Thailand’s tourism industry is booming while ours is not progressing as well even if our beaches are more beautiful than theirs.

Here, there is a shortage of this type of financing. My recommendation is for companies to issue bonds in small denominations—say P5,000 with a maturity of at least five years— which will help finance industries, commercial and tourism projects and at the same time allow the average Filipino to partake in the economic fruits of such investments. For example, a housewife can choose to invest her money in a retail bond that will give her a higher return on her peso than what she is now earning.

In order to deepen the domestic capital market, government can create an institutional structure that will review tightly the issuance of bonds and keep taxes on such instruments at a minimum. The structure must also allow bonds to be traded like equity so that investors are assured of liquidity.

Second, better labor management. Our wages are competitive to Thailand’s but it is difficult for many local entrepreneurs to forecast their labor costs. For example, there may be times when labor may ask more than what the entrepreneur can give, hurting both of them in the end. Or when an employee does not share the same vision as the entrepreneur and becomes a liability to the whole organization.

I would like to recommend that the following law be passed that will please both labor and the entrepreneur. To give an extra one to six months separation pay on top of the present legislated separation pay— but to allow entrepreneurs to let go of people without any questions asked. This provides sufficient compensation for an employee to tide him over while he looks for another source of income. But this also allows the entrepreneur to be flexible when his business is bad. Furthermore, when an entrepreneur is allowed this flexibility, he is likely to hire more people, resulting in higher employment in general.

Third, cheaper power. In Thailand, our operations can buy power at P3.5 per kilowatt hour. Here, we pay P7 per kilowatt hour.

But we cannot fault Meralco and other power distributors for charging high rates because they have to buy power at a high rate as well. Therefore, I would like to recommend another win-win situation. Allow entrepreneurs to build power plants to supply their own power needs and then to sell excess power to each other within a certain boundary. This way Meralco need not lower their rates and business can bring down their costs.

Just to give you an example of how we can cut down power costs. We have built power plants for two of our power-dependent businesses—petrochemicals and textiles. We did this because high power costs had killed most of our competitors in both industries.

With our own power plants, we can generate power at P2.75 per kilowatt hour. Imagine the savings Filipino entrepreneurs could generate at those rates! Besides, we will also be able to produce enough power to avoid the forecasted power shortage in 2006.

Fourth, agricultural productivity management. In the past, we produced rice and sugar for export. Today, we import both. Meanwhile, Thailand is one of the largest rice exporters in the world, and they can produce sugar at half our costs. Why is that?

Agriculture can be a pillar of our economy just as it is in Thailand. After all, many of our industries need the output from farms. We need sugar for candies, bakery products, and soft drinks. We need corn for the feed of our chickens and hogs. If only we could produce this at a cost comparable to Thailand, we could trim our costs, generate more profit and even pass some of this on to the consumer.

But more importantly, our farms must be geared to compete so that we can create jobs.

Finally, foreign exchange management. The fluctuation of the peso against the dollar over the past few years has ruined many businesses and has scared many entrepreneurs who need to borrow for projects.

In July, 1997, at the start of the last Asian crisis, the average rate for one U.S dollar was 29.48 Thai baht and 29.33 Philippine peso, about the same. Today, the baht has devalued to 39 baht to the dollar but the peso is inching its way to 56 pesos versus the dollar.

The Filipino businessman who borrowed a dollar worth P29 in July, 1997 must pay (_______) for the same dollar today.

In sum, if we had the same favorable conditions as Thailand—access to low-interest financing, long term financing through bond issues, realistic labor management, lower cost of power, more effective agricultural programs, and a more stable peso—we would entice a lot of entrepreneurs to invest. This will improve the investment climate dramatically.

With this investment environment, we will create an entrepreneurial class that will be more willing to take risks and therefore more prepared to take on the competition of the new world. I have refrained from speaking about graft and corruption, peace and order, population management, and poor infrastructure. That these must be solved is obvious.

After all, it is as simple and clear as human nature. It is important for entrepreneurs to estimate our risks and cost structures before we invest.

To end, I believe that there can be a better future for the Philippines and the Filipino. But we must first face reality. We cannot hide from the changes brought by the WTO and AFTA and must prepare by creating a class of Filipino entrepreneurs who will be able to compete with the best in the world. Entrepreneurs will create jobs and let me be clear in saying that no matter who the next president is, job creation must be top priority. I repeat job creation must be top priority.

I hope that these humble suggestions gleaned from 62 years of experience gives the government an idea of how the mind of an entrepreneur works, and hopefully bold and far-reaching reforms can be implemented to make the Philippine economy globally competitive, and to make the Philippine future brighter, more optimistic and exciting.

Thank you for honoring me with this doctorate. Coming from an institution that I love, I am filled with happiness and exhilaration. Thank you for also allowing me to share my thoughts on how to make our country better—in the only way I know how.

To all of you and especially my friends in San Carlos, I’m glad to be back after 62 years.

Kaninyong tanan, ug ilabi na gyud sa akong mga higala sa USC, ako malipayong nahibalik human sa saysinta y dos (62) ka tuig.

Nagpasalamat ako sa tibuk kung kasing-kasing.
 

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