Crisis as Opportunity for Tycoons to be Teachers 3 of 3

For the Philippines, I see three types of naturally-hedged investment opportunities. While not totally freed from systemic or global problems like the current crisis, they still provide lower risks than the usual businesses.

The first type that I remember from when I was working in project finance twenty years ago are hotels and tourist-oriented projects. They are naturally hedged because the principal is invested mainly in real estate. Even if paid for in peso, as real estate the investments value eventually catches up even after a devaluation. The top line is quoted in US$ or a suitable foreign currency so there is de facto currency risk hedge at the revenue side. This space continue to provide opportunities especially in the targeted tourism areas like VisMin and Bicol.

The second type fills the business headlines these days with corporate battles for control. This type includes franchised businesses and tollgates like power and water distribution, superhighways and ports. As easy to control bottlenecks and natural monopolies, they assure steady demand inelastic to price changes. Those that allow adjustments for currency fluctuations are particularly attractive as hedged to foreign exchange risk. While I feel sad seeing the wheeling-and-dealing on Meralco, Harbour Centre, SLEX and the like, I do not begrudge those who use their strong balance sheet to try and gain control of these businesses. Changes in base conditions resulting from the financial crisis provide opportunity for the financially strong and the prepared.

Finally, there is a third set of naturally hedged opportunities that is unique to the Philippines. These are already seen as real estate hedges but, if properly packaged, they can, like the tourism-oriented investments above, be currency-hedged as well. I am referring to Universities and such like educational institutions. Mr Lucio Tan owns University of the East and Far Eastern Universty. Mr Alfonso Yuchengco owns Mapua University. Mr Ramon del Rosario has University of Pangasinan and two others. Mr Henry Sy has National University. Mr Manny Pangilinan has hospitals with nursing colleges. These tycoons have access to investment funds that, if properly incentivized around the University, will re-invent the Philippine economy.

University investments can be made de-facto currency-hedged if they are seamlessly linked to our greatest exports – medical care, ship crewing, and contact and business process outsourcing centers. How so? One way, for example, is to develop lay away (pre-need) plans denominated in foreign currency for education of relatives and heirs. Specialized education or training packages that create a steady supply chain for these four exports can likewise be funded from OFW inflows by creative financial packaging. These opportunities attached to Universities could include:

• Enhanced high school (w/ life science or math subjects added leading to medical care or ship crewing university courses, respectively);
• Special vocational schools in, say, seaborne food technology and culinary arts;
• Special vocational schools in, say, combined skills crew (in preparation for, say, 18-handed bulk carriers in five years, etc from 23 hands today);
• Review and re-training schools;
• Learning content research, instructional design, e-learning and related video and animation firms to facilitate education and training; and,
• Teacher education and training.

With critical mass, the ideal situation is for Filipino firms to take the lions’ share of these exports value chain profits in the future given that – in a first world concept – we provide most of the value from labor. Other enterprises can be developed from innovation activities like so:

• Medical tourism;
• Geriatric care and retirement villages in the Philippines;
• Partial and on-shore (!?) ship crewing in 10 years;
• Enterprise rapid prototyping centers like Incubators, Proof-of-concept and Accelerators as University-Service industry link; and,
• Angel investors, Venture capitalists, secondary equity markets for the SMEs above.

As I have mentioned in a previous post (See Post #18 on March 18), we must develop incentives for Filipino investors in the educational field engaged in the innovative and R&D enterprises listed above. If we do this, investments into under-funded but profitable medical, nursing and seaman training schools will blossom all over the country.

A seamless link for the whole chain from basic to specialized training will avoid the mistake of the dual economy that hollowed out our industry in the past. The Philippines can leapfrog and capture more of the value addition in this post-industrial space, the service economy. And finally, all these will make more of our people wealthier and our country stronger.

(Click here for Part 1 of 3 and here for Part 2 of 3.)