Monday, September 22, 2008

Entrepreneurship opportunities, both capitalist and social, in the Philippines

Escaping the scorching Arizona heat, visiting family and friends, and continuing my research on Gawad Kalinga, led me to Manila during the summer. Being the nosy applied anthropologist, I didn’t refuse any invitation to visit GK sites, do consulting research, revisit the great outdoors, and eat and drink with some of the most fascinating people there. In the process, I got updated on what’s going in the country.

The Philippines and the United States have serious economic and environmental challenges. Both have a rapidly widening gap between the rich and the poor. The middle class is being gutted. Migration rates are intense; out of the country for Filipinos and from the rural to urban areas and within urban areas for Americans. As one columnist wrote; “at the rate Filipinos are migrating, we will be left with the poor and the corrupt.” The ecological footprint of Americans due to internal migration, on the other hand, is one of if not the highest in the world. The financial, insurance, real estate (FIRE) sectors characterize both economies. In the United States however, the sub-prime mortgage debacle is threatening its, and possibly the global, financial system. For the Philippines the OFW remittances, which is fueling the real estate boom and the import-laden semiconductor sector are keeping the economy afloat. Foreign investment in the mining sector and illegal mining are also helping the rural economy in complex ways.

The negatives though are not what I want to dwell on. My conversations with myriad peoples from farmers to miners to bankers, engineers, and yes, even community organizers in both countries, as well as my observations, lead me to believe that there are opportunities for entrepreneurship, both capitalist and social, in the Philippines.

At the outset, let me state that the strength of both countries rests on its human resource. Despite numerous corrupt politicians and bureaucrats and the political-economic crisis, there are many more creative, educated, disciplined, innovative, and energized people and groups that inspire and can convert one into an optimist. Civil society remains strong in both countries. This important resource is the presence of creative and innovative people and groups. One example that I’ve written about are the U.P. Mountaineers who organized, the P500/bike/semester “rental” scheme for U.P. Diliman students that is promoting biking and a healthy-environmental lifestyle.

Media attention and social acceptance are leading to corporate sponsorship, more bikes for students, possible replication in other campuses, rising popularity of biking and increased bike sales. What gets me excited too is that by the second semester, they hope to launch a bamboo bike in partnership with Carolina’s Bamboo Farm. If it passes the trials, we will look for corporate sponsors for at least 100 bamboo bikes. That will highlight the possibilities of bamboo and increase demand for bamboo woodworkers, bike designers, and builders. Do you see the link between social entrepreneurship and the economy?

Outside of Manila, I did some short term applied research on a mining firm and was taken aback at the quadruple shocks that upland, agricultural, mining communities are experiencing. These are; (a) the fuel price increases have increased product transportation costs with resulting inflation; (b) petrochemical fertilizers have increased 300% in the last five years; (c) logging, mining, and extensive upland farming have degraded soil fertility increasing dependence on petrochemical fertilizers leading to a downward spiral; and, (d) lack of irrigation and underinvestment in irrigation facilities make rural farms underproductive. Because of these shocks, upland farmers, at least in this mining area, have abandoned farming and gotten into small scale mining increasing tensions with big mining firms. Local and foreign buyers have entered mining areas and prefer buying from small scale miners, rather than engage in capital-intensive mining.

While these external shocks are indeed shocking, there are underlying opportunities. First, probable high permanent oil prices are increasing demand for alternative fuels and energy sources. AltEnergy Systems Inc. of Chips Guevara reverse engineered and adapted to Philippine driving conditions conversion kits that enable diesel vehicles to run on used cooking oil. The conversion kits cost P40,000 each and cut by more than half the daily fuel cost of, for example, a jeepney driver. He is also setting up the fuel supply chain by buying used cooking oil and filtering it, while establishing pilot jatropha farms.

For gasoline vehicles, GreenFuel is a newly established LPG conversion company. For also about P40,000, ANY gasoline vehicle can be converted to run on gas and LPG. LPG is cleaner and better for gasoline engines. It is also roughly half the price per liter of gasoline. LPG refilling stations are beginning to sprout.

Note that in 2006, there were 5.33 million registered vehicles in the country.

LPG kit on a late model Toyota Camry
LPG kit on a late model Toyota Camry

While we discussed technology at the retail level, the question of fuel supply needs to be addressed. Now is a good time to invest in farming and/or reforestation that produces alternative fuels. These include coconut oil, jatropha-sourced biofuels, and other indigenous plants and trees that can produce biofuels. The barriers are land, capital, and labor. A people’s association (PA) in northern Luzon showed me how to do it. It took them years to apply, but they were successfully awarded a 1,000 hectare community-based forest stewardship agreement (CFSA) by the DENR. DENR then linked them up with a foreign technical investor (FTI) that trained them on how to establish a jatropha farm. It is paying the salaries of the farm laborers,. It commits to bring in the harvesting and fuel processing equipment. Lastly, it will give at least 10% of the biofuel sales to the people’s association. A nursery has been established and planting is proceeding. It’s a win-win for the FTI, the PA, the environment as denuded slopes are being replanted, and the upland economy. This should be the model for an agroindustrial-environment entrepreneurial program.

Many more CFSAs exist. What are you waiting for?

The third is food security. The government, private sector, and civil society need to invest in irrigation and fertilizer production, preferably organic. One model I saw involved a carbon credit company I’m involved with. Hog farms are constrained by pollution charges, high power costs, high feeds, and high waste management costs. This company provides the technology and financing that will capture the greenhouses gases, which it sells as carbon credits. Everyone wins. The hog farms gets a biodigester without capital investment, 30% cheaper electricity from the steam produced, a cleaner operation, and up to 10% of the carbon credits. A biodigester system produces fertilizer that farms need and which this company hopes to sell and distribute nationwide. Wastewater is treated and can be reused.

There are at least 30 million hogs in the Philippines and carbon credits sell from $7-30 per metric ton. This is literally making money out of hot air.

There are other initiatives that I can discuss, but I’d like to end this article by discussing the opportunities arising from Gawad Kalinga villages. From an entrepreneurial perspective, GK villages present a labor force and market. GK supporters, partners, volunteers, and beneficiaries are all being educated (in different areas), appreciating various aspects of discipline, organized, and have high levels of communication and coordination (EDOC). Thus, ALL participants can be tapped to be productive. GK villages are an emerging market, especially if the 700,000 homes / 7,000 villages in seven years materialize.

Since one component of the seven-point component of GK is productivity and livelihood, the opportunities are boundless. A productivity program is required of all GK villages. Rural GK sites also have to allot one hectare of the two hectare site for productivity initiatives. A GK village in Taguig has two internet cafes, one sponsored by SMART, the other by Rotary International, an alumni UP class, and an e-commerce start up. Another GK village in Bagong Silang started its own purified water bottling business. A GK village in Quezon is known for its wood carving. Other Taguig GK villages will be tapped to provide the landscaping and waste management services to the rich Ayala villages. A GK village cum relocation site has a working wastewater treatment plant using reed plants that can be replicated elsewhere. The recycled water is pumped into an overhead tank used for firefighting and designed as a welcome arch. A GK village in Rizal borrowed a plot of land from the parish and established an urban organic pick-and-pay farm and fishpond. GK BASECO has a coffee shop using donated Starbucks chairs and tables. GK Reunion Village has an organic farm and nursery, a hotel, guest villas, and a retirement village for GK supporters who want to retire and live near a GK village. The carbon credit company I mentioned earlier is donating a biodigester system to a GK village that will treat kitchen wastes and sewage. The steam generated can power a bakery. The village will now also be able to raise hogs and not worry about waste management. GK and a business school have also sponsored an entrepreneurship competition among its classes in partnership with GK sites. The list of examples goes on. GK has also started to ramp up its productivity and livelihood component with big names in business and finance volunteering their talent, time, and resources. Merchandising is emerging as a feasible productivity sector. A big announcement will be made this October.

GK Reunion Village guest villas
GK Reunion Village guest villas

What are the lessons gleaned here, aside from standard business school pointers of market, leadership, drive, financing, strategy, etc.?

One, we need to focus on the needs of the people. There is strong demand for basic household needs of food, water, energy, housing, infrastructure, education, and livelihood. Government and the private sector are not up to par so there are opportunities. Financing needs to be creative to meet these needs.

Second, in working with the poor, provide capital not only for the business, but also to meet the worker’s basic needs. Chips Guevara subsidized the jeepney conversion. He is willing to partner up with anyone, especially jeepney drivers groups, in setting up the supply chain of used cooking oil. The jatropha FTI paid for the training with stipend, hired PA members to do the farming, is funding the establishment of the jatropha farm, and is willing to share profits with the PA in exchange for access to their 1,000 has. CFSA area. The carbon credit company is willing to provide 100% funding, technology, and a build-operate-transfer (BOT) arrangement in exchange for the carbon credits. Gawad Kalinga is promoting entrepreneurship at the village level. It is also inviting entrepreneurs to do business with GK villages and split the profits. When partnering up with the poor or tapping their labor, presence, or time, you need to provide for their basic needs, since the next meal of their family is always in flux.

The poor can be an economic engine and a market. Why not make them a partner in development?

Third, business opportunities, even in a country with dysfunctional politics and political leadership, can arise if the micro-environment encourages a convergence of capital, labor, and technology in a setting of mutual trust and benefit. GK villages provide this setting. The partnership between the CFSA holder and FTI is another. The model of the carbon credit company is further proof. Affordable and equitable provision of financial services including “banking the unbanked” and “providing the last mile of financial services” to the rural poor are needed.

Fourth, investing in lifestyles of health and sustainability (environment) or LOHAS makes good business sense. The market is growing in proportion to the need and demand. Organic food, alternative energy, alternative transportation, urban renewal, ecotourism, etc. are fast growing sectors. An aging population in the United States and the Philippines, coupled with high medical and insurance costs, present the country with retirement and health services that can be at par, yet cheaper than in developed countries. We are looking at least 70 million retiring Americans and at least 300,000 Fil-Ams. Where will they live? What will they be doing in the next ten years?

Fifth, creativity will enable entrepreneurial initiatives that have multiple benefits. The examples above show how organizing the poor address poverty and environmental problems, while contributing to capacity development and empowerment. Creativity, a focus on LOHAS and needs of the people, and convergence zones and situations of capital, labor, technology, spur sustainable development.

Per the insightful economist E.F. Schumacher, initiatives that increase levels of EDOC (education, discipline, organization, and communication) leads to sustainable development as a critical mass stirs the reservoirs of creativity and innovation. The EDOC process itself is an entrepreneurial opportunity. Imbibe culture in it and the opportunities multiply. is a good example. The booming Filipino Martial Arts (FMA) sector in the United States is another one that involves paid teaching, seminars, tournaments, “pilgrimages” to the Philippines, interest in all things Filipino, FMA equipment, t-shirts, videos, etc. The advertising giant McCann-Erickson reported that there are 2.3 million bloggers in the Philippines, at least three million Filipino internet users, most of whom are very active users of social networking sites such as Facebook and Friendster. What does this say about information, communication technologies (ICT) and its opportunities? The call-center, medical transcription, and other business process outsourcing (BPO) business have yet to be fully exploited.

If we can lift the five million poorest of the poor to moderate poverty and assist them to enter even just the lower middle class, we will see a resurgent Philippines.

Profit with honor exists. Try it.