The impact that mining can make

In a previous post I highlighted the positive outlook for the Philippines economy and suggested mining as one of the positive growth areas.

Mining tends to be a very lucrative business because of the high value of output per acre of land. Large projects are capable of generating $300-500 million in revenues each year, which can mean a lot of dollars going into the local economy. For this reason, you can imagine the impact that mining has on poor, isolated communities when a mineable mineral resource is discovered. You might wonder therefore why there seems to be so much opposition to mining in the Philippines.

There are several reasons:
1. Royalties: The bulk of project royalties go to the national government and not the surrounding communities.
2. Employment: Alot of the lucrative high paying jobs go to outsiders, whilst the locals are destined to perform unskilled labouring as field hands.
3. Reputation: The mining industry has never escaped its poor reputation, whether its based on outdated mining practices or the occasional tailings dam spill that causes fish kills.
4. Politics: Then there are are greenies who play on such fears by mounting scare campaigns. I would also add that there are local mining industry executives who would prefer it if western mining companies stayed out of the country.

Those matters aside there is still the promise of a great deal of money being spent in these communities, so where there is a mineral province with numerous mines, and a requirement for upgraded roads, port facilities, and perhaps even downstream processing plants, there is the promise of considerable money being spent. That of course has to be good for the local economy in terms of:
1. Rapid growth in incomes
2. Rapid improvement in services
3. Stronger economic activity
4. Increases in population

The question then becomes how can people best profit from those opportunities. On reflection the best opportunities like in:
1. Property rental: Some mining projects last just 5-10 years, others 50 years. Some projects arew replaced, but sometimes these growth towns die, so its worth tying your fate to a mining project that has 30-50 years mine life. The mine life will determine the commitment of the developer to sponsoring their own property development.
2. Catering services: Miners and supporting workers require food, so catering is a great industry.
3. Equipment Maintenance: Mining companies use alot of heavy equipment that requires regular servicing to extend its life.
4. Consumables: Mining projects consume a lot of materials, whether its tires for trucks, wooden pegs for surveying, lime for ore processing or stationery for their administrative offices.
5. Entertainment: Miners are earning good incomes and so they like to spend just as much, so bars and restaurants make alot of sense.
6. Upmarket facilities: One might also expect a new shopping precinct with fashion boutiques, franchises, etc.

The question is where will these services arise. That depends entirely on whether there is a local commercial center. If there is a commercial center within 50-70kms then employees of the mine will tend to commute from the larger center. Much depends on the services offered and the size of the city center. In the absence of a large regional center near the mine, you will find that the company will likely have to sponsor the creation of one in the area. Clearly the larger mines support more people and more development.
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Andrew Sheldon www.sheldonthinks.com

Philippines agricultural land

In my last post I highlighted the positive outlook for the Philippines economy and suggested agriculture as one of the positive growth areas.
Philippines food output in recent has struggled because of the low returns. The biggest problems have been:
1. Drought over much of the Philippines has diminished output
2. Low food prices has discouraged production
3. Poor work practices and low worker productivity ensure low wages

The outlook is set to change. Food prices are on the increase. With asset prices coming off basic cost of living items like food are set to increase as demand factors restore the price imbalance in favour od food. There is also the important role that changing diets in developing countries, not to forget the greater consumption of food as these countries increase their food consumption with their evolving prosperity.

The implication is that whilst Philippines food exports have not been generally competitive, there is reason to expect that will change for a number of reasons:
1. Food prices are on the increase
2. Asian food demand is on the increase

A return to higher income yields seems assured to generate more interest in the acquisition of productive land in the Philippines. Already the trend is underway. The question is how best to acquire it. I would suggest that there is plenty of land for sale in the Philippines through the foreclosed property route. Agricultural land is cheap because zoning rules prevent it from being readily turned into development land, as is come practice in other countries. Tenant farmers have however shown little interest in farming such lands in recent years, so much of it has remained idle, despite the reliable rainfall in many areas. More information at my foreclosed property blog.
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Andrew Sheldon www.sheldonthinks.com

Food for thought - Philippines opportunities

The Philippines has long been an economic laggard surrounded by tigers. That was the case prior to 2006, however I would suggest there are reasons to think that the Philippines is going to do very well:
1. Call centres: The Philippines holds the leading position in the development of call centres. They are fluent in English, they are polite and positive,m without being arrogant or pushy. They are the closest living relatives to Westerners when it comes to customer service. The implication is that the Philippines is set to become an important market in this area, and new technological solutions seem certain to push this technology into the home.
2. Metal production: The Philippines gold & copper production is taking off as a result of greater security of mining title. Already a number of companies have committed to construction of several large scale mining projects, which will help the country's terms of trade.
3. Agriculture: The Philippines is a low-cost place to farm, yet the country's food production has diminished in recent years as a result of low prices and drought.

All of these sectors create opportunities for investment, which I will discuss whether in my next posts.
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Andrew Sheldon www.sheldonthinks.com

Philippines Property Market Outlook

I am forecasting falling prices in the Philippines property market, and I suspect vacancy rates will increase. There are several reasons for this:
Filipino expats abroad are mostly in the USA, and lesser proportions in the Middle East and Asia. I think they are likely to be feeling a little less rich with falling housing prices, so less inclined to send money home. I think it’s the financially illiterate who will fair worse, and that includes a lot of Filipino domestic workers whom I think will have either:
1. Bought late in the USA – with a ARM loan due to reset with 30% higher mortgage repayments
2. Bought a lot of condos in the Philippines as a retirement income
3. Higher vacancy rates – actually vacancy rates are already high since a lot of Filipinos are sitting on property without letting it. I think financial pressures will either lead them to sell or rent.
4. The peso has fallen against the USD – so they might be waiting for further falls – decreasing remittances. I think it will fall as oil prices rise further
5. High oil prices will undermine economic activity in the Philippines as consumer spending falls. A weak peso will make oil even more expensive.
6. Prospect of higher inflation – as credit growth has been very strong along with remittances flowing in
7. Demand for yield – a lot of Filipinos have bought apartments but are just sitting on them. The problem is that if they have any financial problem they might find them back on the market. one can expect that some of them are in over their heads.
8. Supply – I don’t think local developers will cool off on projects – I think they think the global economy will recover, and its true that chinese investors will increase as investment out of China is relaxed. But I see that as a longer term influence
The value of those remittances will increase as the peso falls – but this will be offset by higher oil prices in local peso terms. So I believe there will be net selling. I don’t see a collapse in property prices though….more likely just a stagnant market.