“The Sad Fall of a Philippine Steel Giant” (Asianometry, 3 June 2022)
Here comes a tale of how political instability combined with political / economic ideology usurping pragmatism, along with a bad decision to privatise ultimately leading to mismanagement and corruption, brought down what should have been the Philippines’ pride and joy: a national steel-making company, the National Steel Corporation. Under President Carlos Polestico Garcia (1957 – 1965), the National Shipyard and Steel Corporation (NASSCO) was established as part of an industrialisation drive in Iligan City in 1950 to convert scrap metal into raw materials for a shipbuilding industry. In 1955, NASSCO was granted funding to set up pig iron making mills but needed to buy steel-making equipment. The United States government granted a loan but only on the condition that US steel-making equipment be purchased and NASSCO itself be privatised. NASSCO fell under the control of the wealthy Jacinto family which basically used the company to suck out more money from the Philippines government.
In the early 1970s, oil price shocks resulting in economic uncertainty and the peso devaluation, along with President Ferdinand Marcos’s dislike of the Jacinto family, led to eventual military seizure of NASSCO’s assets and their transfer to the National Steel Corporation. After the 1970s, during which time the NSC struggled to survive by merging with other bankrupt steel makers, the company became the eleventh largest corporation in the Philippines and embarked on what became its glory years spanning two decades. Specialising in flat steel products and exporting to China and the United States, the company was able to provide generous wages and benefits (including sick leave benefits) to its 4,000 employees working in its factory in Iligan City. While the NSC enjoyed millions of pesos in profit over the 1980s and 1990s, trends abroad and at home began to spell the beginning of the end of the company’s golden period: the market for its flat steel products was declining due in part to competition from cheaper equivalents from South Korea and Taiwan. The NSC also needed to build proper iron and steel-making facilities but the national government under President Fidel Ramos (1992 – 1998) baulked at throwing money at the corporation and instead encouraged its privatisation.
In 1993 the Philippines government auctioned off a major share in the NSC to a Malaysian company, Win Tiek Holdings. Unfortunately, though Win Tiek Holdings was involved in the steel industry, it was mainly as a steel trader – it had no experience in managing a steel-making company. From 1995 onwards, business mismanagement and corruption led to huge losses and massive employee lay-offs. In 1997 Win Tiek Holdings sold the NSC to another Malaysian trader, Hottick Investment Limited, which borrowed hugely to complete the transaction. The 1998 Asian financial crisis more or less finished off the NSC: the devaluation of the peso, dumping of foreign products competing with the NSC’s output continued and creditors and suppliers cut their ties with the company. In 1999, the NSC closed its factory and nearly 2,000 employees lost their jobs.
Undoubtedly the decision by the Philippines government to privatise the NSC and hand over its operations to a Malaysian company the government should have investigated with regard to its experience in managing a steel-making company and its assets was pivotal to the NSC’s disastrous demise. The context in which the NSC operated though is important: other countries not far from the Philippines were also exporting steel products, many of them much cheaper if not better than what the NSC produced, and the Philippines’ own financial position which affected the value of the peso over the years must be considered. Unfortunately as with other Asianometry mini-documentaries I have seen, there is not nearly enough information about the business and financial environment in which the NSC operated over the years.
Astonishingly during the entire 20-year period that the NSC was producing steel and working efficiently, the corporation appears not to have tried diversifying its operations by making cars, whitegoods and other products using steel, nor does it seem to have set up its own financial and insurance networks so that it could avoid, as much as possible, having to ask for loans from the Philippines government or other governments that could impose their own conditions on the company – conditions that threatened the NSC’s independence as a government-owned corporation.
The rise and fall of the NSC is a sorry tale that inverts a widespread stereotype about privately owned corporations being better run and more efficient and profitable than government-owned corporations: the company’s own history of being privatised twice, with the corruption and mismanagement that followed on both occasions, demonstrates that privatisation, especially in essential or critical industries, is not necessarily the panacea to a corporation’s business and/or economic woes. We should always consider that those who insist on privatisation to the exclusion of other solutions may have ulterior motives in mind.