Prof. Dindo Manhit, President at the Stratbase ADR Institute
President Aquino spoke about a lot of things in his sixth and last State of the Nation Address (SONA) last week. He thanked Cabinet members, other officials and staff for their service. He spoke about key reforms introduced by his administration, including its fight against corruption, the expansion of healthcare coverage, the modernization of the Armed Forces and the K to 12 program. He also took the time to push for Congress to move on priority legislation like the Bangsamoro Basic Law, the Fiscal Incentives Rationalization bill and the Anti-dynasty law.
(Image Source: cebudailynews.inquirer.net)
President Aquino also spoke about the country’s economic growth under his watch, about its continued rise in global competitiveness rankings and of the upgrades given by prominent credit rating agencies. He rightly said that these served as signals to businessmen that the Philippines was worth investing in and backed this up by proudly citing figures that showed an increase in Foreign Direct Investment from just $1.07 billion in 2010 up to $6.2 billion in 2014- the highest for the country.
What Aquino did not mention however, was that based on official data from the Central Bank, the country’s record breaking FDI was still dwarfed by those of ASEAN neighbors, including Singapore (USD 67.4B), Indonesia (USD 25.6B), Thailand (11.8B), Malaysia (10.4B) and even Vietnam.
PNoy’s SONA was also silent on one key economic reform that is holding the Philippines back from becoming a globally competitive investment destination- amending the constitutional limits on foreign ownership.
Under the Philippine Constitution, foreign investors are prohibited from owning more than 40 percent of real properties and in some business sectors, while totally restricting ownership in sectors, such as the media industry and educational institutions. These protectionist policies push away much needed investors to neighboring countries that have more competitive strategies.
Economists, local business groups and foreign chambers have long been clamoring for such reforms. According to the FDI Regulatory Restrictiveness Index (FDI Index) of the OECD, Singapore attracted the most FDI in the region and was also the most open when it came to FDI regulatory restrictiveness, while the Philippines, ranked in the lower half of the index, was shown to have the most closed policies among all economies included in the study. This shows that if the Philippines is to promote itself as an investment destination and facilitate the entry of FDI, the country must bring its policy on foreign ownership to global standards, relaxing the limitations on foreign ownership, should be key among them.
In a recent statement of:
“Amending the economic provisions of the 1987 Constitution goes beyond just the entry of more foreign investors into the country. Liberalizing the Philippine market will create much needed employment opportunities both in the urban and rural communities while more competition will foster better services and competitive prices to the benefit of Filipino consumers.
The potential of the Philippine economy is being undermined by a restrictive policy and regulatory environment. This includes restrictions in owning land, investing in public infrastructure, and prohibiting the utilization of the country’s natural resources by foreign investors. Despite record-high foreign direct investments (FDIs) in 2014, data from the country’s Central Bank reveals that FDI inflows slowed in the first three months of 2015 to $851 million from $1.715 billion in the same period a year ago. Investment commitments from abroad have likewise dropped.
Removing these roadblocks will send out a strong and clear signal that the Philippines is ready to compete for more employment-generating foreign investments for its talented Filipino labor force. We must wake up to the global reality that only with a more open business environment can we graduate from what is now called a jobless growth to a more inclusive and sustainable economy.”
According to the World Bank, Vietnam already attracted 8.9 Billion in FDI in 2013 and is moving to relax its foreign ownership rules. Vietnam’s Prime Minister, Nguyen Tan Dung recently, signed a decree lifting their 49% foreign ownership limit on publicly listed companies. Once the decree becomes effective later this year, 100% foreign ownership in most public companies will be allowed except for some sectors covered by specific laws or related to national security. The move will make Vietnam among the most open to investment in the region, positioning it to be even more attractive to foreign investments.
The limits set by the country’s constitution on foreign equity in real estate and in key industries has set-up a half-open and restrictive business environment that has frustrated the influx of much needed FDI. PNoy and his many allies in both Houses of Congress still has the remainder of the 16th Congress to make one final push for economic reforms that will go beyond myopic political cycles.
Speaker Feliciano Belmonte’s Resolution of Both Houses No. 1, which seeks to amend the economic provision of the constitution to allow change in foreign ownership limits to be legislated by congress, is up for final approval on the House floor and seems to already have the support of Senate President Drilon and the Philippine Senate.
It is now up to Aquino to whip up his allies to push this to law. If this happens, this will become a confidence boosting achievement for the powerful business sector to support PNoy’s “Matuwid na Daan” for another six years.