Filipino last?

The Filipino First policy, a legacy from our post WW2 politicians, resulted in the Philippines being relegated from second only to Japan, to last in our region of tiger economies. It was a policy that was used by our economic elite for rent-seeking privileges.

With Filipino First, we developed a feeling of economic insecurity that made us afraid of foreign investors. This kind of economic nationalism is not useful in today’s world.

It enabled the economic elite to keep prices high to the disadvantage of Filipino consumers while delivering mostly substandard products and services. Puede na yan means Pinoys must live with less quality.

In the telecom industry, I still remember how my parents waited over 10 years to get a telephone line from PLDT.

Then the industry was liberalized by FVR, but investors were limited to Filipinos. There were six or seven groups that got franchises to compete with PLDT. Soon, they all sold out to PLDT or Globe. Rent-seeking at its best.

Telecoms is an industry that requires big investments. Only the international players can be expected to compete with our telecoms duopoly.

And if we really think about it, even the current prohibition for foreign ownership in telecoms looks silly, with Globe and PLDT effectively controlled by foreign entities. The largest shareholder of Globe is Singapore Telecom, not Ayala. PLDT is Indonesia’s First Pacific.

Now, you might say, if foreigners can do what they did in Globe and PLDT under current rules, is there still a need to amend the Public Service Act to liberalize foreign ownership?

Yes, because many foreign investors want straightforward rules and policies that allow them majority ownership. If they have to go to a local law firm to help them go around the Constitution, that makes them susceptible to corruption from local regulators and the courts.

The proposal to exclude telecommunications from the definition of public utility subject to the 60/40 rule had been passed by the House and is now pending in the Senate.

But some senators are using national security as an excuse to stop the measure. It is easy to suspect they are just trying to keep out competitors of the existing players.

The issue however, is beyond the telecoms industry. We simply need more foreign investors to come in and create jobs. But because they sense a lack of hospitality for foreign capital through our Filipino First policies, they go elsewhere, like Vietnam.

The latest preliminary data from the Philippine Statistics Authority (PSA) showed that foreign investments in 1Q21 fell by 32.9 percent YoY to P19.6 billion from P29.1 billion, marking the fifth consecutive quarter with a YoY decline and the lowest level since the P15.5 billion logged in 2Q20.

Foreign capital goes where it is welcome, and countries in our region are more hospitable to foreign capital than we are.

But why should we be afraid of foreign investments?

I received this e-mail from a senior Korean business executive who was reacting to a column I wrote on Vietnam and how it overtook us in economic growth.

“Your column on Feb 12, was quite instructive for me. I’ve been thinking over and I suggest you write another column on ‘Why Samsung Electronics went to Vietnam’.

“In 2008, the big boss of Samsung was here in the Philippines to evaluate the business conditions on which country is the best for them. But finally, Samsung chose Vietnam. Not the Philippines.

“This is quite an interesting story because the Philippines still has the same way of thinking as in 2008. There are many restrictions and limitations on foreign investors here in the Philippines. Under these restrictions, I am sure no big Korean investments will come.

“None of the other countries in the region have such restrictions on foreign investors. Every country is willing to give special incentives and benefits for foreign investors. Please study why Samsung went to Vietnam in 2008.

“Now, the biggest investors in Vietnam are Korean. More than 9000 Korean companies are located in Vietnam. (Here only a few hundred). Whenever I talk to officials of the government, I think they don’t know this story.”

Unfortunately, the Senate may continue to be a hindrance to foreign investments.

Senator Recto is opposing the PSA bill because he is afraid the Chinese may take over our telecom industry. Precisely why we need the PSA bill to pass… The industry grapevine tells me that two Japanese telcos (KDDI and Softbank) are eager to come in, but only if they will be legally allowed to invest in majority ownership.

To safeguard national security, three provisions were included: vetting by the National Security Council and approval by the President of all investments in critical infrastructure; prohibition of SOEs (State-Owned Enterprises) from investing in telecommunications or increasing their share; cybersecurity ISO certification for critical infrastructure.

The ban on investment of SOEs (State-owned Enterprises) in telecom and other critical infrastructure effectively bans all Chinese telecom companies because they are all SOEs. But China Telecom is already invested in Dito Telecommunity.

The danger to national security is not so much who owns the telecom companies, but who manufactures the equipment they use. All existing telecom companies here use China’s Huawei equipment.

By allowing Japanese, Korean and other foreign players in, we may be able to diversify our sources of equipment as well. This is important because eventually under the US CLEAN program, our telcos won’t be allowed into the US financial system using Huawei equipment. That cuts us from the US banking system.

In the proposed PSA, a blanket ban on all foreign ownership of telcos being contemplated by some senators will leave us with three telcos dependent on Huawei equipment. We run the risk of our telcos‘ technology getting obsolete as Huawei is denied advanced US technology.

Passing the PSA bill is the first step to create a favorable investment environment here for foreign investors.

We have to stop being afraid of foreign capital. We just have to properly regulate their activities. Letting them own their business here should not matter. They bring competition that benefits consumers, and we need the jobs they will create.

Our Filipino First policy only made Filipinos last. That’s the awful truth.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco