Missed opportunities

Five years ago (June 28-29, 2019), Japan hosted for the first time in Osaka the G20 Summit.  To those who may not be aware of it, G20 or Group of Twenty is an international forum for the governments and central bank governors from 19 countries and the European Union.  Historically, it was the largest held in Japan and, apart from the G20 members, it included eight invited countries and representatives from nine international organizations.  Notably, the summit ended then with the world’s largest economies (USA and China) declaring a truce in their trade war.

If we say, truce, it simply means, temporary or “a short interruption in a war or argument.” Therefore, it can either be seen as a significant step towards a permanent treaty or agreement or it could be a prelude to a full-blown trade war. With the recent development, it seems that a full-blown trade war looms. To recall, apart from President-elect Donald Trump’s flip-flopping propensities on important issues, one of his campaign promises was raising the tariff on imported goods from China. 

Consequently, believing that he will make true his promise, an exodus of American and European companies is ongoing. As a country that is not that far from China, this should have been a welcome development for us. Supposedly, with our proximity to China, we should have been one of those countries of these companies’ preferred destinations. Apparently, however, we are not.

Reports revealed that Vietnam, Thailand and Malaysia are among the most preferred countries in Southeast Asia. Though quite distant, India is likewise high on their lists.  Remember, these are manufacturing companies. Therefore, had we been one of their destinations, joblessness in the country should have been squarely addressed.

The preferential treatment of Vietnam is understandable though. Remember, these two countries share a border. Therefore, geographically, it is close to China. Let us be clear though that its proximity isn’t an advantage as far as the one-time transfers of machineries and equipment are concerned but on sourcing of the perpetual need for low-cost inputs. Vietnam has also proven its worth tech-wise as it has become a major producer of electronics products, machinery and telecom equipment. 

More importantly, Vietnam offers an attractive business environment for foreign investors. Not long ago, though a communist country (remember, communism hates capitalism), it made more policy changes by raising foreign ownership from 49% to as high as 60% on some previously controlled industries. Good enough for foreigners to take control of their investments or businesses. Notably, this is part of their continuing efforts to attune their policies to the constantly changing global investment climate to attract more foreign direct investments (FDIs).

In us, our infrastructure developments are decades behind our neighbors. Likewise, our regulatory environment leaves much to be desired. Truth to tell, existing foreign investors have been griping on a lot of regulatory hurdles and bureaucratic processes. For instance, not long ago, as plans to discontinue the incentives enjoyed by foreign companies inside the economic zones were deliberated, investors were complaining about the unpredictability of our regulatory frameworks.

In unison, the existing companies enjoying these incentives cried foul. The common question was, why is this government changing the rules at the middle of the game? Worse, most of these companies have insinuated that they will be transferring their operations to another country. Inevitably, if they make true their threats, not only that we shall be starving for new investments and, therefore, new jobs, we shall also be losing existing ones.

Therefore, what is really more important is for our leaders to listen to some business groups’ venerable plea to ease constitutional restrictions on foreign ownership in certain industries. Remember, our constitution limits foreign ownership to 40% in some undertakings and in land ownership. Most of these undertakings usually involve natural resources and public utilities. These restrictions are clearly manifested in the Foreign Investments Negative List. This is a list of all business activities where foreigners are either restricted or banned. 

Simply put, there is no foreign investor who will open up a business in the country if they cannot have complete or substantial ownership and control of it. Absolutely, there are no foreign investors in their right minds who would risk such investments.

Finally, let us not entertain the idea that the restrictive economic provisions in our constitution isn’t the culprit of the FDI miseries that we are in right now. Otherwise, we will simply salivate on the prospect of having billions of dollars in investments while our neighboring Southeast Asian countries are feasting on them.