Creating better opportunities

There is no doubt that the World Economic Forum on East Asia served as an opportunity for us to showcase the Philippines’ remarkable turnaround from the “Sick Man of Asia” to the “Next Asian Miracle.” While the global financial shockwave continues to buffet other nations, the Philippines has shown remarkable resilience and managed to attain economic growth for eight consecutive quarters at an average of 6-7 percent.

However, a major challenge would be to attract more foreign direct investment (FDI) to sustain the country’s growth momentum. Asian Development Bank vice president for operations Stephen Groff noted that there has been a noticeable decline in private investment in Southeast Asia particularly for infrastructure, with only $25 billion in 2010 – much lower than the $38 billion in 1997. And compared to its neighbors, the Philippines continues to languish at the bottom rung of the ladder as far as attracting FDI is concerned, with an average of $1.5 billion from 2000 to 2012. To date, we are targeting a very modest net FDI inflow of $2.6 billion while Vietnam already averages $4.5 billion and Indonesia, $6.2 billion.

As Manny Pangilinan clearly pointed out, government has to focus efforts in shifting from a consumption-driven economy to an investment-driven one in order to strengthen poverty alleviation efforts and make growth truly inclusive — which is why FDIs are crucial. Although it is said that perception is 90 percent of the game, “it can’t be all perception,” MVP stressed, adding that infrastructure and the power problem remain as major impediments in attracting foreign investment.

It’s also unfortunate that major investors continue to be turned off by regulatory and legal issues that restrict them from fully infusing capital into the country. In John F. Pierce’s paper titled “Philippine Foreign Investment Efforts: The Foreign Investment Act and the Local Governments Code,” he said, “Direct foreign investment is considered a vital element of a developing country’s strategy for economic development. Foreign investments provide real economic benefits to the host country including increased employment… and an increase in the government’s tax base.”

However, Pierce also noted that “the Philippine government’s efforts to attract foreign direct investments have been ineffectual.” Significantly, he correctly pointed to the constraints outlined in the 1987 Constitution where specific provisions “restrict foreign equity in Philippine corporations or business enterprises to just 40 percent of outstanding equity. Further, the Constitution prohibits all foreign ownership of land. These provisions create substantial disincentive to foreign investment.”

And to think — that was the situation then in 1992 when the paper was published, and very little has changed today as seen from the complaints of the Joint Foreign Chambers which has been supporting efforts for charter change.

In fact, a giant conglomerate looking to relocate its headquarters from Bangkok was initially eyeing the Philippines, but the big question mark was the “Negative List (A)” in the 1991 Foreign Investment Act that limits ownership of private lands to just 40 percent. One of the conditions the conglomerate wanted was for the company and its executives to be allowed to buy their own property. However, the 40 percent Constitutional restriction proved to be a major disincentive — so they are considering Vietnam, now on the foreign investors radar screen because its government is set to relax property laws to open up the market to foreigners, with amendments seen to “encourage investment and international integration.”

Obviously, the über protective nationalist provisions in the 1987 Charter are resulting in a lot of lost opportunities. Singapore (which is getting the biggest slice of the investment pie at over 50 percent) is already saturated and Hong Kong’s pollution is driving away expats, while the escalating political turmoil in Bangkok is hurting tourism and making investors wary. Meantime, Indonesia — which for a while lost its luster as a preferred investment destination – is regaining its favored status now that it had decided to relax restrictions, allowing 100 percent foreign investment in some sectors such as tourism, opening up the pharmaceuticals and advertising industries to bigger foreign involvement.

In the Philippines, no foreign equity is allowed for media while ad agencies are limited to 30 percent ownership — which makes no sense considering that CNN and other international media outfits already have virtual presence here because of cable and the Internet which has bridged the great geographical divide.

Certainly, foreign businessmen are perplexed why the Philippines continues to cling to outdated protectionist notions that will no longer work because of the planned 2015 ASEAN Economic Community regional integration. Even foreign investors currently in the country are eyeing opportunities elsewhere – exploring potential investments in Vietnam and even Myanmar. Speaker Sonny Belmonte, a consistent staunch advocate for amending the 1987 Charter’s economic provisions, sounded very prescient when he clearly pointed out that “if we do not make our economy attractive for foreign investments, we would not be able to maximize the benefits from economic integration. Investments will pour in and factories will be built in our neighboring countries, and they will be exporting goods to us while we will be exporting our workers to them to run their factories… a most sorry scenario,” he said.

Perhaps this is one time that President Aquino’s economic advisers should provide counsel that would convince him about the vital need to revisit the restrictive constitutional provisions and strongly push for the proposed economic amendments – a necessary ingredient to sustain the country’s growth trajectory and maintain its standing as the “new darling of investors.” While P-Noy’s legendary stubbornness is paying off with his stand on our territorial dispute with China (more nations are joining us), the same stubbornness is definitely not good for business.

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