“Constitutional amendments alone will not address this problem.”
If what foreign businessmen read about in the media is Rodrigo Duterte constantly repeating his “kill, kill, kill!” order to the police to rid the country of drug traffickers and users, or cases of corruption involving billions ending up in private pockets instead of going to vital social services, would they be willing to take big risks to set up new businesses here?
Of course they would think twice before doing so, or even entertain the idea of setting foot in this country.
That the Philippines is second to last among 14 Asia-Pacific economies in terms of attractiveness to foreign direct investments (FDIs) is therefore not surprising.
That’s the result of the latest survey on FDIs conducted by the UK-based think tank Oxford Economics.
The survey showed that the Philippines was ahead only of Taiwan, with China in first place, followed by Vietnam. The think-tank cited the country’s weak infrastructure and business environment for the country’s failure to attract more FDIs. In the latest Global Competitiveness Report, the Philippines ranked 92nd out of 140 countries in infrastructure quality.
The Philippines, along with Indonesia, also fared badly in terms of ease of doing business. The World Bank’s Ease of Doing Business Report 2020 ranked both countries 70 or above out of 190 countries.
Our own Bangko Sentral ng Pilipinas (BSP) validates the survey results. The Philippines obtained $7.93 billion in FDIs in 2016. This increased to $10 billion in 2017, then fell to $9.8 billion in 2018. This declined again in 2019 to $8.67 billion and, with the economic recession caused by the COVID-19 pandemic, FDI inflows to the Philippines shrank to $6.54 billion in 2020, the lowest since 2015. But for the first half of 2021, FDIs grew by 40.7 percent to $4.3 billion.
The numbers tell us that we really need to step up efforts to attract FDIs.
Last April, Malacañang certified as urgent several measures that allow full foreign ownership of public services and less restrictions on foreign investments. These are Senate Bill No 2094, which seeks to amend the Public Service Act; Senate Bill No 1156, which seeks to amend the Foreign Investments Act of 1991; and Senate Bill No 1840, which seeks to amend the Retail Trade Liberalization Act of 2000 by lowering the required paid-up capital for foreign retail enterprises
Then there’s the House of Representatives that passed in March 2020 its version of the amendment to the Public Service Act allowing 100-percent foreign ownership of public utilities.
The Senate version of the bill allows 100-percent foreign ownership of public services like telecommunications, power, and transportation by distinguishing between “public services” and “public utilities.” The distinction is important because the 1987 Constitution only requires 60 percent Filipino ownership of a firm if it operates a “public utility.”
Earlier this year, the House Committee on Constitutional Amendments opened deliberations on the Resolution of Both Houses Proposing Amendments to Certain Economic Provisions of the 1987 Constitution.
Three prominent economists have urged the lifting of restrictions on foreign ownership of business enterprises. For Raul Fabella, “the lifting of the constitutional limit on foreign ownership will make the Philippines more foreign investment-friendly.” He favors the lifting of restrictions on foreign ownership of land, asserting that land should be owned by whoever can make it more productive, regardless of citizenship.
Ernesto Pernia, former Economic Planning Secretary and also former director general of the National Economic and Development Authority, also wants to change the economic provisions of the Charter: “Although the economy has really been clobbered by the pandemic, the economy is recovering slowly––it is getting out of the hole little by little––and we need to accelerate that getting out of the hole…We really need to push that, including allowing FDI (foreign direct investments) in the country, so recovery will accelerate.”
Gerardo Sicat, founder of the Philippine Institute for Development Studies (PIDS), considers the current economic provisions of the Constitution “the original sin” responsible for making it “really difficult for our country to progress in the attraction of foreign director investments.” He cited several benefits from amending the economic provisions of the Constitution: sustained and higher level of per capita GDP growth; higher level of employment for Filipino workers; improved capacity for the state, through an upgrade of its finances, to undertake programs to ameliorate the conditions of those in poverty; and a rising standard of living for all Filipinos.
As we have said before, constitutional amendments alone cannot be expected to bring foreign investors in droves to the country. Along with this, the government should curb corruption, red tape and regulatory capture; address inadequate infrastructure; bring down high power costs; and maintain law and order. Otherwise, even extensive amendment of the 1987 Constitution and a raft of new laws would simply drive foreign investors elsewhere.