Philippines found among most restrictive

September 9, 2014 at 11:45

The report noted that Southeast Asia’s FDI prospects have improved in the last two decades due to the relatively strong economic growth of the region’s economies.

“Partly in response to these growth prospects and the rising middle class in one of the world’s most dynamic markets, direct investment in ASEAN (Association of Southeast Asian Nations) — both from outside and within the region — is likely to be at record levels for many countries over the next few years,” the report read.

“Southeast Asia was the only region to see rising inflows of foreign direct investments in 2012, while global flows fell 6%.”

However, benefits from such favorable scenario will not be equally distributed in ASEAN due to restrictions imposed by member states, OECD said.

In Southeast Asia, the Philippines and Myanmar were tagged as having the most restrictions for FDIs.

“In the Philippines, many restrictions on foreign equity and land ownership remain,” the report noted.

“The 1987 Constitution has a clause that supports laws restricting foreign ownership of property to 40%, with minor adjustments by subsequent laws. Further reforms in foreign access to local land require constitutional amendments,” the report noted.

Moreover, OECD cited the country’s restrictions on foreign ownership of banks, retail enterprises, telecommunications, and transport companies.

It should be noted, however, that the report was published prior to the enactment of the Republic Act No. 10641, or “An Act Allowing the Full Entry of Foreign Banks in the Philippines”, by President Benigno S.C. Aquino III last July.

‘LESS APPEAL’
Singapore was deemed the most open to FDI in the region, with OECD noting that the city-state is “often the first choice as a location by a wide margin.”

From the perspective of OECD investors, Thailand, Malaysia, and Indonesia come next to Singapore, while the Philippines and Vietnam have “less appeal to OECD investors.”

Meanwhile, Cambodia, Laos, and Myanmar are likely to be export-oriented in the medium term given their vast wealth of mineral and waters resources and a pool of relatively cheap labor, the OECD noted.

The findings of the report jibe with the results of the latest Global Competitiveness Report of the World Economic Forum, which evaluated 144 economies based on 12 “pillars of competitiveness” that drive productivity.

Singapore led the region in terms of business impact of rules on FDI — one of the indicators used by the Forum to rank the economies surveyed — followed by Malaysia, Thailand, Cambodia, Laos, Vietnam, Indonesia, the Philippines and Myanmar.

Sought for comment, Guillermo M. Luz, National Competitiveness Council private sector co-chairman, said: “Yes, we have a lot of foreign ownership restrictions which are very challenging for the business community.”

“However, we have to be very careful in pursuing economic amendments to the Constitution,” Mr. Luz warned in a text message.

“The current proposal will toss everything to Congress and that will put the entire burden on legislators. With all the bills they have to pass — which are equally important — then the amendments might take a long time to get passed.”

Asked if the OECD report bolsters the case for amending foreign ownership restrictions of the Constitution, House Speaker Feliciano R. Belmonte, Jr. replied via text: “Definitely.”

Mr. Belmonte had filed the Resolution of Both Houses (RBH) No. 1 at the start of the 16th Congress in July last year which seeks to add the phrase “unless otherwise provided by law” to provisions of the current Constitution that impose restrictions to foreign ownership and business participation, particularly for land, public utilities, natural resources, as well as media and advertising.

Mr. Belmonte has said that lifting such restrictions was critical to achieving the government’s goal of inclusive growth, since more FDIs are expected to result in additional quality jobs that, in turn, will lift more Filipinos out of poverty.

Plenary debates on RBH No. 1 are ongoing at the House of Representatives.

CONTROVERSIAL
Charter change has been proposed as early as the 1990s, but these efforts never prospered over fears that public officials would use it as an opportunity to extend their terms of office.

To allay fears that the current move to amend the Constitution could be used to extend the term of incumbent elected officials, Mr. Belmonte led the signing of a pledge at the House that committed legislators to introduce changes only for the charter’s economic provisions.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed that net FDI inflows as of May amounted to $2.923 billion, 34% higher than the $2.182 billion registered in the same five months last year.

In May alone, net inflows reached $473 million, a turnaround from the $62-million net outflow recorded in the same month last year, BSP data showed further.

The increase, the central bank said, reflected “investors’ confidence in the country’s sound macroeconomic fundamentals.”

FDI net inflows reached $3.86 billion last year, 20% more than the $3.215 billion recorded in 2012 and breaching the central bank’s full-year forecast of $2.1 billion.

For this year, the central bank expects net FDI inflows to reach $1 billion, down from the initial estimate of $2.6 billion — a drop the central bank said would be due to continued global financial market uncertainties.