Better climate for investment

There’s an interesting debate on foreign investments going on between the Duterte administration and its critics. While an opposition senator, Franklin Drilon, raised an alarm over the 90-percent decline in new foreign investments as of last June, the government economic managers argued it wasn’t the real picture. That observation is actually correct.

The Philippines’ investment situation is not solely determined by how many new foreign companies enter the country. As Socioeconomic Planning Secretary Ernesto Pernia pointed out, new foreign equity placements are only a component of total foreign direct investments (FDIs).

He explained that Drilon narrowly looked at “new” FDIs only, and if reinvestments made by foreign firms already operating here were included, the drop in total FDIs was just 14 percent by the end of the second quarter, not 90 percent. Such reinvestments are usually for the expansion of operations that also create jobs.

There are also other indicators of the bullishness among investors. For instance, the Philippine Economic Zone Authority (Peza) nearly doubled the investment pledges it registered in the first nine months of the year to P196 billion, compared to P101 billion a year ago.

The increase was mainly attributed to commitments to develop more economic zones. This means private proponents of those ecozones are bullish that investors — both foreign and local — will be contributing to the Philippines.

Such investor optimism is supported by what Finance Secretary Carlos Dominguez III cited as the gains from President Duterte’s foreign visits: $59.3 billion in economic benefits for the country.

The foreign trips resulted in various deals such as $37 billion worth of investment pledges to business through the signing of memorandums of understanding/letters of intent, aside from $18 billion in official development assistance and $4.3 billion in trade.

Mr. Duterte has so far visited China, Japan, Russia, Indonesia, Vietnam, Brunei, Malaysia, Cambodia, Singapore, Myanmar, Thailand, Saudi Arabia, Bahrain and Qatar.

But while Drilon may have looked at just a small portion of the investment situation, his point is also worth considering.

We cannot rely solely on what is already here. We need new investors in such industries as telecommunications, where service remains poor.

However, unless we open up these long-protected industries to full foreign ownership, the Philippines will never match the investment inflows to its neighbors like Vietnam.

Any country that limits foreign ownership to 40 percent, as in the case of the Philippines, cannot attract huge investments simply because foreigners will have no control of their money and have to entrust their funds to their Filipino partners.

Proof of this is the 2018 Asean Business Outlook Survey published by the American Chamber of Commerce in Singapore and the US Chamber of Commerce. Among the companies surveyed, only 22 percent chose the Philippines as a possible expansion location, putting the country in sixth place behind Vietnam (34 percent), Myanmar (29 percent), Indonesia (29 percent), Thailand (26 percent), and even Cambodia (23 percent).

The National Economic and Development Authority is already spearheading measures to further improve the business climate in the Philippines, particularly by easing foreign restrictions on several areas of business through the foreign investment negative list — a draft of which is now up for review and adoption by the Neda Board chaired by President Duterte.

This list determines investment areas where foreign participation is prohibited or limited, and the government plans to remove many industries and investment areas from
this list.

This move of the Duterte administration to eventually liberalize every economic sector except land ownership is a major step in the right direction to attracting new investors and benefiting consumers in the long run, through more efficient services and competitively priced goods.