I had a discussion with a government exec last week, where I decried the low level of foreign direct investment (FDI) into the Philippines. He disagreed and explained that the apparent low level wasn’t correct as it was the NET number from the Bangko Sentral ng Pilipinas. It deducted remittance of dividends, etc. of multinational corporations (MNCs) that were already here. And as the Philippines had many mature MNCs, ones who’d been here a long time, versus, say, Vietnam where they’re still new, they were sending back their profits, no longer needing to reinvest them in growth.
A good point, but FDI is mature in Singapore, Thailand and South Korea and yet their levels of FDI are way in excess of anything coming here. Also we’re talking comparable data. The net is what all countries report. Maybe there’s little outflow from the new investors in Vietnam—but $5.5 billion of difference? Net FDI into the Philippines in 2011 was $1.9 billion; into Vietnam it was $7.4 billion. Did MNCs here really ship out $5.5 billion? I don’t think so.
He also quoted the high level of commitments to the Board of Investments (BOI) and Philippine Economic Zone Authority (Peza). Approved BOI-Peza investments reached P672 billion last year, up from P657 billion in 2011. But these are project costs, so a different number. The figures are also “commitments,” promises that may or may not actually happen. Over the years, many, many years the government’s boasts of FDI coming in have never resulted in the number claimed. Not even close to it.
It’s the sheer massive scale of the difference that bothers me. But what bothers me equally is the painting of things in the best light. I can’t do that, I always seek how to do it better. Even if FDI is better than reported, it’s nowhere near good enough, so reasons must be found and solutions done.
The real situation—something the government has to acknowledge if it truly wants to create jobs and break the poverty trap the Philippines is caught in—is that FDI into the Philippines isn’t happening. Once you accept that, you can do something about it.
Let me reinforce that. Here are the investment numbers into other countries in Asia in 2011 and 2010: Singapore $113 billion, Indonesia $32 billion, Malaysia $21 billion, Thailand $17 billion, Vietnam $15.4 billion, and the Philippines $3.5 billion. The numbers are too vastly different to be explained by anything else than lack of investor interest.
What’s worrisome is that President Aquino has been reported as saying we don’t need to review the Constitution to liberalize it by removing the restrictions on foreign ownership in many sectors. “There is no absolute certainty that if we lift the restrictions in our Constitution, there will be corresponding economic gain,” he said.
The numbers above are numbers that have been repeated over many years. That cumulative FDI has been a principal reason for the rapid growth of those economies, for the wealth today of those economies. China would not be the world’s No. 2 economy today if FDI hadn’t driven it. It was foreign factories that built China. There’s a provable direct link between FDI and economic growth.
I don’t know who’s advising the President, but there’s been innumerable studies done that show with absolute certainty that FDI inflows uplift economies. Simple logic says that limiting ownership to 40 percent limits the amount of infrastructure you get. We need the more liberalized economy that constitutional change can bring if we are to break the poverty trap.
So apart from constitutional restrictions, why is FDI so low? Well, the reasons have been enumerated endlessly, and the solutions given for at least the past 20 years. But it boils down to one thing: action. Promises are made, plans are drawn up, recommendations are given—but nothing happens. Take just one example (I can list more than a dozen): a new airport. It was recognized way back in 1993, some 20 years ago, that a new international airport was needed, and yet the final decision of where and the action to create it are still outstanding. There’s no excuse for this. And the rapid rail project that was supposed to connect Metro Manila to the proposed “alternative gateway” was shelved after nearly two decades. Nothing happened.
Too much gets delayed by legal challenge or excessive bureaucracy, or both. The shortage of qualified staff in an underpaying government doesn’t help. It’s time to double government salaries to get the best to work there. We then need that bureaucracy to be able to work efficiently. A Department of Information and Communications Technology law (see last week’s column) is an essential part of that. We need stability of policies, not capricious changes (Executive Order No. 79 on mining is a glaring example of what not to do). It’s time for the courts to throw spurious claims from sore losers out the window.
Well, we’re in dire need of additional roads, ports, trains. There’s also a looming power shortage. If the President requests Congress for emergency powers to get these built in his term, we will see a dramatic rise not only in FDI but in Filipino investment, too.
What I’d like to suggest today is a radical solution to achieve a radical improvement. The President has been remarkably successful in his radical approach to stopping corruption. So here’s a radical solution to getting infrastructure built really fast. It’s the “Ramos solution.” Fidel Ramos came into power when we had no power, with 10-12-hour daily blackouts. He was granted emergency powers that allowed him to fast-track the building of power plants and negotiation of power supply contracts. By the following Christmas we had the power the economy needed.
We need decisions made, we need fast action. Today. Emergency powers can do it.