The need to ease regulatory risks

Halfway through President Duterte’s term, the administration continues to pursue its ambitious infrastructure program. The “Build, build, build” program is primarily funded by the national government and through official development assistance. However, last November, it was reported that the government has begun considering the public-private partnership (PPP) mode again to lure more investors into funding the flagship programs. Socioeconomic Planning Secretary Ernesto Pernia said the government needs to welcome more private sector partners to expand the source of infrastructure financing.

Out of the 100 flagship projects, around 26 were now said to be implemented through PPP, nearly multiplying the original list by threefold. The PPP strategy, at any rate, has been proven to be effective in delivering public services and creating more job opportunities, and the public seems to agree. According to a survey conducted by Pulse Asia last September, 72 percent of Filipinos agree that the government should engage in partnerships with qualified and reputable private enterprises to build and operate key development public utilities and infrastructure projects such as electricity, water, roads and mass transportation.

Government-owned and -controlled corporations like the Bases Conversion and Development Authority (BCDA), Philippine Retirement Authority, and the Tourism Infrastructure and Enterprise Zone Authority have adopted their own joint-venture guidelines in order to facilitate the participation of the private sector in the development, operation and management of various big-ticket projects.

Observers say that the overall investment climate in the Philippines has improved in the past decade, but investors continue to face major challenges such as caps on foreign ownership, poor infrastructure, corruption and red tape. According to the World Bank’s Doing Business Report 2020, the Philippines performed poorly compared with its peers in Southeast Asia. Despite the passage of the Ease of Doing Business Act in 2018, we were only able to overtake Cambodia, Laos and Myanmar in the ranking.

Some economic experts worry that the government’s move to revoke the concession extension agreements with Manila Water Co. and Maynilad Water Services have revealed the “high regulatory risk” faced by private corporations that want to do business with the government, as well as the deficiencies in the due diligence and contracting processes in the past and present administrations. The order to review other agreements that the government deems “disadvantageous” has caused apprehension and insecurity among a number of current and prospective investors, with the regulatory framework now seen as vague, burdensome and unpredictable.

A complex regulatory framework poses higher risks to doing business, which may in turn deter foreign direct investments. To attract more investors, the government needs to provide more clarity and certainty about the contracts it enters into with private partners. It can be recalled that during his inaugural speech in 2016, President Duterte had ordered all department secretaries

and heads of agencies to refrain from changing and bending the rules in government contracts, transactions and projects already approved and awaiting implementation. At that time, the President stressed that

changing the rules in the middle of the game was wrong.

The private sector is a vital partner in national development. The government should liberalize the avenues for the private sector to partake in government projects. Effective PPP engagements contribute to infrastructure development, attract more investments, and create quality jobs. To achieve a balance between the interests of the public and private sectors, the challenge for the government is to continually enhance its policies and processes to improve the country’s business and investment regulatory framework.

Dindo Manhit is founder and managing director of Stratbase Group.