How to attract foreign investments without amending the 1987 Constitution

The usual whipping boy for the country’s laggard performance in attracting foreign direct investments (FDI) is the 1987 Constitution, with its overly restrictive provisions.

In 2021, the Oxford Economics reported that the Philippines is the least preferred destination of FDI’s in the Asean region due to its poor infrastructure and business environment. Among the nationalized restrictions in the Constitution are those on land ownership, industries that exploit natural resources, those that require a franchise, and educational institutions. Included in the nationalization requirement is the management and directorship of private corporations engaged in these industries.

The test for foreign ownership in corporations is clarified in the 2011 Gamboa v. Teves case, whose ruling said that to be considered a Filipino corporation, the 60 percent equity must refer to the voting or controlling interest of the stockholders. Thus, proponents of economic development in the country are pushing for constitutional reforms as a magic bullet to ease restrictions on foreign equity in certain industries. To counterbalance restrictive constitutional provisions, certain legal frameworks provide ease of transaction for foreign investments.

Republic Act No. 10881 (2015) allows 100 percent foreign equity in adjustment companies, lending and financing companies, and investment houses. RA 11659 (2022) redefines “public utility” as “a public service that operates, manages, or controls for public use any of the following: (1) distribution of electricity; (2) transmission of electricity; (3) petroleum and petroleum products pipeline transmission systems; (4) water pipeline distribution systems and wastewater pipeline systems, including sewerage pipeline systems; (5) seaports, and (6) public utility vehicles.” It should be noted that power generation and the mass rail transport system are not considered public utilities, although they qualify as critical infrastructure which the President may so declare and recommend to Congress for classification as public utility.

RA 6957, or the build-operate-transfer law, allows the private sector to invest in public infrastructure development, operation, and management under the public-private partnership (PPP) framework. PPP is a good entry point for foreign investments in the country without running afoul of constitutional restrictions. Since ownership of the public infrastructure will be vested in the state or the local government unit, foreign investors need not worry about the constitutional restriction on land ownership. Foreign investors necessarily consider the rate of return of investment, control and protection of their investment, and the predictability of outcomes that will guarantee the repatriation of investments. Which makes Singapore an investment haven because it provides such an ideal business environment. The country’s poor infrastructure is emphasized by the lack of cheap sources of electricity and the lack of regional mass transport systems, both on land and at sea, which are essential to full industrialization. In December 2021, electricity prices in the Philippines remained the highest in Southeast Asia at $0.16/kWh, next only to Singapore at $0.18/kWh. In this context, the advocacy for nuclear energy gains sensible traction. The Philippines will definitely need nuclear energy and mass transport systems to achieve full industrialization. Foreign investments can be enticed into these industries, with foreign investors forming a foreign-owned financing company to channel their investment into the Philippines. They can partner with a domestic corporation at 60:40 equity ratio to form a consortium that will qualify as PPP proponent for public infrastructure, such as a nuclear power plant or railway system—public facilities that will be owned by the state. The financing company can extend a loan to the PPP consortium to finance the development and operation of these public facilities. The loan can include as conditionality a management contract for the PPP consortium.Through this modality, there would be no need to amend the 1987 Constitution to jumpstart the much-vaunted quest for progress and economic development of the country.

Frank E. Lobrigo