Why remove restrictive economic provisions?
We have long been advocating for the removal of restrictive economic provisions in the 1987 Constitution, as a necessary step to uplift the lives of Filipinos. According to a Pulse Asia survey in 2023, inflation, workers’ pay, and creating more jobs remain the most urgent concerns of Filipinos.
The existing ownership restrictions enshrined in the Constitution are as follows: Education: 100 percent Filipino for individuals, 60 percent Filipino for corporations; Public utilities: 60 percent Filipino for individuals and corporations; Advertising: 70 percent Filipino for individuals and corporations; Mass media: 100 percent Filipino for individuals and corporations; Land: 100 percent Filipino for individuals and 60 percent Filipino for corporations; and Natural resources: 100 percent Filipino for individuals, 60 percent Filipino for corporations.
Benefits of removing these provisions. It will lead to more foreign direct investments (FDI), which can help curb inflation since more capital means more businesses that can supply our needs, which in turn would help lower prices and improve the quality of goods and services due to increased competition. It will create more jobs since more businesses will result in more job opportunities for Filipinos in our own country, preempting the need to work abroad. More businesses competing for the talents and skills of Filipino employees would help improve real wages.
Now is the right time. Our FDI inflows are lagging compared to our Asean peers. From 2010 to 2022, Philippine FDI inflows amounted to just $9 billion compared to Indonesia’s $22 billion, and Vietnam and Malaysia at $17 billion. We are allocating less of our gross domestic product to investing in our growth compared to our peers. In 2022, such investment was only at 23 percent for the Philippines, compared to Vietnam’s 33 percent, Thailand’s 28 percent, and Indonesia’s 30 percent. Except for those in the National Capital Region and nearby areas—which have almost 60 percent of economic activity—there are fewer opportunities for Filipinos to improve their lives. Attracting more FDIs will help direct more capital, and thus more balanced growth in other regions.
Current status. The House of Representatives recently approved Resolution of Both Houses No. 7 amending the foreign equity restrictions in public utilities, education, and advertising by adding the phrase “unless otherwise provided by law.” This means that the current foreign equity restrictions will still remain in the Constitution, although Congress can fully lift these restrictions through legislation. An enabling law is thus needed to open the door to foreign investments in the Philippines.
Our recommendations. We recommend the outright removal of the restrictive economic provisions in the Constitution, including those on mass media, land, and natural resources. Removing restrictions on land ownership will provide an opportunity to use idle lands for agricultural purposes and increase our supply of food and other agricultural products, which would help curb inflation. In the case of mass media, other Asean countries also have economic restrictions in place.
Why outright removal? Recent laws passed to improve the investment climate may face judicial challenges, as seen in the amendments to the Public Service Act because the provision on public utilities is still in the Constitution. The same is true in the amendments to the implementing rules and regulations of the Renewable Energy Act, if the restrictions on natural resources are not removed. With foreign investors considering a country’s legal framework as an important factor in their investment decisions, removing these restrictions in our Constitution would send a clear and compelling message of welcome to foreign investors.
Effect on domestic industries, especially micro, small, and medium enterprises.
Congress has the power to impose appropriate limitations, restrictions, and conditions for ownership or safety nets, should circumstances warrant these adjustments, through ordinary legislation. We can also revise the Filipino First provisions, particularly Article II, Section 19, to read as: “The State shall develop a self-reliant and independent national economy for the benefit of all Filipinos.” For Article XII Section 10, we propose that the preference for Filipino investors be revised to qualified investors, since it is grounded on who can best serve the interests of Filipinos regardless of nationality.
Other factors. Aside from removing the restrictive economic provisions, we should consider other factors such as the rule of law, good infrastructure, lower energy and logistics cost, and ease of doing business, to effectively compete with our Asean peers in attracting more FDI. Doing away with restrictive provisions is a necessary first step to ensure that our legal framework is at par with our neighbors to create a more attractive investment environment.
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Gary B. Teves served as finance secretary under the Arroyo administration.
