I am giving my full support to the move in both chambers of Congress to amend the economic provisions in the 1987 Constitution that unreasonably restrict foreign equity investments in large-scale, capital-intensive industries in the Philippines. Especially to be targeted are public utilities, mining, the media, education and real estate. If changing circumstances should warrant limiting foreign investments in these sectors, it should be done by legislation. Having the restrictions enshrined in the Constitution can handicap the Philippines in competing for foreign direct investments (FDI) in the Asian region, now considered the global economic engine.
One does not have to be a super-optimist to predict that the last three years of President Aquino’s term will see an average annual growth of at least 7 percent, serving as a foundation of and gauge for the next administration. That is the good news. The bad news is that maintaining the growth at that pace for another 6 to 12 years so that we can finally reduce poverty incidence to less than 10 percent (from the present 26 percent) will not be possible with internal savings alone.
Take the case of China. It already has the highest savings rate in Asia of 50 percent of GDP. Despite abundant domestic savings, China still had to attract close to $100 billion of FDI annually to power its average growth of 10 to 12 percent for more than two decades—the only way it could redeem some 400 million Chinese from dehumanizing poverty. Vietnam is another case. It has succeeded in attracting $7 to $10 billion of FDI annually over the last five to seven years. And Indonesia’s average annual FDI has exceeded $10 billion.
Even with some corrections for accounting errors, Philippine FDI has not exceeded $2 billion annually. There is no way we can sustain a 7-percent GDP growth for the next 20 years, much less a 10-percent growth that can speed up the reduction of poverty, without our attracting at least a $10-billion FDI level annually.
That is where Speaker Feliciano Belmonte and Senate President Juan Ponce Enrile are absolutely right. We will never attract those much larger amounts of FDI unless we remove from our Constitution the many restrictions against foreign equity investments in such vital sectors of our economy as the media, education, public utilities, mining, and real estate. Removing the constitutional restrictions will give way to more enlightened legislation that can still protect the common good against the wrong kind of foreign investments.
For example, removing the absolute prohibition against the foreign ownership of land will enable Congress to legislate that only land on which a foreigner builds his home or his business can be owned by foreigners. This will be the answer to the alarmist concern of some militant forces that “the Chinese will buy the whole Philippines.”
In fact, the recent executive order on responsible mining is another example of enlightened policymaking. It mandates Congress to legislate on the conditions for the grant of new mining concessions. What the two leaders in Congress want is to remove from the Constitution what is properly a legislative task. If there are to be restrictions to some forms of foreign direct investments, let them be through legislation (which can be changed when circumstances evolve), rather than through the Constitution.
I never agreed with my fellow drafters of the Constitution in 1986 to transform the Charter into one long-winded and verbose piece of legislation. In fact, I tried to remind them (to no avail) that the United Kingdom does not even have a written constitution but has had a long history of very enlightened legislation.
What really gets my goat is hearing some of our leaders saying that even without changing the Constitution, foreigners will find many “creative” ways of going around the restrictions (including marrying Filipinos!). What they fail to realize is that these “creative” ways are precisely the reasons why the Philippines is always at the bottom in the ranking of “Ease of Doing Business.” We are constantly pilloried by foreigners for corruption, red tape and bureaucracy, and inefficient infrastructure—the three top reasons they cite in explaining why they do not come to the Philippines. I can trace all these three to the constitutional restrictions that force foreigners to hire very expensive lawyers, bribe government officials, suffer months, if not years, of going from one office to another if they want to do things legally, look for the right patrons, etc.
I completely disagree with the President that constitutional restrictions to foreign equity investments do not matter. Removing them will matter a lot in our fight against corruption, red tape and bureaucracy, and inefficient infrastructure. As I have written in other articles, we can more speedily improve our toll ways, water systems, airports, electric utilities, and telecommunications facilities if we remove the 40-percent limit to foreign equity.
Dr. Bernardo M. Villegas is senior vice president of the University of Asia and the Pacific. His e-mail address is bernardo.villegas@uap.asia.