The Philippines’ macroeconomic fundamentals are sound, inflation is stable, and investment confidence is high, yet it has failed to substantially increase its share of the foreign direct investment (FDI) that has been pouring into Asia. According to figures released this week by the UN Conference on Trade and Development, the Philippines attracted FDI of $2.8 billion in 2012, up 54 percent from $1.8 billion in 2011. But this pales in comparison to our Asean neighbors, with FDI flows ranging from Vietnam’s $8.4 billion to Singapore’s whopping $56.6 billion.
Many factors influence a country’s ability to attract and grow FDI, but in the Philippines’ case, a 2011 study by Stephen Thomsen of the IFRI Center for Asian Studies identified restrictive foreign-ownership rules as one of three major impediments (the other two are perceived high levels of corruption and labor costs). A comparison of Asean countries will show we have the highest number of sectors with ownership restrictions and impose the highest percentage of minimum national ownership in a business (60 percent local, 40 percent foreign). We now see that such protectionist policies are not doing us any good in terms of improving the quality of our industries and services. According to economist Gerardo Sicat, foreign-ownership restrictions have resulted in the undercapitalization of our public utilities, leading to the high cost and low quality of utility services, which means higher production costs for industry.
I believe the time has come for us to once and for all address the limitations of certain aspects of our Constitution, specifically its provisions on the limits to foreign-equity participation, foreign land ownership, and foreign workers. There were a number of compelling reasons why I earlier opposed proposals to amend the Constitution. First, the motives of previous Charter change (Cha-cha) efforts were suspect. There was real cause to fear that a hidden political agenda—to expand powers and extend term limits—was at work. Second, the timing was always off. There were matters that seemed of greater urgency at those junctures that demanded the attention of our leaders. Finally, there is the sense of obligation to protect the basic law of the land and the fear of setting a dangerous precedent in trifling with it.
Today, however, I believe the time is right to push for Cha-cha. For one, there has been a sea change in the level of trust and confidence in our leadership, including the incoming congressional leaders who will be guiding the Cha-cha initiative, should it come to pass. More importantly, the necessity of undertaking this task can no longer be ignored. We deserve to celebrate our impressive economic growth, but we have come to the point where the sustainability and inclusiveness of our development are the bars that matter. We need to attract more investments and generate more jobs. My contention—one shared by my colleagues in the business community—is that the lifting of constitutional restrictions on specific sectors or activities will enable us to achieve these goals.
Aside from boosting our ability to compete for foreign investments, constitutional reforms are also critical for us to participate in the US-sponsored Trans-Pacific Partnership (TPP), in which our Asean neighbors Brunei, Malaysia, Singapore and Vietnam, as well as newcomer Japan, are now taking part. With Japan’s addition, the 12 TPP members will have a combined GDP of $28 trillion (almost 40 percent of global GDP) and about a third of all world trade. This is a partnership we cannot afford to be left out of!
Based on simulations in a 2012 study published by the Peterson Institute for International Economics, if the Philippines were to join the TPP, together with South Korea, Thailand, Indonesia, and Japan (the study was made before Japan signified it would join the TPP negotiations), our country would post an income gain of $22.1 billion in 2025. On the other hand, in a scenario where the TPP includes only the 11 members as of 2012, the Philippines will be looking at a $500-million income loss in 2025.
To compete in a single market governed by a high level of liberalization, as envisioned by the TPP, the Philippines will have to not only work toward efficient systems and aligned regulations but also address constitutional provisions on foreign investment and employment. The current draft of the investment chapter of the TPP agreement demands national treatment for foreign investors, eliminates requirements that investors export a certain percentage of their goods and transfer technology or proprietary knowledge to a local officer, and stipulates that investors should be able to appoint foreigners to senior management positions. These provisions run counter to Philippine laws, but will have to be accommodated somehow if the country wishes to join the partnership.
Thus, Cha-cha has become an immediate imperative. A number of measures have been filed in the House and Senate calling for constitutional changes, but I believe the proposal of Speaker Sonny Belmonte—to convene a constituent assembly, with the two chambers of Congress voting separately, and inserting the phrase “unless otherwise provided by law” to all the restrictive economic provisions, then complementing this with appropriate legislation—is a feasible plan that deserves support. It will take a monumental effort requiring enormous political will, but with great respect for the Constitution and guided by a shared vision toward the greater good, we must now do what is best for our people.
Ramon R. del Rosario Jr. (rrdelrosario@gmail.com) chairs the Makati Business Club.