Outdated restrictions | Inquirer Opinion
No Free Lunch

Outdated restrictions

/ 12:48 AM September 23, 2014

In 2000-2011, we attracted an average of $1.1 billion in net foreign direct investment (FDI) inflows per year, a pittance against Singapore’s $14.8 billion, Thailand’s $4.5 billion, Vietnam’s $3.9 billion, and Indonesia’s $2.3 billion. But last year, our net FDI inflows already amounted to $3.9 billion, nearly four times the earlier average annual figure. Impressive? Not quite, once you consider that our neighbors have already pulled away even farther. Last year, Indonesia attracted $18.4 billion; Vietnam got $8.9 billion, Thailand $13 billion, and Singapore $61 billion. In short, given our neighbors’ figures, and considering our faster economic growth, we should have drawn in even more FDI than we did. So why didn’t we?

That our economy’s growth is now among the fastest in the region suggests that we have managed to overcome some (but clearly not all) of the traditional impediments to greater investment and growth in our economy. The Asian Development Bank identified four such impediments in a 2007 study: (1) tight government finances, (2) inadequate infrastructure, (3) weak investor confidence due to governance concerns, and (4) market failures leading to a small and narrow industrial base and an oligopolistic economy. The first and third constraints appear to have been largely addressed. But frequent mass rail transit breakdowns, crippling port congestion, slow Internet speeds, and a looming power crisis put to question government’s ability to address the long-standing infrastructure constraint to our sustained economic growth. And it’s investments—public and private, domestic and foreign—that should help address all these problems, and more. But for as long as our investment policy environment remains as restrictive as it is, we cannot anticipate significant relief to be forthcoming. It has become evident in the last four years that much improved business confidence, evidenced by both perception surveys and investment data, has not been enough for us to narrow our FDI gap with our neighbors.


I thus echo what many have long argued, that it’s high time we did serious rethinking on uniquely restrictive economic provisions in our Constitution. I say “uniquely” in light of the observation made by Cesar Virata and associates in 2003 that “…while numerous restrictions and regulations pertaining to foreign investment exist in various Asian countries, only in the Philippines are these contained in the Constitution.” One can well argue that such inflexibility has prevented us from responding to changing circumstances and taking advantage of economic opportunities that have come our way.

Indeed, changing circumstances in technology and economic realities render many of our constitutionally mandated restrictions on foreign business participation obsolete, irrelevant or even counterproductive. The 1987 Philippine Constitution bars or limits allowable foreign equity on public utilities, education, mass media and advertising, among other sectors.


By limiting foreign investment in public utilities, we seem to have unwittingly abetted the unusually high concentration of wealth and economic power in the country relative to our neighbors. With foreign participation barred, investments under our public-private partnership (PPP) infrastructure schemes, mostly in facilities classified as public utilities, have found limited bidders in the narrow field of familiar domestic entities with the required financial capability. Indeed, this has been cited among the reasons our PPP program has been slow to take off. India and Peru recently welcomed foreign firms to build new and much-needed railway systems. Why worry when the Constitution guarantees government’s sovereign right to regulate utilities, and even take control in times of emergency?

Meanwhile, restricting entry of foreign educational institutions, especially in higher education, has only deprived us of the opportunity to attract branches of leading world universities, as some of our Asean neighbors have (e.g., Yale in Singapore; Johns Hopkins in Malaysia and Singapore). This would help spur improvement in the general level of quality of our higher education institutions, and could only help upgrade our standing in the global knowledge marketplace. Are we afraid of being brainwashed by foreigners? Aren’t all our schools subject to regulation by the state, whether foreign or domestic?

In mass media, cable TV and the Internet now make foreign media organizations, whether located overseas or domestically, as readily accessible to the general public as domestic ones. In this age of ICT and social media, there’s little point in the nationality restriction; it only deprives us of the possible benefit of being chosen as a base by a foreign media firm that could bring in capital, jobs and improved technology. In any case, all mass media broadcasting locally, whether domestic or foreign-owned, are subject to the same inherent power of government to regulate content and business practices for the common good. The same applies to the advertising industry.

Studies by Stephen Golub (2009) and Rafaelita Aldaba et al. (2012) have shown that the Philippines restricts foreign ownership of investments more than its neighbors do. I’m convinced that this has gotten in the way of more FDI, even with heightened business confidence in our economy in recent years. Need we wonder why our unemployment rate has been and remains unusually high—7 percent versus an average of 2-3 percent in the rest of Asean—even as our economy’s growth now outpaces those of our slower (but FDI-richer) neighbors?

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TAGS: Cielito F. Habito, column, Constitution, economy, Foreign Direct Investment, foreign ownership
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