Investment drag

NO MATTER how much the Aquino administration touts the Philippines as attractive and friendly to businesses, the fact remains that foreign direct investments (FDI) are not coming in as expected. A bill filed early this year in Congress seeking to amend certain restrictive economic provisions in the Constitution brought a ray of hope. But President Aquino was unenthusiastic, so it failed to muster support among legislators.

Malacañang argues that amending the Constitution is not the only way to improve the Philippines’ competitiveness and attractiveness as an investment haven. With the investment-grade rating from international credit watchers, an improved perception among foreigners that corruption is being addressed, and the prevailing fiscal and monetary stability, the Philippines should easily become the next destination of FDI in Asia. Add a better investment climate marked by an expanding consumer market, skilled labor, a young population, and strategic location in the region, and it’s natural to assume that foreign investors are making a beeline for these shores.

But consider these. Latest data from the Bangko Sentral ng Pilipinas show that net FDI plunged 48.3 percent to $1.2 billion in the first four months of the year from $2.38 billion in the same period last year. In April alone, FDI fell 43 percent to $382 million. Bangko Sentral data also show that net equity capital investments shrank 50.5 percent to $279 million from January to April, and equity placements declined by 61.6 percent to $369 million.

Foreign business organizations have long urged the government to reexamine its policies to boost the entry of FDI, to prevent the Philippines from being economically left out in the region. John D. Forbes, senior adviser at the American Chamber of Commerce of the Philippines, was to the point, calling attention to certain realities: 1) Southeast Asia is now the world’s fastest-growing economy; and 2) the country that’s getting the most FDI is Vietnam, which has also become the region’s No. 1 exporter to the United States and is at the same time capturing the lion’s share of the relocation of investments from China.

The biggest local business groups—Makati Business Club, Philippine Chamber of Commerce and Industry, Management Association of the Philippines and Joint Foreign Chambers—have lamented the failed plan in the House of Representatives to amend restrictive economic provisions in the Constitution, and again warned that this could result in the Philippines missing out on FDI. (The resolution, sponsored by Speaker Sonny Belmonte himself, proposed the removal of restrictions on foreign ownership of land, natural resources, media, advertising and public utilities, “unless otherwise provided by law.”)

Elsewhere, countries have opened their economies and embraced trade liberalization. If the Philippines does not follow suit, it could miss out on participating in important multilateral trade deals.

Economic experts are agreed that the Constitution needs to be amended if the Philippines is to attract the foreign investments that will generate jobs and eventually address the problem of poverty. Studies have identified the country’s biggest investment opportunities to include manufacturing, real estate, agriculture, mining, infrastructure, retail and tourism—areas that are largely untapped because of restrictions on foreign capital in these sectors. True, the wisdom of the restrictive-ownership clause in the Constitution was to protect local industries and Filipino businessmen. However, studies have shown that the only beneficiaries of such protection were interest groups that did not want competition to threaten their nearly monopolistic hold on the market. And there is another compelling argument going for the need to boost investment inflows, and that is the fact that the consumption-led economic growth that the Philippines has been experiencing in the past few years is not sustainable.

It’s unfortunate that the signing into law last week of the Fair Competition Act, which had been pending in the House since 1989, may be for naught if local industries that have been protected for so long are not opened to real competition.