FDI: A must for growth

Three decades ago, as a young professional, I had the opportunity to work with a world-renowned auditing firm. Together with the other youthful and aspiring Certified Public Accountants, gathering valuable experiences were our priorities, not salaries. Full of idealism, it was always our preference to audit companies that were not just big but were also using new technologies. 

With this preset objective then, all eyes were just staring in one direction, the Mactan Export Processing Zone (now, Mactan Economic Zone I). Honestly, it was then a struggle to get one very sound experience as there were just a handful of companies operating at the zone. In fact, some companies were just occupying a few hundred square meters for their operations in a MEPZ-owned factory building. Thus, it was then customary that most of us will try to squeeze ourselves among exposure-thirsty audit staffs and fight for a slot just to get audit experiences in such prominent companies (inside MEPZ) like TMX Phils., Inc. and Fairchild Semi-conductor Inc.   Notably, these were the first two real foreign direct investments (FDIs) in the Province of Cebu.

Today, like Metro Manila, Cebu is a haven of FDIs. Thus, those who may wish to gather adequate experiences will have so much on their plates. Undeniably, these FDIs provided employment not only for Cebuanos but for opportunity seeking Filipinos all over the country as well. So much so, that probably, our economic planners will just have to relax a bit and enjoy the fruits these investments bring.

Truth be told, weighed against that of other key cities in Asia (even in aggregate), ours will surely pale in comparison. The main reason-the apparent lack of incentives. Despite these realities, however, our government has remained adamant in giving additional incentives to prospective foreign investors because of some nationalistic fervor. 

This mindset is confirmed by President Benigno S.C. Aquino III (PNoy) himself before a general assembly of the Joint Alumni Clubs (Alumni of US schools) at The Peninsula Manila in Makati City last week. In answering a question on business groups' venerable plea to ease constitutional restrictions on foreign ownership in certain industries, PNoy emphatically said, it had "a nationalistic trait in me".  

True enough, our constitution limits foreign ownership to 40% in some undertakings. Most of these undertakings usually involve natural resources and public utilities. These restrictions are clearly manifested in the Foreign Investments Negative List. This is a list of all business activities where foreigners are either restricted or banned.  

This development simply confirms that our policies toward FDIs will remain the same. While we may brag about what we have attained right now having the same old policies or constitutional restrictions, it cannot be denied that other countries that are already better than us will continue to give more. Worst for us, new emerging economies that are also wanting in it (FDI) may have to offer better and tantalizing incentives.

Candidly, if PNoy is adamant in not giving in to the foreign business group's demand for removal of some restrictions (like the negative list), he must consider other changes. Probably, this can come in terms of ownership of real properties (such as, land for a manufacturing plant and residence). With this incentive, it doesn't mean though that there shall be no restrictions. While we should allow them (foreigners, whether personal or juridical) to own real properties, its use and sizes shall be regulated.

For instance, let us take the case of Singapore. Despite its limited size (just as big as Cebu island), Singapore allows foreigners to own real properties. Though subject to the approval of the country's Minister of Law, foreigners can acquire such properties as (a) vacant residential land; (b) landed property (i.e. detached house, semi-detached house, terrace house (including linked house or townhouse)); and (c) landed property in strata developments which are not approved condominium developments under the Planning Act. Consequently, most investors stay in Singapore longer, if not, forever (like facebook co-owner Eduardo Saverin).

Moreover, another country that is performing better than us, as far as, the economic growth and FDI inflows are concern is Malaysia. Similarly, Malaysia started it by promoting itself as second home. They started it a few years back and have now started reaping dividends.   They started it seven years ago when they launched "Malaysia-My Second Home" (MM2H) by offering foreigners, particularly retirees, to live permanently in their country. They started by giving five-year visa with unlimited entry/exit privileges and without minimum annual residence requirement. Permanent residency is also a possibility after a five-year stay. Retirees may also bring in household effects duty-free, and import or purchase one vehicle locally, tax free. Income tax incentives are also offered for investing retirees. Notably, recipients (foreigners) are eligible to buy houses at a cost of not less than RM150,000.00 each. More importantly, for purposes of owning the house, they are also entitled to borrow from local banks 60% or more of its cost or value. Consequently, by staying permanently, they brought their businesses too with them.

Should we attempt to compare our own program with that of Singapore or Malaysia, ours pale in comparison. Unfortunately, due to some restrictions that our existing laws provide, the privileges and benefits are just so limited. For instance, the Philippine Retirement Authority's (which promotes and grants Special Resident Retiree Visa) website simply bragged about, among others, "our world-renowned Filipino hospitality, our diverse culture, and reasonable standard of living". Other incentives include the option to retire permanently, and exemptions from income tax over retirees' pension and annuities; exit and re-entry permits of the Bureau of Immigration; annual registration requirement of the Bureau of Immigration; customs duties and taxes with regard to the importation of household goods and personal effects up to US$7,000.00; and travel tax, if the foreigner-retiree opts to stay in the Philippines for less than a year from the last entry date.

The country's time deposit requirement in obtaining the visa (PRA accredited banks' certificate of inward remittance is necessary) ranges from US$10,000.00 to US$50,000.00 depending on whether one is a pensioner or not and his/her age. While it seems that our time deposit requirement is not stiff, its subsequent conversion is irrational. These required time deposits can only be converted into active investment through purchase, acquisition and ownership of a condominium unit; long-term lease of house and lot, condominium or townhouse for a period not shorter than twenty (20) years; and purchase, acquisition and ownership of golf or country club shares.

Notably, in comparing ours and that of Singapore's or Malaysia's, the issues on ownership of real properties and the conversion of the time deposit requirements are the most discouraging provisions that made our program inferior. Never blame PRA for that because restriction on ownership of real properties by foreigners is a constitutional provision.

Additionally, the conversion of time deposit is so limited and impractical to some extent. An elderly may no longer have the energy to play golf and, therefore, buying club shares is no longer an option. Moreover, retirees who are already in their seventies may opt for spaces, greens, beautiful sceneries and the serenity of the countryside, yet, we only tell them to buy a compartment we so elegantly call condominiums.

On the other hand, some retirees are still young and vibrant. Since their time deposit requirements are also higher, definitely, they wouldn't want to see it sleeping in the bank. Energetic as they are, they might opt for direct investments and help generate employment. Unfortunately, however, our program prohibits such. Without these kinds of incentives, our foreign investors who intended to stay here for good have resorted to using dummies to buy manufacturing plants and residential houses they can call their own. 

Indeed, there seemingly is an undying interest in our country. Unfortunately, however, what we are trying to offer are sadly those that they don't need. What is important now is for all the players (including our lawmakers) to consider amending certain laws to keep abreast with the fast-changing environment brought about by the irreversible journey to globalization.   In this regard, the possibility of foreigners owning real properties (inside accredited economic zones/retirement villages must be given due consideration.

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