FDI: Why Vietnam beat us
As the host province, we’ve been on our toes these days as far as making sure that the activities of the Asian-Pacific Economic Cooperation (APEC) are smooth and problem-free. Established in 1989, this regional economic forum is envisioned “to leverage the growing interdependence of the Asia-Pacific.” It also “aims to create greater prosperity for the people of the region by promoting balanced, inclusive, sustainable, innovative and secure growth and by accelerating regional economic integration”.
However, while it is true that APEC aims to promote a balanced growth in the region, it is still a fact that the member-countries’ domestic laws/policies will still have huge influences in their respective economic progress. The result of the 2015 “doing business” survey conducted by the World Bank that was released late last year confirms this. Surveyed between June 2013 and June 2014, the economies were compared and ranked in “11 areas of the life of the business”.
Ten out of these eleven areas were included in the year’s “ease of doing business” ranking. These were starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.
While, to some, these are just numbers, to those who are so concerned about the country’s competitiveness, these numbers speak volumes. For one, we, after some recalculations of last year’s survey, went down by nine ranks. That is from rank no. 86 to 95. To some, they may say, so what? The truth is, this is one of the most important surveys in the globe. Consistently topped by Singapore, the investors in the entire world are looking at this survey for investment decision purposes. In fact, being on top is the very reason why Singapore, despite its limited size, is attracting a lot of foreign investors all over the globe and is cornering the biggest chunk of FDIs among member states of the ASEAN.
Thus, if we make an attempt to understand our performance, then we must try to understand the survey results. First and foremost, the result of this survey can be well understood by analyzing our performance as far as attracting FDIs is concern. You may not be aware but we are among the laggards in the ASEAN in this respect. Historical data will help us sort this out. As reported by the World Bank through the East Asia Pacific Economic Update earlier last year, the ASEAN region, has been the largest recipient of FDIs, in Asia Pacific.
However, since 1952 until 2012, “Singapore accounts for more than half of total FDIs to the whole region at 52%. Thailand ranks 2nd with 13%, followed closely by Indonesia at 3rd with 11%, at 4th is Malaysia with 10%, Viet Nam (the once war-torn country) ranks 5th with 8%, and the Philippines is 6th with a miserable 3%”.
More importantly, this performance directly correlates with our performance in the WB’s “doing business” surveys. For instance, in the same survey, when compared against ASEAN countries, we are fifth overall with Singapore on top, followed by Malaysia (no. 18), Thailand (no. 26) and Vietnam (no. 78). One may ask why Indonesia, ranked no. 114, is way ahead of us in FDI generation despite us being ranked higher at 95. The answer is very simple and direct. If we closely examine the categories, the “starting a business” category explains it all. In this category, we ranked no. 161 while Indonesia is way ahead at rank no. 155. At 161st place, we are among the bottom 30 of the 189 countries/economies included in the survey. It simply means, both domestic and foreign investors have difficulties with our licensing and permitting systems and procedures. Thus, are discouraged to invest.
Worse for us, lately, communist country Vietnam (remember, communism hates capitalism) made some policy changes as far as foreign investments are concerned. In some industries that were used to be controlled, they’ve raised foreign ownership from 49% to as high as 60%. Good enough for foreigners to take control of their investments or businesses.
Therefore, what is really more important is for our leaders to listen to some business groups’ venerable plea to ease constitutional restrictions on foreign ownership in certain industries. Remember, our constitution limits foreign ownership to 40% in some undertakings and in land ownership. 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. With Vietnam, Myanmar’s and Cambodia’s recent moves of easing foreign ownerships, our chances to corner more FDIs will certainly go further down.
Therefore, what is important right now is for all the players (PNoy and our lawmakers) to consider amending certain laws to keep abreast with the fast-changing environment brought about by the irreversible journey to globalization. After all, there is nothing wrong with change, if it is for the better.
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