FDI & the restrictive economic provisions

Two weeks ago, the Bangko Sentral ng Pilipinas (BSP) reported that the “net inflow of foreign direct investments (FDIs) into the country shrank from US$12 billion (in 2021) to US$9.2 billion (in 2022) or by 23%  due to a considerable drop in lending and equity capital from overseas.”

It is already sad that our FDIs shrank.  What makes it worst is, we continued to lag behind our neighbors.  If there is a little consolation, we are better than Cambodia, Laos and Myanmar, the usual bottom dwellers in the ASEAN in terms of FDI generation.

Critics may swiftly conclude that this is probably because of how President Duterte ran the country during his term. That, most likely, the first world countries might have discouraged their wealthy citizens, our potential foreign investors, from investing here. Or that, his successor is not doing at all to improve our image as a good investment destination. Thus, we have become laggards in attracting FDIs.

This perception, however, is unfounded. Historical data will help us sort this out. As reported by the World Bank through the East Asia Pacific Economic Update in 2016, the ASEAN region, has been the largest recipient of FDIs in the Asia Pacific region. However, since 1952 until 2012, “Singapore accounts for more than half of the 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%, Vietnam (the once war-torn country) ranks 5th with 8%, and the Philippines is 6th with a miserable 3%.”

Likewise, a report from the United Nations Conference on Trade and Development confirmed this. From 1980 to 2013, the country accumulated the lowest amount of FDI ($362 billion) when compared to Singapore ($6.4 trillion), Thailand ($1.5 trillion), Malaysia ($1.3 trillion), Indonesia ($1.1 trillion), and Vietnam ($591 billion).

Worse for us, communist country Vietnam (remember, communism hates capitalism) made more policy changes by raising foreign ownership from 49% to as high as 60% on some previously controlled industries.  Good enough for foreigners to take control of their investments or businesses. Notably, this is part of their continuing efforts to attune their policies to the constantly changing global investment climate to attract more FDIs.

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.

There was an attempt then to revisit our constitution. To recall, President Duterte signed Executive Order No.10 creating a 25-member body that would study proposals to amend the 1987 Constitution.  In signing such executive order, he emphatically stressed that, “There is a need to review the 1987 Philippine Constitution to ensure that it is truly reflective of the needs, ideals and aspirations of the Filipino people and to ensure that the mandate of the people as expressed thereon, is responsive to changing times.”

Also, then Socioeconomic Planning Secretary Ernesto M. Pernia told reporters in the sidelines of the 2017 International Conference on Sustainable Development Goals Statistics that “the government plans to liberalize nearly all industries by 2019.”  That, expectedly, “mass media and almost every sector except land ownership (which shall come by way of a 50-year lease and renewable for another fifty years) will be further opened up to foreign investors,” he said.  Enthusiastically, with these amendments, “foreign direct investment inflows could easily double,” he further said.  It can be done through an amendment of the Constitution to be pushed in Congress next year,” he added.

Whether it worked as planned, we do not know. What is certain is, the lower and upper houses of congress are still debating as to how to effect the change. Is it through con-con or con-ass?

Apparently, therefore, what is important right now is for all the players (Senators and Congressmen) to make true their commitments in amending some economic provisions of our constitution. After all, there is nothing wrong with change, if it is for the better. Otherwise, in terms of FDIs, we shall continue to get crumbs. Then, eventually, be with the bottom dwellers in the ASEAN forever.