Foreign investments: Why change the Charter?

In terms of growth in foreign direct investment inflows among the six “major” economies in the Association of Southeast Asian Nations, the Philippines was on top in 2013, scoring a 24% increase. That’s the good news.

However, there’s the downside. Our country was at the tailend of the six nations in terms of the amount of FDI received, netting only $3.9 billion.

In amount (US dollars) and growth rate, here’s the FDI scorecard: Singapore, $63.77B (5% growth rate); Indonesia, $18.44B (17%); Thailand, $12.95B (negative 12%); Malaysia, $12.31B (19%); Vietnam, $8.9B (flat growth); Philippines, $3.9B (24%).

The figures were culled from the 2014 World Investment Report of the UN Conference on Trade and Development or UNCTAD, presented to the media recently by former NEDA chief Cielito Habito.

Habito observed that whereas there was zero growth in domestic capital formation (fixed investment in the economy) from 2004 to 2009, there was a “turning point” in 2010-2013: capital formation rose to an 11.4% yearly average.

Despite these gains under the Aquino administration, FDI inflows remained low. Habito seized this fact to pitch for amending the 1987 Constitution to further open up the economy to foreign investments. He said:

“It’s clear that we’re sorely lagging behind because our neighbors have been getting multiples of the levels we get in FDI.  They have been more liberal in terms of foreign investments in their countries.”

Habito thus joined the foreign chambers of commerce and local big-business groups urging the passage of resolutions, filed in the House of Representatives and in the Senate, that seek to amend the protectionist provisions on the economy and patrimony and on other business activities limited to Filipino ownership or control.

Last March 3 the House committee on constitutional amendments approved the chamber’s version of the resolution so it could be scheduled for plenary debates. The Senate counterpart filed in February still has to undergo public hearings.

Underlying the resolutions is the argument that the protectionist provisions deter foreign investors from bringing more capital into the country. Removing the restrictions, they contend, would boost FDI inflows, drive economic activity, create jobs, and bring about growth and development.

At the House hearing in March, the IBON Foundation presented a position paper, peppered with facts and figures that contradict the proponents’ assertions.

IBON pointed out that the past four and the current administrations – Cory Aquino, Fidel V. Ramos, Joseph Estrada, Gloria Macapagal-Arroyo, and Benigno Aquino III – have already provided foreign investors “liberal privileges and generous incentives.” These include tax holidays, exemptions and credits; duty-free imports, tax-free exports, exemptions from local government charges, and simplified customs procedures.

Consequently, FDI inflows did grow 15 times bigger: from $243 million in 1981 to $3.9B in 2013. However, IBON noted: “Rising FDI has been accompanied by increasing unemployment, increasing labor export, falling real wages, shrinking domestic manufacturing, and more volatile and exclusionary growth.”

The number of unemployed rose from 1.6 million in 1981 to 4.4 million in 2012 and 4.5M in 2013, IBON said. The decade of 2001-2010 registered a record high unemployment level of 11.2%, which slightly declined to 10.5% in 2011-2013.

On manufacturing, the impact of increased FDI has been negative, IBON emphasized. Although 45% of FDI net inflows in 2001-2010 ($3.9B out of $8.6B) went to manufacturing, the sector’s share in the gross domestic product fell from 27.2% to 20% between 1981 and 2013. Its share of total employment dropped to less than one-tenth.

Neither have increased FDI inflows done anything to mitigate poverty. IBON tracking showed that poverty incidence “has remained virtually unchanged since at least 1997” –  estimated at around 25-26% of the population by the most recent poverty methodology, or around 38-39% by the older methodology.

Thus, between the new and old methodologies, poverty incidence corresponded to 24-35 million Filipinos in 2012.  By another measure, IBON said, about 60% of the population – or 56 million Filipinos – are living on only P100 or even less per person per day.

What accounts for these dismal economic results?

Blame wrong economic policies that successive governments have persisted in adopting, under the rubric of neoliberal (“free market”) globalization.  All the five past Philippine presidents, IBON noted, have adhered to the belief that “globalization and market openness are unstoppable and countries that do otherwise are going against a relentless trend.”

But that global trend has begun to reverse in the last decade, particularly after the 2008-2009 global financial and economic crisis.  According to the UNCTAD, cited by IBON, 45 countries had already introduced 81 investment regulatory changes in 2000. In 2012, another 53 countries introduced 86 changes, of which 23% were restrictions. These restrictions increased to 38% in 2013.

More interesting is the report on protectionism by the British Centre of Economic Policy Research. It says several states – including the US, European Union, Germany, Russia, China, India, Indonesia and Vietnam – have implemented 2,141 protectionist measures since November 2008. Of the protectionist measures still in place, the Group of 20 advanced economies account for 68%.

With this global trend towards restrictions, the legislative move to amend the protectionist provisions of the 1987 Constitution loses its rationale. Let’s just drop it!

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