Despite the very obvious dire need of the Philippines for Foreign Direct Investments (FDIs) in the light of the very scarce long-term capital available domestically because of our very low domestic savings rate and our high debt-to-GDP ratio, we still hear voices that echo President Quezon’s infamous words: “I prefer a Philippines run like hell by Filipinos to one run like heaven by Americans.” There are still some economists who question the importance of FDIs for the BBM Administration to achieve its laudable goals of possibly attaining a GDP growth of as high as eight percent annually and reducing the poverty rate to single digit by 2028. For this reason, I was very glad to read a rejoinder from the Foundation for Economic Freedom, Inc. to a UP School of Economics Discussion Paper objecting to the current moves of the Lower House to amend some restrictive provisions in the 1987 (to which I also object for different reasons) ended up throwing cold water to the admirable efforts of President BBM in going all over the developed world to attract FDIs.
I have a personal stake in this debate (i.e. whether FDIs are essential to our attaining First World status in the next two decades) because I have spent more than 40 years of my professional life going all over the world (just exactly like what President BBM is doing now) to promote FDIs into the Philippines in what are known as “road shows” organized by the private sector. It was always an uphill climb because, for most of the last 40 years, the Philippines was known as the “sick man of Asia.” To make matters worse, we had all sorts of restrictions against FDIs, especially after 1987 when these restrictions were enshrined in the Philippine Constitution. I can attest to the fact that when foreigners enumerated the reasons why they hesitated to invest in the Philippines, together with red tape and corruption, there was always the complaint that they could not own the majority share of such large investments as infrastructure, power plants, telecom facilities, etc. Foreign ownership was always an issue, especially after the FRAPORT scandal of the Manila International Airport. From these personal experiences, no sophisticated multiple regression analysis will convince me that foreign ownership is not an issue in trying to get large doses of FDIs in the coming years. At least over the last 10 years, I always got the feedback in these roadshows that foreign investors are flocking to Vietnam, not only because of their lower energy costs and wages but because foreigners could own 100 percent equity in practically all large-scale investments. I am completely convinced that Vietnam overtook us in per capita income in 2020 because of their FDI-friendly policies, among others.
It is unfortunate that the tenor of the UP paper deteriorated from just objecting to the holding of CHACHA in today’s circumstances to an attitude of lukewarmness to FDIs. I fully agree with what is contained in the introduction to the rejoinder of FEF, Inc. to the UP paper: “It fails to take into consideration the long history of anti-foreign direct investment (FDI) policies in our 1935, 1973, and 1987 Constitutions, which all espoused the protectionist economic model. Given the state of our economy vis-à-vis our neighbors who have taken a more liberal route, the model has clearly failed. Likewise, the factors affecting FDIs are complex, including the country’s history of xenophobic policies and protectionist politics.”
But, first, a word about the Foundation for Economic Freedom. It is a public advisory advocacy organization dedicated to advancing the cause of economic and political literacy, good governance, secure and well-defined property rights, market-oriented reforms, and consumer protection. It is made up of economists, business people, lawyers, other professionals, members of the academe, and others who defend the fundamental human right of free enterprise and the principle of subsidiarity, i.e., that what can be accomplished by individuals, families, and small groups of citizens efficiently and competently should not be taken over by higher bodies, least of all by an all-powerful State. Getting down to brass tacks, it defines freedom, among others, as purchasing that land to plant crops, getting well-paying jobs, starting and expanding that small business, pursuing that travel bucket list, or developing that technology to address climate change.
FEF was especially active in supporting Republic 10023 which allows Filipinos to receive a free patent on residential lands without a land title. It removes the lengthy and expensive court processes to gain legal rights over residential lands that have been occupied and cultivated for at least 10 years. More recently, it was a very strong backer of the game-changing Republic Act No. 11659 that amends the 86-year-old Public Services Act, opening several key industries such as telecommunications, expressways, airports, and shipping up to 100 percent foreign ownership. Thanks to this Act, passed in the last months of the Duterte administration, I have gotten very positive responses from large infrastructure companies who are willing to invest in major infrastructure projects, agribusiness ventures, and renewable energy during the road shows in which I participated since the beginning of the BBM administration. FEF has also supported measures to liberalize, deregulate and privatize the Philippine economy such as the Rice Tariffication Law, Open Skies Policy, Oil Industry Deregulation Act, Full Entry of Foreign Banks, Retail Trade Liberalization Act, Electric Power Industry Reform Act and Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.
The FEF rejoinder to the UP Position Paper agrees that the factors affecting FDI are complex, context-dependent, and subject to other factors such as corruption, infrastructure, and regulatory regimes. For example, among potential foreign investors in tollways and highways, the greatest complaint is the very long process the government takes in implementing the principle of eminent domain, i.e., getting the right of way from private land owners. This and other obstacles do not rule out, however, the need for reducing restrictions on foreign equity. The FEF rejoinder points out that the studies mentioned in the UP paper showed that the coefficient of FDI regulatory restrictiveness is significantly different from zero, which would warrant the need to address this variable as part of economic liberalization.
The FEF goes beyond regression analysis. It refers to a case with which I am very familiar because I have seen a great deal of activity in the alternative renewable sector once it was opened to 100 foreign equity. Referring to statements made by Undersecretary of Energy Sharon Garin in hearings in the House of Representatives, the FEF paper reported that the renewable energy sector got a big boost in investments from foreigners once it was liberalized. After RE liberalization, Bloomberg identified the Philippines as the 4th biggest destination for RE investments and the “darling” of the RE industry. The multiplier effects here are significant: there will be potential investments in the manufacturing of machinery needed for RE, such as wind turbines and solar panels not only for the domestic market but also for export. Ten seaports must be built to transport and build tools and machinery like turbines for wind energy, solar panels, and batteries. The first beneficiary will be the planned Luzon Economic Corridor connecting the ports of Batangas, Manila, Clark, and Subic Bay. Two other international ports that will benefit from RE investment will be Iloilo and Cagayan de Oro. To be continued.