The second assertion of the UP Paper reflects how academicians can sometimes be living in an ivory tower. It posits that removing foreign equity restrictions is the least significant variable in increasing foreign investment. Hence, it’s nice, but there is no need for it. Just ask the Japanese, Spanish, South Korean, and other foreign investors who have aggressively bid for many of our flagship infrastructure projects. I have asked them, and majority ownership is a condition sine quo. Understandably, they want to control both for funding, management, and technology reasons. I hope all Filipino economists interested in improving our highly inadequate infrastructures will join in appealing to the Supreme Court not to declare the amendment of the Public Service Act (PSA) unconstitutional. That would be a disaster. I agree with the UP economists that opening media, advertising and educational institutions is not urgent today. These are the sectors that are being targeted by current Chacha efforts. That’s where I would apply the expression, “It’s nice, but there is no need for it for now.” What was opened up by Republic Act No. 11659 (amendment of PSA) is of absolute importance to our continuing the Build, Build, Build program. More than enough FDIs in infrastructure, telecommunications, renewable energy, and large-scale agribusiness can come in during the next five to ten years under this law.
There is no quarrel with the advice from the UP economists to concentrate and exert much effort on fixing other issues such as rule of law, corruption, and ease of doing business. We shall address these issues in the latter part of this series of articles. It would be the height of utopian dreaming, however, to expect that the problem of corruption can be solved in the short run. Practical investors know that this is impossible. South Korea, which has more than $40,000 per capita and is already a First World country, is still ridden with so much corruption in almost every sector of its society, i.e., the police, the military, the big business conglomerates (chaebols), and the three branches of government. They have sent a good number of former Presidents to jail. If I want to fight corruption with all my might, my reasons are not predominantly economic. Corruption has to be eradicated because it is immoral, evil, unjust, and sinful. And, of course, it siphons off people’s money to the corrupt persons’ pockets, estimated by some as high as P800 billion to P1 trillion yearly. But as long as we persevere in correcting erroneous economic policies (like anti-FDI laws) and strengthening financial institutions (like respecting the independence of the Central Bank), economic progress can be attained as we have done slowly but surely for at least the last thirty years, despite continuing corrupt practices among our incorrigible government officials in connivance with dishonest private individuals.
As the FEF rejoinder points out, common sense dictates that removing the restrictions must come first before fighting corruption and red tape. Foreign investors must be allowed to enter first to benefit from more efficient institutions and processes devoid of bureaucracy and red tape. Fixing a maximum of 40 percent equity is tantamount to not allowing them to enter, especially into the capital-intensive sectors of infrastructures, renewable energy, and agribusiness ventures. As the FEF paper asks rhetorically, “How does one even experience all of the other enabling factors (ease of doing business, good governance, efficient institutions) if one is barred from the get-go?”
In a typical road show organized by the private sector, the various resource speakers are very transparent about the obstacles that foreign direct investors commonly face in the Philippines. We never hide the fact that they may need more than 30 signatures to get a permit to invest in a solar energy project. We warn them that some LGU officials may ask for a bribe in their desired locations. We tell them that in some cities or municipalities, they will encounter very weak internet connections and frequent electricity blackouts ( we call them brownouts). At the national level, we admit that on some occasions, the right hand of the government does know what the left hand is doing. For example, in the ongoing efforts to reconsolidate the millions of hectares of farms (especially coconut farms) fragmented into small units through the failed agrarian reform program, the Department of Agriculture, the Department of Agrarian Reform, the Department of Natural Resources and Environment and the Department Local Government may be adopting and implementing contradictory policies. For example, at the beginning of the term of former President Duterte, despite the expiry of the Comprehensive Agrarian Reform Law, the left-leaning Secretary of Agrarian Reform was still insisting on splitting up more landed estates that were perfect for the use of large commercial farms that could be planted to cacao, coffee, mangoes, bamboo, and avocado. Or you may have a Secretary of Agriculture recommending the product diversification in commercial farming from bananas and pineapples to other high-value fruit crops being stopped by the Secretary of DENR to convert some of the denuded forests into large-scale farms for coconut, mangoes, bamboo, and other fruit-bearing trees on the ground that only narra, molave, apitong and similar species can be used for reforestation. Fortunately, this is no longer the case under the present very competent and knowledgeable Secretary Yulo Loyzaga of DENR.
Thanks to his decision to appoint himself as Secretary of Agriculture for the first 14 months of his term, President BBM and his very street-smart Secretary of Agriculture, Francis Tiu Laurel, are resolving these conflicting policies. The same can be said about new tax laws like CREATE. Tax incentives given by the Department of Trade and Industry and the various PEZA zones could be easily erased by new tax laws trying to increase government revenues. This is where the nation’s CEO, the President, has to step in and do the necessary refereeing.
Despite being transparent about all the obstacles the foreign investors face as they try to navigate the very complex and forbidding investment environment in the Philippines, do we still succeed in getting the more practical and entrepreneurial foreign investors to come in? The answer is Yes. What we do is bring with us in the business delegation conducting the road show top executives of Philippine conglomerates (e.g. the Aboitizes, Consunjis, Megaworld, GT Capital, Metro Pacific, etc.) together with some of their respective foreign partners in projects that have already been implemented. We present these delegation members as evidence that despite all the red tape, corruption, and inconsistencies of policies, these successful business people have still been making profits. The trick is for foreign investors to choose the right minority Filipino partner with the ability and experience to deal with a highly imperfect business environment. After all, business is all about taking risk-taking and converting threats into opportunities. To be continued.