“These three measures are crucial to our growth.”
Three economic liberalization measures passed by the outgoing Congress are expected to have tremendous impact—in terms of higher manufacturing, more jobs created, and greater foreign investments flowing into the country.
These are: 1) the new Public Service Act (PSA) amending Commonwealth Act No. 146, which is pending signature into law; 2) the Foreign Investments Act, and 3) the Retail Trade Liberalization, now a law (Republic Act 11595).
The idea is to open up to more players, foreigners in particular, areas which used to be exclusive to Filipinos only or which used to be so restrictive to outside players foreign investors were turned off.
The effect of the decades-long restrictions gave rise to monopolies—in telco, water distribution, electricity distribution, and public utilities like mass transportation, and along with their monopolistic or oligopolistic practices –inefficiency, bad service or product, oppressive rates, and abusive conduct detrimental to the Filipino.
Please note, however, that the presence of substantial foreign equity in a monopoly corporation does not automatically give rise to efficiency, reasonable pricing, and fewer abuses. The business remains rent-seeking or profiting at other people’s expense while the investors simply sit on their as*es.
But it is a nice investment propaganda to say that the Philippines is opening up its economy and is now friendlier to investors. And it is always good to have competition in any profitable industry.
“The three measures are crucial in accelerating growth in 2022,” argues economist Karl Kendrick Chua, the economic planning secretary and director general of the National Economic and Development Authority.
The amended PSA no longer classifies telcos and transportation as public utilities. That means telcos can have substantial foreign equity and charge rates as high as they want to, subject to perception of reasonableness. And airlines and bus companies can have 100 percent foreign ownership.
The following are still considered public utilities: electricity distribution, electricity transmission, petroleum products pipeline transmission, water distribution through pipelines, including sewerage systems; and public utility vehicles.
NEDA, however, will decide whether a public service is a public utility or not. That means a public utility today may not be a public utility tomorrow. No need to pass through Congress which, however, retains its right to issue franchises.
With telcos open to new players, local and foreign, expect their rates to come down. Per NEDA data, the average monthly download speed of the Philippines is 82.61 mbps. That is the 63rd fastest (or among the slowest) among 178 countries. In download speed for cell phones, the Philippines averages 42.44 mbps—65th among 138 countries.
Galling is the fact that the Philippines has one of the highest mobile internet costs–$1.77 per gigabyte or 97th out of 230 countries in being cheap. Indonesia’s price is 42 US cents, Vietnam’s 49 cents, Malaysia’s 89 cents, Thailand’s $1.06, and Singapore’s, $1.09. Our mobile internet price is 4.2 times that of Indonesia, a country with the same level of economic development as the Philippines.
Those are inexcusable speeds or lack of speed and atrocious pricing. The Philippines is the 12th largest country on earth in population, 110 million. It is the 29th richest country on earth in terms of GDP, ppp, of $1 trillion. We are richer than Singapore, which is 8 rungs below us in GDP size. Yet, Singapore is the fastest in ASEAN in download speeds.
Karl Chua says the Philippines is considered the most restrictive in ASEAN and the third most restrictive in the world.
The amendments to the Foreign Investments Act will: 1) relax conditions on firm size and minimum number of Filipino employment for tech enterprises; 2) harmonize investment promotion and facilitation initiatives, and 3) improve transparency in monitoring investments by requiring an analysis of foreign investments performance. In other words, the investor must deliver to keep his incentives.
Amending the Retail Trade Liberalization Act, meanwhile, will: 1) open retail to foreign investors –retailers, brands, restaurants—to locate and expand operations in the Philippines; 2) create uniform capitalization requirement to simplify processes and reduce red tape; and 3) widen consumer choices at lower prices, and with new technologies and innovation.
Retail capitalization is now uniform at P25 million, with minimum capitalization per store pegged at P10 million. Categories as to high-end or foreign-owned are removed. The government no longer gives a damn who the parent company of the retailer is.
All three pieces of legislation—PSA, Foreign Investments, and Retail Trade– complement the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which brings the Philippines’ corporate income tax rate closer to its ASEAN peers and modernizes the country’s fiscal incentives system.
“The passage of these reforms will also create more and better employment op- portunities,” says Chua. According to the World Bank, relaxing foreign equity restrictions in the transport and telecommunications sectors can result in an increase in employment of 2.8 percent in the transport sector and 1.8 percent in the telecommunications sector.
It could also increase employment by a range of 1.8 to 6.2 percent for various manufacturing sub-sectors through spillover effects, based on the same study,” Chua says.
Chua recalls how Republic Act No. 8762, which opened up the retail sector, led to the entry of international brands like Ikea, Uniqlo, and Muji. The enactment of the Amendments to the Retail Trade Liberalization Act last December 10 will further simplify and lower barriers to entry in the retail sector and give Filipino consumers an even wider array of options.
The amended PSA has been sent to Malacañang for signature into law.
The economic liberalization bills will attract more investments in sectors that still need significant improvement, says Chua.
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