“With better laws, we can now attract more and higher quality investments.”
With the expected landslide victory of former Senator Ferdinand “Bongbong” Marcos Jr., the question now is what kind of economic policy will he embrace?
A President Marcos II inherits a government that is technically bankrupt (with debts of nearly P12 trillion as of end-December 2021 alone), in need of fresh investments, local and foreign; and with herculean challenges on three fronts — each one unprecedented in scale and severity in the last 40 years—raging inflation, war in Europe, and post-COVID new normal.
The need for cash, in tax revenue and investments, local and foreign, is urgent and critical.
Fortunately for Marcos 2.0, the outgoing Duterte administration has approved among the most reform-minded economic pieces of legislation in the last 50 years. These include the Retail Trade Liberalization Act (RTLA), the Public Service Act (PSA), and the Foreign Investments Act (FIA).
These investment reforms removed restrictions on the entry of foreign investments in key areas like retail, real estate, telecommunications, and transportation.
The Philippines is a consumption economy. Up to 84 percent of GDP is fueled by household and government spending. So freeing up retail and otgher key areas for participation by foreign players is a big deal.
On March 21, President Duterte signed Republic Act (RA) No. 11659, which lists down the amendments to the 85-year-old Public Service Act, allowing 100 percent foreign equity across economic sectors, except for entities engaged in the transmission and distribution of electricity, water pipeline and sewerage, seaports, petroleum pipeline, and public utility vehicles.
On March 4, Malacañang released the signed Republic Act No. 11647, an “Act Promoting Foreign Investments” through amendments of the decades-old Foreign Investments Act (FIA) of 1991. It effectively governs foreign investors setting up shops in the country. The law followed RA 11595, signed over a month later, amending the Retail Trade Liberalization Act of 2000 (RTLA).
These laws certainly go a long way in attracrting substantial non-Filipino investors to enter new areas of investments, to build up scale and logistics, improve local technology and manpower and generally help local industries to compete with their ASEAN rivals.
Previously, the state limited foreign investments to just 40 percent in many areas, in pursuit of misplaced nationalism.
True, full foreign ownership was allowed in retail, but restrictions imposed on paid-in capital and investment per store turned off investors.
The RTLA now allows 100 percent foreign ownership of startups or startup enablers, enterprises involving advanced technology, businesses where a majority of direct employees are Filipinos and with minimum local employment of 15 Filipinos.
House Ways and Means Committee Chairman and Albay Rep. Joey Sarte Salceda has estimated full foreign ownership in telecommunications, railways, airlines, and airports would attract an astronomical P299 billion over the next five years.
Another salient feature of RA 11647 (FIA) is Section 8 which reserves small domestic enterprises with paid-in capital of $200,000 or less only for Filipinos. After all, 99 percent of Philippine enterprises are SMEs. The old law used a higher threshold as barrier for foreign investors, $500,000.
The FIA refined the Foreign Investment Negative List and narrowed it to cover only defense-related businesses like the manufacture, repair, storage, and distribution of firearms, ammunition, and lethal weapons.
The FIA creates Inter-Agency Investment Promotion Coordination Committee led by the Department of Trade and Industry (DTI) to craft the master plan of promoting the Philippines as an aggressive foreign investment destination.
The committee will also keep an online database where local enterprises, especially the startups, can look for foreign investors to tap. It will likewise help local governments to address concerns of foreign investors.
But then, to ensure that the strength of the law will be utilized, the committee should guarantee sound and just public policy, resolutions, and case decisions supportive of the FIA, the PSA, and the RTLA.
The Securities and Exchange Commission (SEC) — as the government agency mandated to scrutinize, among others, the securities and investments in the country — should also resolve pending cases of foreign investors. If the government wants to maximize these law reforms, the SEC should step up and work closely with the DTI-led committee to remove these regulatory snags.
RTLA (RA 11595) lowers the minimum paid-up capital of foreign retail companies to just P25 million, from P125 million previously. It also removed other requirements like minimum net worth, minimum retail branches, and retailing track record. However, foreign retailers must carry an inventory of local products.
“These are welcome changes from the previous rule that disproportionately favored already-large enterprises, prevented diverse smaller investors such as startups from entering the Philippine retail market, and complicated compliance for foreign retailers,” explained Finance Secretary Carlos Dominguez.
In a recent presentation at the British Chamber of Commerce of the Philippines (BCCP) recent webinar, NEDA Director Bien A. Ganapin confirmed that foreign retailers have already signified their interest to ramp up investment in the country. However, they still have to wait for the issuance of the Implementing Rules and Regulations (IRR) of the law.
Ganapin disclosed that Japanese retailers are interested in convenience store expansion and specialty restaurants while Indonesians are keen on pharmaceuticals and China in foodservice and motor vehicle retail operations. Retailers from South Korea are likewise looking at investing in feeds and food franchises while Unite Arab Emirates retailers are looking at setting up medical equipment as well as food detailing.
According to the Philippine Statistics Authority, total foreign investments (FI) approved in the last quarter of 2021 alone reached P133.47 billion.
Total approved projects of foreign and Filipino investors in the fourth quarter of 2021 were projected to generate 34,403 jobs.
With better laws for investors, the Philippines finally has brighter chances of attracting better quality foreign investors.
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