The Philippines has the most foreign equity ownership restrictions in the Association of Southeast Asian Nations (ASEAN) region, former Finance secretary Gary Teves said Wednesday.
Teves made the statement at a roundtable forum on the impact of regulatory barriers on foreign direct investments, as changes to the economic provisions of the Constitution are being discussed by the Senate.
The forum was organized by the House of Representatives Congressional Policy and Budget Research Department (CPBRD), led by Deputy Secretary General Dr. Romulo Emmanuel Miral Jr., and moderated by Markina City Rep. Stella Quimbo, senior vice chairperson of the House committee on ways and means.
“We are the most restrictive in ASEAN and Vietnam, which has made substantial liberalization, is the least restrictive. We are No. 3 globally,” Teves told the forum.
He said there are constitutional restrictions in many areas of the economy, including agriculture, mining, construction, transport, media, and telecommunications.
Teves said he and the Foundation for Economic Freedom, which he represented in the discussions, support the move in Congress to amend the “restrictive” economic provisions of the Constitution.
“Remove those from the Constitution. We are the only country in ASEAN and perhaps in the entire world with those restrictions in the Constitution,” he said.
He added that if the power to regulate investment inflow belonged to Congress, the legislature could easily change the limitations.
However, the former finance secretary pointed out that dismantling such barriers “is necessary but not a sufficient condition” for the country to attract more foreign investments.
There are other “restrictions” that are not in the Constitution that hinder the flow of capital, like issues related to ease of doing business, red tape, corruption, infrastructure, logistics, and cost of electricity, he stressed.
Teves informed lawmakers that one “serious constraint” in investment is local government interference and regulation.
He said businessmen and investors did not expect to encounter such a problem in local governance.
For his part, UP economics professor and National Scientist Raul Fabella shared Teves’ assessment of the investment climate in the country.
Fabella said the Philippines has an “anti-investment ecology” and has been lagging in attracting foreign capital for more than four decades.
“The task before this generation and this administration is to reverse this decadal march to the bottom in the investment ladder,” he said.
He added that the recent law reducing corporate income tax has failed to entice foreign investors and benefitted only the shareholders of corporations that used the tax bonanza for dividends.
Like Teves, Fabella pointed out that factors other than constitutional restrictions, including those related to the high cost of electricity, bureaucratic inefficiency and corruption, rule of law, and infrastructure, affect investments.
Some 172 signatures are required for certain projects, he said.
He cited the controversial construction of Terminal 3 of the Ninoy Aquino International Airport during the Ramos administration as an example of the cost of foreign ownership limitation.
The project drew interest from foreign investments, among them Germany’s airport operator Fraport.
“But the restriction on foreign ownership means that foreign interest cannot wholly own and run the facility. It (Fraport) needed a local partner to pose as majority owner (some say dummy). It found one, but the partner was embroiled in corruption cases leading to lawsuits that caused the completed Terminal 3 to be mothballed for a decade since delivery in 2002,” Fabella said.
He noted that in 2016, the Supreme Court, confirming an arbitral ruling, ordered the government to pay Piatco, Fraport’s local partner, P25 billion.
“Had the ownership restriction not been there, Terminal 3 would have been running and earning since 2002 and the P25-billion indemnity would have been avoided. P25 billion was the cost of the foreign ownership restriction in just this one case,” Fabella said.
The government eventually took over Terminal 3, which started to operate at full capacity in August 2014.
Other guest panelists at the House roundtable forum were Philippine Statistics Authority Undersecretary Dennis Mapa, UP economics professor Toby Melissa Monsod, and Philippine Institute of Development Studies senior research fellow Francis Mark Quimba.
Rutcher Lacaza of the House planning, budget and research department presented a paper on investment barriers and their impact on foreign direct investments.