A prominent economist has emphasized the urgent need for strategic amendments to the 1987 Constitution and the adoption of comprehensive economic reforms to significantly enhance the country’s investment climate.
National scientist Raul Fabella, a professor at the University of the Philippines School of Economics, made this pitch to members of the House of Representatives during a recent forum where he presented his paper titled “PH Investment Rate: Why are we far behind? How do we rebound?”
The forum was organized by the House Congressional Policy and Budget Research Department (CPBRD) led by Deputy Secretary General Dr. Romulo Emmanuel Miral Jr. and moderated by Marikina City Rep. Stella Quimbo, senior vice chairperson of the House Committee on Appropriations.
In his presentation, Fabella highlighted the stark reality of the Philippines’ investment rate, which “stands as the lowest among selected ASEAN countries, at 22.4 percent.”
In comparison, nations such as Thailand, Indonesia, and Vietnam boast higher investment rates, with China’s investment rate reaching between 34-50 percent in recent years.
He noted that this disparity underscores the Philippines’ preference for consumption over investment, resulting in a low savings rate and an “anti-investment ecology.”
“All economic progress boils down to investment. Countries that invest less will over time eat the dust of countries that invest more,” Fabella explained.
President Ferdinand Marcos, Jr. and government economists have all acknowledged the necessity of amending the restrictive economic provisions in the Constitution as a foundational step towards reversing the country’s position at the bottom of the investment ladder.
Such amendments aim to liberalize key sectors, allowing for greater foreign direct investments (FDIs) and fostering a dynamic economic environment conducive to growth and innovation.
Fabella also elucidated the challenges faced by the Philippine economy, including high power costs, bureaucratic inefficiency, corruption, and infrastructural lag.
Three years after CREATE 2 tax law which was sold to the public as an investment boost, the country’s investment rate hardly breaches 25 percent, he said.
The task of the current and succeeding administrations, Fabella said, is to “reverse the march to the bottom in the investment ladder.”
This anti-investment climate, he said, has led to economic cluster closures.
The agricultural sector was closed to large private investors because of the property rights chaos stemming from the Comprehensive Agrarian Reform Program (CARP) and resulting in land fragmentation. CARP distorted the market for land and access to formal credit.
Mining and forestry became forbidden destination for domestic private and foreign investment in the last decade.
The professor cited as an example the $6B Tampakan gold and copper mine project that is still in limbo after 40 years because of unresolved issues.
The country’s anti-investment ecology is also evident in the country’s high power cost. The Philippines has the highest power cost in ASEAN for big enterprises except for Singapore, but the lowest power cost for households, he pointed out.
Then there’s bureaucratic inefficiency and corruption, with investors having to go through as many as 172 signatures and delays to have their companies registered.
The country’s infrastructure also lags behind most of the ASEAN economies.
To address these issues, he proposed several strategic measures, including lowering power costs, encouraging investments in agriculture by adjusting land ownership ceilings, and redirecting financial strategies towards consolidating small farms.
Additionally, lifting Section 11 of Article 12 of the 1987 Constitution is highlighted as a crucial step to improve the investment climate by removing limitations on foreign ownership in business enterprises.
This, coupled with legislative efforts to facilitate foreign participation in the economy, presents a more credible commitment to potential investors, emphasizing the shift towards FDIs over portfolio investments.
Professor Fabella called upon all stakeholders, including the business community, civil society, and the public, to support these transformative initiatives. Through a concerted effort, he said, the Philippines can foster a pro-investment ecology, ensuring sustainable economic growth, job creation, and technological advancement.