"Even the most well-meaning constitutional reforms and new laws would simply drive foreign investments elsewhere."
With the coronavirus pandemic resulting in the worst contraction of the Philippine economy since the Second World War—the gross domestic product or GDP falling by 9.5 percent last year—you would think that foreign investors would be filled with fear and loathing over the dire prospects of putting their money here at this time.
But if we're to believe the Bangko Sentral ng Pilipinas, all is not doom and gloom. It said that foreign direct investment net inflows actually grew by 41.5 percent to reach $961 million in January 2021 from $679 million in January 2020.
The increase in investment inflows during the month in the form of equity capital, reinvestment of earnings or long-term borrowings was supported mainly by the 116-percent expansion in nonresidents’ net investment in debt instruments to $535 million from $248 million in the same month last year.
“This development reflects the investors’ optimism at the start of the year due in turn to the gradual reopening of the economy under the ‘new normal’ condition, easing of lockdown measures, and positive news about the rollout of COVID-19 vaccines,” the central bank said.
But the preliminary figures on foreign investments for this year shouldn't be taken to mean that more would no doubt be coming for the rest of the year, or in the years ahead.
In fact, we are now seeing frenzied efforts by the national government to attract more foreign investments to accelerate economic recovery.
This week, Malacañang certified as urgent measures that allow full foreign ownership of public services and less restrictions on foreign investments. These are Senate Bill No 2094, which seeks to amend the Public Service Act; Senate Bill No 1156, which seeks to amend the Foreign Investments Act of 1991, and Senate Bill No 1840, which seeks to amend the Retail Trade Liberalization Act of 2000 by lowering the required paid-up capital for foreign retail enterprises
The House of Representatives passed in March 2020 its version of the amendment to the Public Service Act allowing 100 percent foreign ownership of public utilities.
The Senate version of the bill allows 100-percent foreign ownership of public services like telecommunications, power, and transportation by distinguishing between "public services" and "public utilities." The distinction is critical because the 1987 Constitution only requires 60 percent Filipino ownership of a firm if it operates a "public utility."
That's not all. Early this year, the House Committee on Constitutional Amendments opened deliberations on the Resolution of Both Houses Proposing Amendments to Certain Economic Provisions of the 1987 Constitution.
Among those invited to give their ideas on the issue were three professors emeritus from the University of the Philippines School of Economics (UPSE). Dr. Raul Fabella, Dr. Ernesto Pernia and Dr. Gerardo Sicat argued for changing the Constitution’s economic provisions given the need to speed up the recovery of the pandemic-hit economy.
Fabella, the only Filipino economist recognized as a National Scientist, said “the lifting of the constitutional limit on foreign ownership will make the Philippines more foreign investment-friendly.” The Yale University graduate said he favored the lifting of restrictions on the foreign ownership of land, asserting that land should be owned by whoever can make it more productive, regardless of citizenship.
For Pernia, a former director general of the National Economic and Development Authority, changing the economic provisions of the Charter is timely: "Although the economy has really been clobbered by the pandemic, the economy is recovering slowly––it is getting out of the hole little by little––and we need to accelerate that getting out of the hole.”
“We really need to push that, including allowing FDI (foreign direct investments) in the country, so this recovery will accelerate,” said Pernia who lamented that the Philippine economy has slowly been overtaken by other ASEAN economies.
Sicat, who founded the Philippine Institute for Development Studies (PIDS), explained that he considered the current economic provisions of the Constitution “the original sin” responsible for making it “really difficult for our country to progress in the attraction of foreign director investments.”
Sicat cited at least seven benefits of amending the economic provisions of the Constitution: (1) sustained and higher level of per capita GDP growth; (2) higher level of employment for Filipino workers; (3) improved overall level of productivity for the Filipino worker; (4) better nutrition of our workers' children and capability to support their schooling; (5) enhanced capacity of workers to finance family housing and other needs; (6) improved capacity for the state, through an upgrade of its finances, to undertake programs to ameliorate the conditions of those in poverty; and (7) a rising standard of living for all Filipinos.
Constitutional amendments alone, however, cannot be expected to bring foreign investors in droves to the country. This should be complemented by other measures that would convince them to put up stakes here for the long-term. These would include curbing corruption, red tape and regulatory capture; addressing inadequate infrastructure; bringing down high power costs; and maintaining law and order, among others. Otherwise, even the most well-meaning constitutional reforms and new laws would simply drive foreign investments elsewhere.