The Philippines: Half open for business

THE ASSOCIATION of Southeast Asian Nations (ASEAN) is quickly moving toward the implementation of the ASEAN Economic Community (AEC) by the end of this year. This move toward integration began in 2003, when ASEAN leaders resolved to form an ASEAN Community. The AEC Blueprint, signed during the 13th ASEAN Summit in 2007, set out an ambitious economic agenda that seeks to accomplish four major thrust: (1) the creation of a single market and production base, (2) a competitive economic region, (3) equitable economic development, and (4) integration into the global economy.

In recent years, the Philippines has made notable progress toward becoming more competitive, even being recognized in a recent study by the World Economic Forum as the “most improved country overall.” However, the study also showed that despite some improvement, the Philippines still lags behind ASEAN neighbors Singapore, Malaysia, Indonesia and Thailand in competing for foreign direct investments (FDI), which is crucial to job creation and sustainability.

The limits set by the country’s Constitution on foreign equity in real estate and in key industries has set up a half-open and restrictive business environment that has frustrated the influx of much needed FDI. In the most recent issue of SPARK, the Stratbase ADR Institute says that if the Philippines is to promote itself as an investment destination and facilitate the entry of FDI, the country must bring its policy on foreign ownership to global standards, and relaxing the limitations on foreign ownership should be key among them.

Based on official data from the Central Bank, the Philippines attracted over $6.2 billion in net foreign investment last year. While a vast improvement from just a few years ago, these figures are dwarfed by the FDI attracted by Singapore ($67.4 billion), Indonesia ($25.6 billion), Thailand ($11.8 billion), Malaysia ($10.4 billion), and Vietnam ($8.9 billion) in the same year.

The FDI Regulatory Restrictiveness Index of the Organization for Economic Cooperation and Development, shows that Singapore, which attracted the most FDI in the region, was also the most open when it came to FDI regulatory restrictiveness, while the Philippines was shown to have the most closed policies among all economies included in the study.

Further, countries like Vietnam is moving to relax its foreign ownership rules, recently allowing foreigners to buy residential real estate, which is expected to pave the way for a fresh wave of foreign investment to enter the country’s property market.

Economist Gerardo Sicat believes that those countries with the freest and most flexible policy mechanisms will gain the most, while those burdened with domestic restrictions will be slowed down by those restrictions since they could prevent or cause investments from happening. Unless the limits on foreign ownership are relaxed, the Philippines could still find itself left out of the lion’s share of FDI in the region, despite everything else being in place.

Also, the realization of the AEC in 2015 will provide both opportunities and challenges for the Philippines. But if the country is to take full advantage of ASEAN integration, the country must introduce essential reforms including the liberalization of key sectors of the economy. Amending the economic provisions of the 1987 constitution as proposed by House Speaker Feliciano Belmonte is a necessary step if we are to usher in an open and more competitive Philippine economy, directly benefiting poor Filipinos.

Resolution of both Houses No. 1, which seeks to add the phrase “unless otherwise provided by law” to provisions that limit foreign ownership in certain sectors, is currently pending approval at the House of Representatives.

The government has an opportunity to give “tuwid na daan” a lasting legacy by making the Philippines a viable economic destination and instituting reforms that sets the country up for the blossoming of a new entrepreneurial culture. It starts with a good cleaning up, and then finally opening the house to sustained prosperity.

Professor Victor A. Manhit is president of ADR Institute.