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Philippines a good place to do business for MONOPOLISTS: P. Aquino, PAGCOR, and Protectionism

August 10, 2010

The Philippine is a very predictable place to do business for monopolists. Have your 40% equity ready – and there will be a Filipino monopoly business  ready to match you with 60%. Filipinos who can only match 50%, 40%, 30%, 20%, 10%, 5% – you are out of luck. The lucky foreign investors who find the Filipinos who can match the foreign 40% with the local 60% have guaranteed revenue – a captive market that is shielded from global competition.

The effect of lack of competition due to Philippine protectionism on end consumers is lesser income. Consumers have lesser income because of higher costs charged by monopoly businesses - telephone, electricity, water, entertainment, and transportation.

No wonder that for a country that is perceived as an economic basket case, Asia’s laggard – has at least three Filipinos in the Global Forbes Fortune 500 – Lopez, Ayala, and Tan. And they happen to be Filipino monopolists as well. Mind you – the assets of these three people are far greater than the annual budget of the Philippine government.

Philippines among most restrictive to foreign investments

As pointed out by the World Bank study Investing Across Borders the Philippines imposes of the strictest regulations regarding foreign ownership of businesses in the country. The Philippines ranks second only to Ethiopia, which does not allow foreign equity ownership in any business.

Under the Philippine Constitution Secs 10 and 11 of Article 12, only up to 40 percent equity in a domestic corporation is open to foreign ownership.

Wasn’t it only last month when these headlines hit the news stands?

RP among most restrictive in foreign investments

World Bank study cites RP’s restrictive policy on foreign ownership

In contrast, Brazil, France and Ghana allow foreign ownership in all of their domestic firms up to a hundred percent.”

And if that’s not enough – FDI was down prior to the May elections.

FDI down in May 2010 – Anticipating the protectionist inefficiency, expansion of Filipino monopoly businesses, better deals from competing countries?

Foreign direct investments in May down 68%–BSP

By Michelle Remo
Philippine Daily Inquirer
First Posted 15:50:00 08/10/2010

Filed Under: Economy and Business and Finance, Politics, Investments

MANILA, Philippines – The country registered a net outflow of foreign direct investments in May as the elections pushed investors to the sidelines while waiting for the political situation to stabilize.

According to the Bangko Sentral ng Pilipinas, net outflow of FDIs reached $35 million in May. This was a swing from the net inflow of $446 million in the same month in 2009.

The bleak investment picture in May dragged the FDIs for the first five months of the year. FDI in January to May stood at a net inflow of $446 million, down 68 percent from $1.39 billion in the same period a year ago.

Central bank officials said the outflow of investments in May and the decline in the net inflow in the first five months were due to uncertainties both in the domestic and international fronts.

Locally, they said, the elections prompted foreign investors to wait until the new administration stepped in and to look for signs the turnover of governance would be smooth. Offshore, the debt crisis in the Eurozone dampened risk appetite of investors.

Analysts said the crisis in the West somehow cast doubts on the sustainability of the recovery of the global economy from the 2009 recession. Asian developing countries, like the Philippines, are partly dependent on the global economic recovery, which would spell rebound of their export sectors, to boost their own growth rates.

“Investors stayed on the sidelines as they remained wary of potential spillovers of the Eurozone’s sovereign credit problems, notwithstanding the relatively peaceful conduct of the May 2010 local and national elections,” BSP Governor Amando Tetangco Jr. said in a statement.

Data from the central bank showed $630 million worth of gross inflows of FDIs in January to May, while gross outflows amounted to $184 million.

The BSP said bulk of the gross inflows of FDIs in the first five months came from the United States, Switzerland, Japan, Netherands, Singapore, and Hong Kong.

Investments from corporate entities from these countries benefited mostly the manufacturing, real estate, financial intermediation, utilities, mining, and transportation sectors.

The BSP expects the net outflow of investments in May to be reversed in the succeeding months given fresh optimism of the business sector, which private-sector analysts said became evident since Benigno Aquino III took over as the country’s new chief executive.

The government’s new economic team has vowed to improve the country’s business climate, particularly by trimming procedures in setting up a business and curbing corruption in line agencies.

The team is also promoting partnerships between the government and the private sector wherein the private sector will invest in public infrastructure projects.

Finance Secretary Cesar Purisima, who heads the economic team, said the government would put up an infrastructure fund, which would become a pool of investments from the private sector in priority infrastructure projects.

Privatization of Public Monopolies Equals Private Monopolies

The public-private infrastructure fund is old hat and plain old smokes and mirrors when put up against the backdrop of protectionism and liberalization. Privatizing a public monopoly does not necessarily make it less inefficient.  Liberalizing the ownership of a public monopoly however changes the game because local owners who are inefficient can be ousted by local small shareholders by partnering with foreign investors who can provide more win/win arrangements than the local monopoly businesses. Decoupling and liberalizing ownership will therefore introduce competition and create efficiencies that will benefit Filipino consumers.

Investment Policy Affects The Kinds of Investors We Attract

In this recent keynote address – P. Aquino reiterated his latest toy – the $10B to buy the PAGCOR monopoly on casinos and gambling.

Aquino: RP to be good place to do business

By Cathy C. Yamsuan
Philippine Daily Inquirer
First Posted 04:51:00 08/10/2010

Filed Under: Investments, Foreign affairs & international relations, ASEAN

MANILA, Philippines—Talk about good timing.

President Benigno Aquino III vowed to make the Philippines “a predictable and consistent place for investment” a day after a top local tycoon made a pitch to buy the Philippine Amusement and Gaming Corp. (Pagcor) for $10 billion on behalf of a group of Malaysian businessmen.

In his keynote address at the 43rd founding anniversary of the Association of Southeast Asian Nations (ASEAN) Monday, Mr. Aquino said he envisioned the Philippines becoming a country “that would be known for honoring contracts and giving due protection to foreign investors.”

The President came to the Department of Foreign Affairs and met with Foreign Secretary Alberto Romulo and the diplomatic representatives of the ASEAN countries.

Attract investors

Mr. Aquino vowed to transform the Philippines, saying that “an exemplar, as well as exponent, of the rule of law—including international law—is a country attractive to investments. A Philippines that harmonizes its national interest with its international responsibilities is a nation that can earn, and maintain, its dignity and self-respect whether on a bilateral or multilateral level.

Predictable, consistent

“We can achieve this by making sure our country is a predictable and consistent place for investment. The security and well-being of Filipinos throughout the world will be best protected if our country enjoys international amity. That amity will be fostered by our ability to honor contracts and give due protection to investors,” he said.

Mr. Aquino said his administration also planned to “be more conscious of our commitment to fostering improved ties with our ASEAN neighbors. We will be a good neighbor, a productive partner and a consensus-builder as we work toward our common goals.”

Romulo handed the President a framed copy of the ASEAN Charter in Filipino. Mr. Aquino said copies of the charter would be made available to all pubic libraries nationwide.

The Philippines – Predictably/Consistently Protectionist, Pro-Oligarch, Anti-FDI/Anti-Liberalization/Anti-Consumer

It was funny how Aquino talks about protecting foreign investors when the constitution restricts investors. Who is there to protect in the first place when investors barely want to give it a look? Get the investors in FIRST – by liberalizing the economy and removing the protectionist provisions in the charter.

Without liberalization, Aquino is just ensuring that Filipino monopoly businesses snag a 60 (Fil)/40 (foreign) joint venture with a foreigner – never mind the Filipino small businesses that are willing to do a 40 (fil)/60 (deal) and compete against the local monopoly.

With this kind of investment policy we attract Malaysian monopolists to go into (60/40) joint veture with Filipino monopolists. Which means Philippine Casinos will remain uncompetitive, will pay wretched wages and benefits – there’s no competition, what do you expect?

Tiger economy? Yeah right – if you buy that you are a bigger fool than I expected.

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From → Economy

105 Comments
  1. Hyden Toro permalink

    Foreign companies; mostly come here, to take advantage of the low cost of labor. Even, if they will own the investment 90%. If they find another country, offering lower labor cost. They will surely pack up and leave.

    Peace and Order situation; the presence of Politicians/Oligarchs in our body politic; widespread graft and corruption; are just a few of the factors, why foreign investors do not want to invest in the country.

    Anyway, most of the competent Filipinos have gone as OFWs already in their countries. What is the sense in using the incompetent Filipinos, that are left behind? The best and the brightest are working for you already; at starvation wages, in slave conditions…You don’t have to worry about the factors, I’ve cited; if you invest in the Philippines.

  2. Not necessarily. It depends on the industry. There are industries which pay top dollar for high productivity. They get more done with less – and therefore make better revenue.

  3. Ryan Bosco permalink

    So how do we put an end to monopoly in the Philippines? Through literature and comments?

    Action, people, action!

    Boycott on September 21, 2010.
    Stay home!

  4. Hyden Toro permalink

    Industries are built by innovative people. If you start an industry, fifty years existing in the market. You will be opting for low labor cost, to produce a profit. Bill Gates, started as an innovator of the Information Technology field. Building the Microsoft Corporation in Seattle, Washington, U.S.A. This is the reason why, he is one of the richest man in this Planet. Same as Henry Ford of Dearborn, Michigan, U.S.A.. Ford started the automobile/car industry. Cars have thousands of parts. From the smallest screw, bolts and nuts. To the biggest engine casing and transmission. These parts are produced in factories. These factories produced jobs. Jobs give people income. This is the trend in industrialization. As in contrast to our Feudal and Service Oriented industries. We have mining industries. However, we sell the semi processed ore concentrate to Japan, al low cost, to be processed to finished products. This is what I mean to have: Technology/Innovativeness to produce industries and jobs for people. Filipinos are lacking of these traits. Most of those Technical people left already as OFWs.

    Anyway, it is easier to become a Politician/Deceiver. You just promise people: they will have better lives, when they will elect you. After being elected; you steal public funds, and enrich yourself. The way of least resistance is better. Politics is our main industry…political patronages are the by products…

    I cannot find any basic/major industry in the Philippines. Most are the service oriented industry; that is: low labor cost manufacturing. Had we ever innovated any Trend setting industry or Technology?
    Sugar is easily grown in our country. Yet, we are importing it. Sugar can be processed into many products and by products; including the fuel:Ethanol…

  5. Cost of labor in the Philippines is not particularly a bargain, from a foreign investor’s point of view. Unit labor costs generally run at 70-80% of US levels on average. BPO runs less than that, of course, but BPO is a non-capital generating activity. Only an investment in the same sense that OFW dollars/euros/yen are.

  6. @Hyden – freeing the market is the best thing the Philippines can do for Filipinos. Filipino Big Business will benefit from the innovations and higher purchasing power that comes with a liberalized market.

    They may or may not have a decrease in market share depending on their ability to innovate and satisfy the market.

    If you look at every sector of the Philippine economy – or in every industry – shipping, air transport, retail, banking, electricity, telecommunication – you will find that in general there are only four companies that own anywhere from 95% to 100% of the market. Chances are – these four companies are owned by four different corporations but these corporations are all owned either by a holding corporation – or a partnership. Then, there’s the matter of interlocking corporate directorships. These cuts all across industries – for one good reason – an investment policy that is not conducive to competition. And what can that be? It may not be the only drivers – but these are two of the main drivers – land ownership and equity limits. On top of the complicated business registration process.

    In Florida – go to Sunbiz.org you can register a business and incorporate in less than an hour – online.

    Statistically, liberalization is like encouraging the growth of a lush jungle oasis. This increases the population size of the inbound business – therefore increasing the absolute number of business that will survive the homeostatic albeit Darwinian market.

    Innovation is akin to a mutation that expands the ability of the organism to thrive in diverse circumstances – from the trenches, to the volcanic sulfur vents, to the polar caps. In contrast – protectionism restricts the organisms ability to evolve and adopt to changes to external stimuli – and gradually goes extinct or remains limited in its range of habitable environments.

  7. @Ryan – the answer lies in the charter. what caesar (the people) giveth, caeasar can taketh back.

    boycott is but one of many methods that are available for creating awareness. however it will not create a permanent and lasting good. the end game lies in charter change – removing the protectionist provisions of the 1987 Constitution – so that the benefits of competition, collaboration, innovation, and prosperity will propagate cross all sectors and industries in one swoop.

    For the same amount of energy (pesos per man-hours) the government uses to come up with all these schemes for each industry – the effect of the hours spent on changing the constitution to remove the protectionist provisions will have an effect that outperforms the output of all these “public-private” partnerships combined – by an order of magnitude.

    to be able to get to charter change we need to work with a lot of people and generate more alliances to create awareness, interest, and a desire to act on the matter. the tactics are always aligned to the strategic goal. there is no way to around it – over it – under it – or through it – the more we prolong protectionism, the tougher it will get.

    therefore we need more evangelists and thought leaders who will spread the word about the need for liberalization and charter change. to go out and explain to people what the eff is going on – and to provide the way out.

    this one’s for Hyden – be like Joshua blaring the trumpets at the wall of Jericho (protectionism). circle it and keep blaring (create the bandwagon and momentum for charter change to remove protectionism). and on the appointed day – blare with all your might (till you reach the tipping point – when quantitative change becomes qualitative superiority)- let the walls crumble (remove the protectionist provisions) – and cross the river Jordan (a new social contract) into the promised land. o ano… walang sinabi ang obispo sa Philippines economic gospel according to AP :lol:

  8. China’s coastal cities itself are feeling the impact of high-productivity labor on wages. Companies have relocated inwards or relocating to Vietnam – leaving the larger urban centers with a more skilled urban workforce.

    Intel’s move to Vietnam on the other hand had nothing to do with labor cost. Intel transfer to Vietnam was caused by the high cost of electricity in the Philippines – it made Intel uncompetitive. So they just packed up and said – screw you MERALCO and NAPOCOR :lol:

    They can always offer higher rates to Filipino engineers stationed in Vietnam. Or even source the engineers locally.

  9. I just finished reading this book: http://www.startupnationbook.com/

    Actually talks about a lot of things us pinoys could learn from, especially on how to loosen up the economy, how to use our manpower, etc. And I agree with you, pinoys in general scoff at innovation. I don’t know if it’s crab mentality or we just don’t want people around us to be too smart, but I have had numerous experiences in the past about professors not wanting a student to pursue a project/research because it’s “not doable”, or another professor is already looking at a similar theory. We try very hard to stifle our bright minds, either by calling them crazy, or just plain ignoring their ideas. Kaya nagsisilayas, one big example is Engr. Belonio http://www.iloiloviews.com/the-belonio-rice-husk-stove.html Why is it that no pinoy investor would give him capital but an Indonesian would? There is just an innate defect in our sensibilities as pinoys that no amount of liberalization could solve. Liberalization might set things in motion, but still there is that pinoy factor that could hinder progress :-)

  10. NFA rice permalink

    I must have missed the news. What’s on on 21 september?

  11. @kusinero – with a liberalized constitution – the indonesian investor can partner with the Pinoy – and the indonesian can have majority shares. if the pinoy’s don’t believe in the inventor’s innovation – liberalization will allow foreigners to fund pinoys without the restrictions of the 60/40 rule. to the invettor what matters is he gets the funding that allows him to bring his product to the market.

  12. Martial law anniversary?

  13. No wonder many people here in the Philippines are moving to greener pastures around the world… Cuz’ the politics in the Philippines are always screwing each other and screwing our economy…

    No wonder P-Noy is part of it all… He’s all mighty and… STUPID!

  14. Hyden Toro permalink

    Hey Bong V:

    Let us take for the sake of Carabao Sense argument. We have a Republic of Maguindanao, in the God Forsaken Southern part of the Philippines. The Republic of Maguindanao is ruled by Oligarchs by the family name of Ampatuans. The Rulers changed the Constitution of the Republic of that BackHoe country, favouring Foreign Investors, to invest. They changed also their government to Parliamentary system.

    Would you with your sackful of U.S. dollars, invest in their country?

  15. @hyden – no favors – equal treatment. consider this – given labor costs are equal but I can’t own the land and I can’t have major equity – where will you invest?

    assuming equal treatment – foreign and local – Hell yeah. Actually, there are already initiatives being done along these lines. I have reached out to agri-cooperative groups in (ARMM and Ifugao Province) active in social entrepreneurship.

    We are in the process of shortlisting their product catalog and select products for marketing to the overseas Filipinos. Also being prepared is a supply chain management project plan to ensure a smooth, seamless movement of goods when the customer needs it, where they need it, when they need it – at a price they are willing to pay.

    In doing so, more opportunities are being created for the farmer communities. Reconfiguring the supply chain to reduce safety stock, synchronize ordering with market pull – for Just In Time replenishment will get these coops integrated into the global supply chain instead of waiting for crumbs from the oligarchs.

    What’s the point in going to the country with the cheapest labor – when your transport cost and production cost (high electricity) are eating up your labor savings? Thus, a lot of companies are moving out of China and back to Mexico or Brazil.

  16. Foreign ownership laws are one of the main reasons keeping foreigners from investing. As a company handling foreign investment into the country, I am very aware of the needs for foreigners to enter the country and develop sustainable businesses.

    The current laws only prevent legitimate businesses from opening, while welcoming illegal businesses to partake in the practice of using dummies to develop their corporation. Not to mention that there are plenty of law firms that simply act as nominees to allow companies to setup using 60/40 ownership. This is only resulting in frightening away decent businesses who want to own their business 100% free and clear without the legal loopholes.

    Philippine Immigration laws are also some of the strictest in the world regarding investors and businessmen to live here. The 87 constitution is also back dated in its policies on land ownership.

    As a foreigner I immigrated to the Philippines in 2006 and am a permanent resident here. I love this country and the business opportunities that are presented, but I am a rare breed. Its very difficult for me to convince investor to come here and establish companies with these current policies and laws in place.

    After the sale of PAGCOR (which I am sure will happen, it only matters now on the price) the Philippine peso will be too strong to attract foreign companies to invest, and will make export products very difficult to compete with other cheaper countries.

    Ramon Ang was correct in saying the sale of PAGCOR will make the Philippines a “Tiger Economy” in the sense that it will soon be extinct, if this plan continues.

  17. Jack permalink

    Very good article bong, it was refreshing. I’m from India and standard of living in India and PH is round about same with Ph a bit higher. However, cost of essential products and services are three times higher than India.

    1. Mobile Phone >> 1M talk in India now in 50 centavos >>SMS free || In PH 1 Min talk time in 7.50 Pesos with SMS 1 pesos per SMS.

    2. Electricity charge in PH is one of the highest in the world. Highest in Asia. In India 1kw is 0.5 centavos in Ph its 4 centavos.

    3. Water charges are also double than Indian rate.

    4. Essential food items like rice, bread etc are also very high.

    I like PH very much, People are really nice and friendly. It breaks my heart to see Filipinos getting exploited by few Chinese-Filipino families…its blatantly obvious what is going on there and you have put a perfect picture in the article. Monopoly by few families…all these laws and codes were made to protect these families. They will not allow others to come up.

    I think if Filipinos are allowed to go on their on ways without the restricting laws, it will be a developed country in no time.

  18. jemon permalink

    Although changing the charter may be needed to attract foreign investors, it is not the cure-all that we needed. Kung mismong Pinoy investors nga ayaw mag-invest.. they would rather go to other countries. The only investors that go to Pinas are those with the stomach to join the game of corruption and connections to succeed in business here. When all the infrastructure needs government approval, wala pa ring investors na papasok for such infra that needed huge investments.

    What is needed is to install proper leadership in the country. There will be no solutions until the proper leader is seated. I may be wrong but I have been searching your website and it seems to me no one has yet a found a way here to put the proper leadership in position. Perhaps we are all barking at the wrong trees?

  19. Pinoy investors would like to invest but they can only invest up to a certain amount after which they will need FDI TO ramp up to economies of scale.

    For example a solar panel plant. A Pinoy electrical engineer with experience from KSA knows how to make PV panels.

    Assumptions:
    1. For discussion’s sake – let’s say you need $100,000 to start a small PV manufacturing plant.
    2. Engineer’s life savings – $20,000
    3. KSA investor has $80,000

    Discussion:
    The engineer is willing to put all his $20,000 (100% of his life savings) but he still needs $80,000 to get to where he should be. This can be quickly remedied by partnering with the KSA investor. His KSA investor of course wants to ensure he controls his investment – and wants the corporate papers to reflect the equity structure.

    However, the KSA investor gets into a bind when he finds out that he can’t own more than 40% of equity. Therefore he tells the Pinoy engineer from KSA that he is withdrawing his offer.

    The Pinoy still has the $20,000 – and he is still $80,000 short from his goal.

    That happens to pinoys whose savings of 100% only reach 0-59% – and there’s a lot of them. Quite a match for the Pareto rule I must say.

    By stating that foreigners can’t own more than 40% – it restricts the filipinos who can’t front the 60% – but favors the filipinos who can front the 60% – that’s not right. restricting foreigners winds up restricting filipinos as well.

  20. hi jack, the filipinos are so stuck in this foreigners are evil and we can’t compete BS. the diaspora has proven otherwise. there are lots of middle and senior managers in successful global companies who are filipinos and who keep a low profile. these are filipinos who help make their employer’s companies (and by association the countries of origin of these corporations) very competitive. given the right environment and level playing field that is skewed in favor of those who can front 60% and above in a joint venture under the guise of “protecting industries from unfair competition” – is a master stroke of deviousness.

  21. @J Hirsch – Filipinos are always on the lookout for the mega million FDI. They miss the fact that 200 retirees with $40,000 “play money” each – who when allowed to own 100% equity – can generate serious revenue and lots of jobs.

  22. jemon permalink

    BongV, Pinoy ka ba? If you are, are you investing in a business in your country?

    I know many Pinoys, they do not want to go into business, they prefer to work abroad. Why? Kasi, maraming hassle magtayo ng business dito. Lalo na kung corrupt pa yung mga mayors, etc.. hindi nakaka encourage.

    Ang mga nagtatayo ng business, yung may mga kilala sa gobyerno. May mga makukuha sila kaseng mga kontrata, kahit walang puhunan pwede. Pag matinong businessman, pahihirapan pa, lumalabas, mas mataas ang cost of doing business if you are doing everything legal compared to your “illegal” competition! So how can a good businessman compete?

    Of course, hindi naman lahat ng businesses ganito situation, pero believe me, marami yan ang sitwasyon.

    There is no argument, we need to have our charter changed and our country opened to investors. Pero with lack of proper leadership in the country, that just wouldn’t happen, i repeat, IT WOULDN’T HAPPEN. Kaya the most important is, to get the right leadership in. The question is how to do it?

  23. Jay permalink

    @Jemon

    . I may be wrong but I have been searching your website and it seems to me no one has yet a found a way here to put the proper leadership in position. Perhaps we are all barking at the wrong trees?

    There is an event held in a democracy in a certain time point called THE ELECTIONS. Sadly, the Filipino concept of it takes the brunt of the response from the people, the same kind that can be bribed for a week’s worth of free food only to be screwed over years after. The same people who can’t tell where good leadership necessarily comes from. The same kind that think politics is a popularity game and takes everything personally, thus not seeing the big picture and thinks that if the leader is bad that it is just proper to take them down and put another one in.

    AP isn’t barking at the wrong tree. Its you who hasn’t read much and claiming you are searching. If people wanted to and understood charter change, they WILL demand it and sacrifice everything to see it through as it is a much fairer system to give good leaders and their ideas a chance. The current Philippine democracy is nothing more than a pseudo-monarchy and anyone who disagrees are pretty much dense. Trying to get a good king in that system is next to impossible considering those few elite who are really in power control most of the land and resources. The only thing left for them to control are the peoples’ minds in the long run and doing one hell of a good job at it.

    Politics and economics go hand in hand.

    And if you have searched and READ WELL Jemon, you will know the system needs to be changed, in order to get the kind of efficient leaders recognized in that new system.

  24. @exactly.. elections.. Aquino.. Gordon… Aquino wins.. :lol: bloody idiots. doofuses… dumbasses,,, morons… :lol:

  25. Jack permalink

    Agree…Thanks for the reply

  26. Hung Hang permalink

    You give too much weight on majority foreign ownership condition as the main incentive for FDI influx.

    “In contrast, Brazil, France and Ghana allow foreign ownership in all of their domestic firms up to a hundred percent.”

    So why is Ghana still a poor country?

    “South Korea, Kazakhstan and China, meanwhile, allow up to 49-percent ownership for foreign firms”

    So why is Kazakhstan still a poor country while foreigners are happy to invest even with the minority ownership restriction in China?

    Foreign businesses will go wherever they will make good ROI, regardless of percentage ownership structure. There are other more important factors at play here than your oversimplified view of things.

  27. jemon permalink

    Bongv: Saying Pinoys are idiots wouldn’t change them, would it?

    Jay: Are you saying our incompetent leaders will suddenly become intelligent and have political will to change the system? hehe..

  28. @Hunghang – equity ownership is one factor. it is not the only factor but it is a major factor. when all your competitors have ownership on the table and you don’t – you my boy, are going to be a wallflower. For every Kazakhstan and Ghana there is a Singapore, Brazil, South Korea, and Taiwan,

  29. @jemon – change is a personal decision. you can take the horse to the river. but can you make it drink?

    pinoys can keep on being idiots. they make good entertainment. or else, there will be nothing to write about.

    can you imagine if suddenly all pinoys followed the law, voted for intelligent politicians, had a free market economy – this site wouldn’t have existed

    when you have lemons, make lemonade – on antipinoy.com :lol:

  30. Hung Hang permalink

    “when all your competitors have ownership on the table and you don’t – you my boy, are going to be a wallflower.” NOT TRUE

    So what if the Philippines can only offer 40% foreign equity? China has a 49% foreign ownership restriction which is still a minority ownership but still foreign businesses flocked to China. Same with South Korea.

    It’s all about overall package and how the Philippines stack up with our competitors. If other important factors such as infrastructure availability (telecom, airport, seaport, roads, EPZ, tech parks, etc), low cost and English speaking talent pool, rich availability of highly skilled knowledge workers, central location in East Asia, judicious rule of law, efficient government bureaucracy for dealing with businesses, etc are available, then the Philippines can become attractive to more MNCs.

    We are after all 50% cheaper than China in terms of wage levels (yes believe it! This is based on the UBS 2009 report) so we are cost competitive to China. The problem is that the Philippines has not fixed a lot of the fundamentals yet. Our quality of education is deteriorating with only 10 years of basic education (the rest of the world except Mongolia are 12 years). We are seriously behind our neighbours in infrastructure spend. We don’t have the rich availability of high end skilled workers for R&D work due to lack of Masters and PhD graduates produced in our country. etc, etc, …

    Long story short, fix the fundamentals first and the MNCs will start knocking on the Philippines’ doorstep, regardless of the 40% foreign ownership restriction.

  31. Even if some Filipinos have money, they won’t invest in the country. It’s not enough. I believe OFW investment is too little to help the country move up. It only keeps us going, that’s all. In fact, much of the money is with the bigger businessmen and oligarchs in the country. They don’t want to let go of it… why should they generate more if they have enough for themselves? But in come foreign investors, and thus they have to spend to keep their businesses competitive. Opening the market and introducing foreign competition will force them to invest in their own country.

  32. Jay permalink

    @Jemon

    I’m echoing BongV’s last sentiment. If citizens knew better how much leverage they have in choosing leaders in this current system, we wouldn’t be having this argument about finding effective leaders now would we?

  33. China has 49% equity for foreigners… still more attractive than 40%. 9% make have a difference here.

    With education and infrastructure way behind… why not invite the foreigners to invest in these? The foreigners can help fix the fundamentals too.

    Are MNC’s the only companies that represent foreign investment? There are lots of other types of companies that could invest in our country, aren’t there?

    We are cheaper than China in terms of wages? Then maybe it’s better to work in China than here? Dito kasi, barya-barya lang, but in China, tama ang bayad? I still there’s a lot more that can support the use of foreign investment as a solution to our country’s economic woes.

  34. Hung Hang permalink

    Having an economy completely open to foreign capital participation as in 100% foreign equity ownership (as in Afghanistan, Bangladesh, Kosovo, or Senegal) does not guarantee success in attracting more FDI. Other factors are also involved, including market size, infrastructure quality, political stability, and economic growth potential.

  35. famous wolf permalink

    I’d have to agree with Hung Hang here, there are factors that even economic liberalization cannot save such as political stability. As long as we have commies in the mountains and we can’t get rid of insurgency, there will always be a doubt cast upon investing in the country.

    Liberalization maybe our key but it isn’t a Panacea to all our problems.

    http://findarticles.com/p/articles/mi_m1568/is_n2_v26/ai_15473461/

  36. It’s true that it’s not the only thing, but the 60/40 rule and ban of foreign land ownership remains a major stumbling block to giving people more jobs and higher salaries. The more we’re stuck to our own “Filipino bosses,” they will continue to impose “Filipino salaries,” my word for peanuts, as well as less job. The point is, someone should come in to present hefty competition that can give this competitive pay, and economic protectionism has protected the big Filipino companies at the expense of the whole economy. For our particular situation, I’m sure the liberalization solution will work.

    BTW, on political stability… the yellows think that a heavy anti-corruption drive will bring political stability. But in fact it doesn’t. It makes it more unstable. So heads are rolling… that exactly means that things are unstable.

    So aside from economic protectionism, we have to eliminate the one-term only limit for the head of state. As Yuko Kasuya said in Presidential Bandwagon, that is a major cause of political instability here. That and the pork barrel culture of government. So charter change to change the government system to parliamentary goes hand in hand with removing protectionism to address this political instability.

    We have insurgents because we have feudal lords like the Cojuangcos refusing to give land to the farmers. And because of a poor economy. They can’t get jobs, they’ll go to the mountains to fight. So fixing the economy can help address the insurgency problem.

    What the heck is there to be afraid about in foreign investment? Why keep it out? If we stay stuck in this mindset that “it won’t work, it won’t work,” then what do we do? It’s like doing nothing.

  37. Hung Hang permalink

    An open economy cannot substitute for a well-regulated economy with strong investment climate fundamentals such as well-functioning institutions, economic and political stability, respect for the rule of law, and other key drivers of investment. In other words, fix the fundamentals first and this should result in a significant increase in FDI.

    If more FDI are still needed in certain sectors after fixing the fundamentals, then that will be the time to start relaxing some of the foreign equity ownership restrictions specifically for the sectors that need more FDI.

    Also just to clear some misconceptions, not all sectors have the 40% foreign equity restriction. Some Philippine sectors already allow more than 40% foreign equity ownership such as light manufacturing (75%), electricity (65.7%), banking (60%), insurance (100%), construction (100%), tourism (100%), retail (100%), health care (100%) and waste management (100%).

  38. if “fix the fundamentals” means import-substitution – i can smell protectionism miles away and you’all know how that turns out – it’s the shit called the Philippines -

    first off – I don’t know where the shit you got your percentages from but thus far this is the official list

    Philippines Regular Foreign Investment Negative List A
    5th Regular Foreign Investment Negative List A

    LIST A: FOREIGN OWNERSHIP IS LIMITED BY MANDATE OF THE CONSTITUTION AND SPECIFIC LAWS

    No Foreign Equity

    1. Mass Media except recording (Art. XVI, Sec. 11 of the Constitution; Presidential Memorandum dated 04 May 1994)

    2. Practice of professions *1

    a. Engineering
    i. Aeronautical
    ii. Agricultural
    iii. Chemical
    iv. Civil
    v. Electrical
    vi. Electronics and Communication
    vii. Geodetic
    viii. Mechanical
    ix. Metallurgical
    x. Mining
    xi. Naval Architecture and Marine
    xii. Sanitary
    b. Medicine and Allied Professions
    i. Medicine
    ii. Medical Technology
    iii. Dentistry
    iv. Midwifery
    v. Nursing
    vi. Nutrition and Dietetics
    vii. Optometry
    viii. Pharmacy
    ix. Physical and Occupational Therapy
    x. Radiologic and X-ray Technology
    xi. Veterinary Medicine
    c. Accountancy
    d. Architecture
    e. Criminology
    f. Chemistry
    g. Customs Brokerage
    h. Environmental Planning
    i. Forestry
    j. Geology
    k. Interior Design
    l. Landscape Architecture
    m. Law
    n. Librarianship
    o. Marine Deck Officers
    p. Marine Engine Officers
    q. Master Plumbing
    r. Sugar Technology
    s. Social Work
    t. Teaching
    u. Agriculture
    v. Fisheries

    (Art. XII, Sec. 14 of the Constitution; Sec. 1 of R.A. 5181)
    3. Retail trade enterprises with paid-up capital of not less than US$ 2,500,000.00 (Sec. 5 of R.A. 8762) *2
    4. Cooperatives (Ch. III, Art. 26 of R.A. 6938)
    5. Private Security Agencies (Sec. 4 of R.A. 5487)
    6. Small-scale Mining (Sec. 3 of R.A. 7076)
    7. Utilization of Marine Resources in archipelagic waters, territorial sea, and exclusive economic zone (Art. XII, Sec. 2 of the Constitution)
    8. Ownership, operation and management of cockpits (Sec. 5 of P.D. 449)
    9. Manufacture, repair, stockpiling and/or distribution of nuclear weapons (Art. II Sec. 8 of the Constitution) *3
    10. Manufacture, repair, stockpiling and/or distribution of biological, chemical and radiological weapons and anti-personal mines (Various treaties to which the Philippines is a signatory and conventions supported by the Philippines) *3
    11. Manufacture of firecrackers and other pyrotechnic devices (Sec. 5 of R.A. 7183)

    Up to Twenty Percent (20%) Foreign Equity

    12. Private radio communication network (R.A. 3846)

    Up to Twenty-Five Percent (25%) Foreign Equity

    13. Private recruitment, whether for local or overseas employment (Art. 27 of P.D. 442)
    14. Contracts for the construction and repair of locally-funded public works (Sec. 1 of CA 541, LOI 630) except:

    a. infrastructure/development projects covered in R.A. 7718; and
    b. projects which are foreign funded or assisted and required to undergo international competitive bidding(Sec. 2(a) of R.A. 7718)

    15. Contracts for construction of defense-related structure (Sec. 1 of CA 541)

    Up to Thirty Percent (30%) Foreign Equity

    16. Advertising (Art. XVI, Sec. 11 of the Constitution)

    Up to Forty Percent (40%) Foreign Equity

    17. Exploration, development and utilization of natural resources (Art. XII, Sec. 2 of the Constitution) *4
    18. Ownership of Private Lands (Art. XII, Sec. 7 of the Constitution; Ch. 5, Sec. 22 of CA 141)
    19. Operation and management of public utilities (Art. XII, Sec. 11 of the Constitution; Sec. 16 of CA 146)
    20. Ownership/establishment and administration of educational institutions (Art. XIV, Sec. 4 of the Constitution)
    21. Culture, production, milling, processing, trading excepting retailing, of rice and corn and acquiring, by barter, purchase or otherwise, rice and corn and the by-products thereof (Sec. 5 of PD 194; Sec. 15 of R.A. 5762) *5
    22. Contracts for the supply of materials, goods and commodities to government-owned or controlled corporation, company, agency or municipal corporation (Sec. 1 of R.A. 5183)
    23. Project Proponent and facility Operator of a BOT project requiring a public utilities franchise (Art. XII, Sec. 11 of the Constitution; Sec. 2a of R.A. 7718)
    24. Operation of deep sea commercial fishing vessels (Sec. 27 of R.A. 8550)
    25. Adjustment Companies (Sec. 323 of P.D. 612 as amended by P.D. 1814)
    26. Ownership of condominium units where the common areas in the condominium projects are co-owned by the owners of the separate units or owned by a corporation (Sec. 5 pf R.A. 4726)

    Up to Sixty Percent (60%) Foreign Equity

    27. Financing companies regulated by the Securities and Exchange Commission (Sec. 6 of R.A. 5980 as amended by R.A. 8556) 6
    28. Investment housed regulated by the SEC (Sec. 5 of P.D. 129 as amended by R.A. 8366) *6

    *1 This is limited to Filipino citizens save in cases prescribed by law
    *2 Full foreign participation is allowed for retail trade enterprises: (a) with paid-up capital of US$2,500,000 or more provided that investments for establishing a store is not less than US$830,000; or (b) specializing in high end or luxury products, provided that the paid-up capital per store is not less than US$250,000 (Sec. 5 of R.A. 9762)
    *3 Domestic investments are also prohibited (Art II, Sec. 8 of the Constitution; Conventions/Treaties to which the Philippines is a signatory)
    *4 Full foreign participation is allowed through financial or technical assistance agreement with the President Art. XII, Sec. 2 of the Constitution)
    *5 Full foreign participation is allowed provided that within the 30-year period from start of operation, the foreign investor shall divest a minimum of 60 percent of their equity to Filipino citizens (Sec. 5 of P.D. 194; NFA Council Resolution No. 193 s. 1998)
    *6 No foreign national may be allowed to own stock in financing companies or investment houses unless the country of which he is a national accords the same reciprocal rights to Filipinos (Sec. 6 of R.A. 5980 as amended by R.A. 8556; P.D. 129 as amended by R.A. 8366)

    so if there is a new FINL- knock yourselves out and paste it here :lol:

    ***

    Just to make this short and sweet. Build a 2×2 matrix – FDI driver (A) vs Country (B)

    For each country (B1,B2,B3,B4,B5) – there will be FDI drivers (A1,A2,A3,A4) – each country may have a different mix – a common thread internationallY is countries which have options A1,A2,A3,A4 – will have better chances than countries whose options are limited to A1,A2,A3 – taking out A4 limits your chances. It does not say you will not get some – all it’s saying it RESTRICTS growth.

    So don’t complain if your growth is restricted because YOU asked for protectionism – :lol:

    Import-substitution has been blasted out of the water folks. :lol:

  39. Depends on what you are “regulating” – regulations have tendency to protect vested interests – ultimately leading to a monopoly :lol:

  40. @HH – is there a new FINL with new equity percentages? thus far the Fifth FINL still holds – so until this is superceded – I’ll have to take a rain check on your equity figures.

    first off – I don’t know where the **** you got your percentages from but thus far this is the official list

    Philippines Regular Foreign Investment Negative List A
    5th Regular Foreign Investment Negative List A

    LIST A: FOREIGN OWNERSHIP IS LIMITED BY MANDATE OF THE CONSTITUTION AND SPECIFIC LAWS

    No Foreign Equity

    1. Mass Media except recording (Art. XVI, Sec. 11 of the Constitution; Presidential Memorandum dated 04 May 1994)

    2. Practice of professions *1

    a. Engineering
    i. Aeronautical
    ii. Agricultural
    iii. Chemical
    iv. Civil
    v. Electrical
    vi. Electronics and Communication
    vii. Geodetic
    viii. Mechanical
    ix. Metallurgical
    x. Mining
    xi. Naval Architecture and Marine
    xii. Sanitary
    b. Medicine and Allied Professions
    i. Medicine
    ii. Medical Technology
    iii. Dentistry
    iv. Midwifery
    v. Nursing
    vi. Nutrition and Dietetics
    vii. Optometry
    viii. Pharmacy
    ix. Physical and Occupational Therapy
    x. Radiologic and X-ray Technology
    xi. Veterinary Medicine
    c. Accountancy
    d. Architecture
    e. Criminology
    f. Chemistry
    g. Customs Brokerage
    h. Environmental Planning
    i. Forestry
    j. Geology
    k. Interior Design
    l. Landscape Architecture
    m. Law
    n. Librarianship
    o. Marine Deck Officers
    p. Marine Engine Officers
    q. Master Plumbing
    r. Sugar Technology
    s. Social Work
    t. Teaching
    u. Agriculture
    v. Fisheries

    (Art. XII, Sec. 14 of the Constitution; Sec. 1 of R.A. 5181)
    3. Retail trade enterprises with paid-up capital of not less than US$ 2,500,000.00 (Sec. 5 of R.A. 8762) *2
    4. Cooperatives (Ch. III, Art. 26 of R.A. 6938)
    5. Private Security Agencies (Sec. 4 of R.A. 5487)
    6. Small-scale Mining (Sec. 3 of R.A. 7076)
    7. Utilization of Marine Resources in archipelagic waters, territorial sea, and exclusive economic zone (Art. XII, Sec. 2 of the Constitution)
    8. Ownership, operation and management of ****pits (Sec. 5 of P.D. 449)
    9. Manufacture, repair, stockpiling and/or distribution of nuclear weapons (Art. II Sec. 8 of the Constitution) *3
    10. Manufacture, repair, stockpiling and/or distribution of biological, chemical and radiological weapons and anti-personal mines (Various treaties to which the Philippines is a signatory and conventions supported by the Philippines) *3
    11. Manufacture of firecrackers and other pyrotechnic devices (Sec. 5 of R.A. 7183)

    Up to Twenty Percent (20%) Foreign Equity

    12. Private radio communication network (R.A. 3846)

    Up to Twenty-Five Percent (25%) Foreign Equity

    13. Private recruitment, whether for local or overseas employment (Art. 27 of P.D. 442)
    14. Contracts for the construction and repair of locally-funded public works (Sec. 1 of CA 541, LOI 630) except:

    a. infrastructure/development projects covered in R.A. 7718; and
    b. projects which are foreign funded or assisted and required to undergo international competitive bidding(Sec. 2(a) of R.A. 7718)

    15. Contracts for construction of defense-related structure (Sec. 1 of CA 541)

    Up to Thirty Percent (30%) Foreign Equity

    16. Advertising (Art. XVI, Sec. 11 of the Constitution)

    Up to Forty Percent (40%) Foreign Equity

    17. Exploration, development and utilization of natural resources (Art. XII, Sec. 2 of the Constitution) *4
    18. Ownership of Private Lands (Art. XII, Sec. 7 of the Constitution; Ch. 5, Sec. 22 of CA 141)
    19. Operation and management of public utilities (Art. XII, Sec. 11 of the Constitution; Sec. 16 of CA 146)
    20. Ownership/establishment and administration of educational institutions (Art. XIV, Sec. 4 of the Constitution)
    21. Culture, production, milling, processing, trading excepting retailing, of rice and corn and acquiring, by barter, purchase or otherwise, rice and corn and the by-products thereof (Sec. 5 of PD 194; Sec. 15 of R.A. 5762) *5
    22. Contracts for the supply of materials, goods and commodities to government-owned or controlled corporation, company, agency or municipal corporation (Sec. 1 of R.A. 5183)
    23. Project Proponent and facility Operator of a BOT project requiring a public utilities franchise (Art. XII, Sec. 11 of the Constitution; Sec. 2a of R.A. 7718)
    24. Operation of deep sea commercial fishing vessels (Sec. 27 of R.A. 8550)
    25. Adjustment Companies (Sec. 323 of P.D. 612 as amended by P.D. 1814)
    26. Ownership of condominium units where the common areas in the condominium projects are co-owned by the owners of the separate units or owned by a corporation (Sec. 5 pf R.A. 4726)

    Up to Sixty Percent (60%) Foreign Equity

    27. Financing companies regulated by the Securities and Exchange Commission (Sec. 6 of R.A. 5980 as amended by R.A. 8556) 6
    28. Investment housed regulated by the SEC (Sec. 5 of P.D. 129 as amended by R.A. 8366) *6

    *1 This is limited to Filipino citizens save in cases prescribed by law
    *2 Full foreign participation is allowed for retail trade enterprises: (a) with paid-up capital of US$2,500,000 or more provided that investments for establishing a store is not less than US$830,000; or (b) specializing in high end or luxury products, provided that the paid-up capital per store is not less than US$250,000 (Sec. 5 of R.A. 9762)
    *3 Domestic investments are also prohibited (Art II, Sec. 8 of the Constitution; Conventions/Treaties to which the Philippines is a signatory)
    *4 Full foreign participation is allowed through financial or technical assistance agreement with the President Art. XII, Sec. 2 of the Constitution)
    *5 Full foreign participation is allowed provided that within the 30-year period from start of operation, the foreign investor shall divest a minimum of 60 percent of their equity to Filipino citizens (Sec. 5 of P.D. 194; NFA Council Resolution No. 193 s. 1998)
    *6 No foreign national may be allowed to own stock in financing companies or investment houses unless the country of which he is a national accords the same reciprocal rights to Filipinos (Sec. 6 of R.A. 5980 as amended by R.A. 8556; P.D. 129 as amended by R.A. 8366)

    so if there is a new FINL- knock yourselves out and paste it here :lol:

  41. Just to make this short and sweet. Build a 2×2 matrix – FDI driver (A) vs Country (B)

    For each country (B1,B2,B3,B4,B5) – there will be FDI drivers (A1,A2,A3,A4) – each country may have a different mix

    a common thread internationally is countries which have options A1,A2,A3,A4 – will have better chances than countries whose options are limited to A1,A2,A3.

    taking out A4 limits your chances. It does not say you will not get some – all it’s saying it RESTRICTS growth.

    So don’t complain if your growth is restricted because YOU asked for protectionism – :lol:

    Import-substitution has been blasted out of the water folks. :lol:

    as b0 puts its – it’s simple really – but not for the simple minded.

  42. Fixing the fundamentals would require charter change. You can’t fix the people… they refuse to change. Change the system… the people will change.

  43. in case you weren’t listening – equity ownership is one of the fundamentals.

    Import Subsitution has not worked for the Philippines

    The import substitution strategy has certain strong points: Firstly, in developing countries there are always large domestic markets for manufactured goods, so developing an import subsitution industry involves a low degree of risk. Secondly, for developing countries, to protect local industries against foreign competition is easier than forcing developed countries to lift trade barriers against manufactured goods from developing countries.

    However, this strategy also meets with difficulties: Firstly, bad management and technology, and protectionism usually lead to low product quality and high production cost because of a lack of improvements. So it’s difficult to require local industries to supply high-quality substitutes for imports. Moreover, in small countries with small domestic industries, carrying out the import substitution strategy is no easy task. Secondly, a lack of capital and new technology has made local industries failed to meet diversified tastes of customers, and has made imported goods cheaper than locally-made counterparts.

    FDI and Poverty Reduction

    Substantive empirical evidence from economic, managerial and organisational studies points to the positive correlation between FDI and; (i) trade capacity, (ii) productivity growth, (iii) industrial and export performance, as well as (iv) poverty reduction16. The significant role of FDI in sociotechnological and economic development was recognised and confirmed by the UN Financing for Development Conference, Monterrey, Mexico, in 2002

    Competition for FDI

    In recent years, we have seen increasing competition for diminishing levels of global FDI . Simultaneously, there is increasingly dynamic cross-border configuration, reconfiguration and articulation of the manufacturing assets and servicing operations of international investors.

    The increasing complexity of FDI is demonstrated by the integrated international sourcing, technology, production, marketing and servicing networks of MNEs as inter-connected systems which are geo-economically and spatially distributed. Further, the distribution and performance of these networks is operationally and contemporaneously managed through strategic relations (co-operation with, co-ordination, command and control) between subsidiaries and suppliers using information and communications technology.

    The systemic nature of MNEs networks leads to the emergence of asymmetric properties of, and synergistic relations between, the constituent elements (HQs, Regional HQs, Subsidiaries and out-source partner firms, etc.). In concert, the various network nodes responsible for manufacturing value-added (MVA) transformations; and the inter-relationships accountable for economic transactions, comprise what has been referred to as ‘the global factory’ [Buckley (2003)].

    The complexity of FDI and ‘the global factory’ is therefore increasingly difficult to view through isolated economic and management disciplines. It is even more testing to capture in terms of data and information as well as FDI policy research and analysis; IP policy design and implementation. This is especially so for developing countries and is due partly to the rapidly changing characteristics of industry competition and factor markets; and partly to the inadequate
    levels of capacity-building in some developing countries. Competition is evolving into more internationally collaborative forms21. And while capital and financial markets are global, the markets for goods and services are overwhelmingly regional. In contrast, most labour markets are national. Developing countries in general, and particularly those marginalised from FDI flows, often lack high-resolution instruments to calibrate and recalibrate their policies fast
    enough to keep pace with the rapidly changing context and dynamics of FDI, international production and markets.

    http://www.unido.org/fileadmin/user_media/Publications/Pub_free/Report_EGM_on_foreign_direct_investment_in_SEAsia.pdf

    FDI Determinants

    Nowadays, virtually all countries are actively seeking to attract FDI, because of the expected favourable effect on income generation from capital inflows, advanced technology, management skills and market know-how. It
    would be useful to review the key determinants and factors of FDI based on the theories of international
    investment.

    The three key determinants and factors associated with the extent and pattern of FDI in developing host countries:

    1 attractiveness of the economic conditions in host countries;

    2 the policy framework towards the private sector, trade and industry, and FDI and its implementation by host governments;

    3 and the investment strategies of MNEs.

    The review of host country determinants is closely linked with the role of national policies and especially the liberalization of policies, a key factor in globalization, as FDI determinants. Location-specific determinants have a crucial influence on a host country’s inflow of FDI.

    For foreign investors, the host country policies on the repatriation of profits and capital and access to foreign exchange for the import of intermediaries, raw materials and technology are particularly important. The pattern of recent FDI flows supports the conclusion that liberal policies on technology, which tend to go hand in hand with
    more liberal policies in general, serve to attract more and better foreign investments
    .

    Recently, the FDI inward policy regimes of most countries around the world, both developed and developing, have taken on a liberal framework.

    The liberalization of core FDI policies consists of reducing barriers for inward FDI, strengthening standards of treatment for foreign investors and ensuring the proper functioning of markets and a level playing field for all investors. Ironically, with policy regimes becoming increasingly open and similar, many countries have found that they
    need to make further efforts to attract FDI in such a competitive climate; FDI is now recognized as one of the most important sources of much needed capital and managerial, technical and marketing know-how not only in the manufacturing industry, but also in services and the resource based industry. Moreover, world-wide liberalization
    convergence increases the locational choice for FDI.

    Policy Prescriptions

    When considering what host country policies could effectively help developing countries and economies in transition to attract FDI and benefit from it, a wide range of host country policy measures were implemented, for example, to:

    • Create a sound and stable macroeconomic and political environment, including a transparent and predictable
    business environment (BV-being “done” now in RP)
    • Develop physical and technical infrastructure,and promote clusters (BV-being “done” now in RP)
    • Develop human resources (BV-being “done” now in RP)
    • Develop domestic enterprise capabilities, especially SMEs (BV-being “done” now in RP)
    • Address environmental and social concerns (BV-being “done” now in RP)
    Adopt competition laws and reduce restrictive business practices (BV – NOT BEING DONE)
    • Influence the behaviour of investors by offering investment incentives and imposing performance requirements (BV-being “done” now in RP)
    • Create larger markets through regional and bilateral cooperation (NOT BEING DONE NOW)
    • Protect investment, including intellectual property rights (BV-being “done” now in RP)

    http://www.unescap.org/tid/publication/chap5_indpub2259.pdf

    Beggars for FDI can’t be choosers ;)

  44. Jay permalink

    I’ve been following HungHang and BongV’s exchange with interest and as much as the former has points to really consider, the source for changing those go back to the administrative level. And sadly the administrative level in the country can’t even get any form of consistency. I’d love a new airport that isn’t NAIA, capable enough to cater to foreign businesses, a new infrastructure for them and what not but unless the administrative arm can continue the progress and actually finish something (without having someone declare martial law), then the other hope would be to change the root of the process, which is the constitution and the system altogether in order to promote those factors hunghang mentioned.

  45. Hung Hang permalink

    Who said anything about import substitution? Import substitution is not really an efficient use a country’s resources and it only reinforces non-globally competitive industries.

    I’ve already cited several examples of what I mean by fixing the fundamentals (e.g. building the necessary infrastructure needed by business to reduce the cost of doing business in the Philippines, establishing political stability, fixing up our education system so we have a rich supply of adequately skilled human resources for the priority investment sectors, fixing up our taxation system to make it attractive for businesses, streamlining government bureaucracy that deals with business, ensuring respect for the rule of law, having consistent and fair resolution of commercial disputes, etc, etc ).

    By the way, foreign capital participation in the mining and oil and gas industries, for example, is limited to a maximum share of 40% by the Philippine Constitution. Foreign ownership in those sectors, however, may be allowed up to 100% if the investor enters into a financial or technical assistance agreement (FTAA) with the government. Such agreements are granted for a 25-year term and require a minimum investment of $50,000,000.

  46. Jay permalink

    We got the concept of the fundamentals. Its the means that is the issue. Especially when one administration pulls the plug on the examples that you mention that the former was trying to build.

  47. Hung Hang permalink

    Your analysis of your matrix is flawed. You are assuming that A1, A2, A3 and A4 are equally weighted. In reality they are not. Some criteria are more important to foreign investors than others. For instance, call centres of foreign MNCs flourished in the Philippines because the availability of a rich pool of highly educated English-speaking low cost workforce trumps your foreign equity ownership issue as far as these foreign businesses were concerned.

    Following your example, even if you have a low A4 but if you have high A1, A2 and A3 scores and if the weighting on the first 3 criteria are greater than the weighting for A4 , then you can still come out with a high overall score compared to your competition which may have lower A1, A2, and A3 plus high A4.

    Again I’ll rehash what I have already said above. It’s all about the overall package you bring to the table, not just FDI foreign equity ownership. The Philippines can produce an attractive overall package and value proposition for foreign investors by fixing the fundamentals first. Relaxing the foreign equity ownership can come in later if the fundamentals have already been sorted out, and if more FDI are still needed in certain sectors.

  48. Hung Hang permalink

    How to fix the fundamentals is a matter worth discussing in another blog since that is entirely a big topic in itself.

  49. Hung Hang permalink

    As I’ve said also to ChinoF, how to fix the fundamentals is a matter worth discussing in another blog since that is entirely a big topic in itself and also best discussed separate from the issue of foreign equity ownership.

  50. Still the same thing

    by eliminating A4 – you restrict yourself – remember that you are dealing with not just one industry but a diversity of industries – which turns it into an A X B X C matrix – and then it the inefficiency becomes more sweeping :lol:

  51. well – the investor does not want to deal with the philippine government – keep on reading your FTAA – while your investors go elsewhere :lol:

  52. the charter does not get any fundamental than fundamental :lol:

    surely congressiol economic legislation that defines the operating parameters are defined by the charter – CHARTER CHANGE – that’s fundamental!

    handing out aspirin to a cancer patient will get some mild relief – but it does not really address the cancer :lol:

  53. the fundamentals are in the charter – sheesh… :lol:

  54. the Philippines has been addressing those “fundamentals” since kupong kupong. streamlining, re-engineering – all the buzz rods except – liberalization – WUZZIES :lol:

    I’ve already cited several examples of what I mean by fixing the fundamentals (e.g. building the necessary infrastructure needed by business to reduce the cost of doing business in the Philippines, establishing political stability, fixing up our education system so we have a rich supply of adequately skilled human resources for the priority investment sectors, fixing up our taxation system to make it attractive for businesses, streamlining government bureaucracy that deals with business, ensuring respect for the rule of law, having consistent and fair resolution of commercial disputes, etc, etc ).

  55. Miriam Quiamco permalink

    I don’t pretend to know exactly what economic model the country should pursue in order for us to catch up with our neighbors that are showing brisk economic growth. Whatever it takes, the country should be single-minded in pushing for a kind of economic policy that will finally cease the branding of the Philippines as the sick man of Asia. This is truly sad in view of the fact that in the 1960s, we were the second biggest economy in this part of the world. What went wrong? If only this kind of debate AP is having here is adopted by our esteemed legislators instead of engaging in personal attacks and petty politics, then, I believe democracy could work for our country. In our showbiz and personality-centered politics, the people look up to an empty-headed leader to alleviate their economic situation by saying, let us pray that the current administration will be able to come up with sound policies for us to move forward. Other countries are more sober-headed and actually push their leaders to come up with concrete policies and dump those that engage in unproductive politics.

    In order for this kind of debate to take place in the legislature and for us to move in one direction as a nation in our pursuits of economic and political development, we need to shift our system to a parliamentary system of government. Let us campaign for cha-cha, let us plug the loopholes in our political system so that we can finally catch up with our neighbors. Even India is able to reduce its poverty rates to 26% due to sustained economic growth, we can do the same with proper economic policies. It was appalling to watch our lawmakers waste hours at the opening of congress focus the issues on revenge and no policy pronouncements were made. Too much character and personality-focused politics in this country, time to shift the focus to issues and solutions. Time is scarce in legislation, no time should be given for personal attacks if they are not sure to generate a conviction. If we want to strengthen institutions, we need to relegate personal persecution to the courts, the legislature should focus on economic and political issues, not on character assassination.

  56. Let’s go over this again:

    Country’ B1, B2, B3 may have varying scores on A1,A2,A3, and A4. Whereas Country B4 – does not have A4.

    Therefore B4 only variables are A1, A2, and A3 – when variable A4 comes into play, B4 is out of the running

    With B1,B2,B3 even if A4 is only 0.25 score at least it has a score compared to 0 X 0.25 = zero.

    Note that all countries have factor costs at play – and the comparative advantage of A4 can swing the investment decision.

    Which of course – the proof of the pudding is in the eating – Philippines has the lowest FDI in Asean.

    In 2009

    Singapore remained the most attractive country in the region for FDIs, gaining US$ 22.8 billion in 2008, but much lower than the US$ 31.6 billion received a year before.

    Thailand took the second spot with US$ 9.83 billion, followed by Malaysia which earned US$ 8.053 billion compared to US$ 8.4 billion in 2007, Vietnam received US$ 8.05 billion and Indonesia US$ 7.9 billion.

    Malaysia’s FDI included US$ 6.2 billion from outside ASEAN and US$ 1.86 billion from within the region.

    Statistics provided by the ASEAN Secretariat ahead of the 41st ASEAN Economic Ministers Meeting here showed Asean still relied on investors from other parts of the world as US$ 49.1 billion in FDI came from outside the region while only US$ 11.07 billion was intra-Asean investments.

    Among the ASEAN members, landlocked Laos received the lowest FDI, with just US$ 227.8 million in 2008, followed by Brunei at US$ 239.2 million, Myanmar US$ 714.8 million, Cambodia US$ 815.2 million and the Philippines US$ 1.5 million.

    FDI of $31.6 billion versus FDI of 1.5 million – someone obviously does not have their fundamentals right – nor know what exactly are the fundamentals :lol:

    keep watching Singapore go kaching… debate on liberalization.. while Singapore keeps on liberalizing and goes kaching… whereas Pinas goes.. toink :lol:

  57. Hung Hang permalink

    “the Philippines has been addressing those “fundamentals” since kupong kupong. streamlining, re-engineering” Really? By “addressing” you mean press-releasing and talking about it but not actually doing it?

    Where is the streamlining? Where is the re-engineering? Where are the much needed infrastructure needed by business? Nada!

    Again, let’s fix the fundamentals first.

  58. Hung Hang permalink

    Who said anything about FTAA?

    The investors are going elsewhere and does not want to deal with the Philippine government, why? Sheesh…. because the Philippines has not fixed its fundamentals yet, yada yada ad nauseam…

    Is that clear enough or you want it one more time?

  59. Hung Hang permalink

    “surely congressiol economic legislation that defines the operating parameters are defined by the charter – CHARTER CHANGE – that’s fundamental!”

    I’m glad that you finally agree that we need to fix the fundamentals first! :D

    I hope by charter change you don’t mean changing the foreign equity ownership clause in the constitution.

    Also charter change is not a silver bullet and not all fundamentals need a charter change before they can be fixed. Building the right infrastructure for business, streamlining bureaucracy, improving our education system, respect for the rule of law, fixing our taxation system and whole lot more fundamentals do not need a charter change to be fixed.

  60. Jay permalink

    I think its whichever way goes first and it all goes back to the very source; the constitution. It certainly has much much more promise that what we are running currently.

  61. Miriam Quiamco permalink

    All the economic fundamentals need charter change to be fixed because the problem with the current system of government is the absence of political will and lack of accountability on the part of our politicians to work with the bureaucracy. Legislators can write all the laws in straitening out the fundamentals, but without proper coordination with government agencies, in charge of implementation, the laws our legislators who are busy with character assassination and intrigues, whatever laws they can squeeze in, in between their movie careers and other trivial pursuits will get lost in the bureaucracy that has not been made accountable by our political system. With a change in charter, issues will be the focus and there will be more accountability in all branches of government. The personality-cult oriented politics in the country is responsible for our inability to check the fundamentals, that is why we need charter change.

  62. Hung Hang permalink

    OK let’s use your example. You said “Thailand took the second spot with US$ 9.83 billion” in Asean. But Thailand has among the most stringent foreign equity ownership regulations in the world where the majority of its industry sectors are subject to restrictions on foreign equity participation. Essentially Thailand only allow up to a maximum of 49% foreign ownership in mining, oil, gas, agriculture, forestry, telecommunications, electricity, banking, insurance, transportation, health care and waste management. At 49%, it is still a minority share so not enough to wield control in a corporation where 51% belongs to their domestic partner.

    If majority foreign equity ownership is a very important FDI driver as you would like to put it, then Cambodia should have topped or near the top of your ASEAN FDI list, with 100% foreign equity ownership allowed for virtually all sectors (mining, oil, gas, agriculture, forestry, light manufacturing, telecom, banking, insurance, media, construction, tourism, retail, health care, waste management) and still high on the other remaining sectors with 85.7% for electricity and 69.85 for transportation. But where is Cambodia on your FDI list? It is 4th lowest country to attract FDI with only US$815.2 millions in 2008!

    So you see, foreign equity ownership is not the main driver for FDI and stop deluding yourself that it is.

    Again, here’s my refrain. Guys, altogether now – “Fix the fundamentals first!” :D

  63. and the fundamentals include the equity provision – :lol: you can’t run from it, you can’t hide from it :lol:

  64. if you choose an example – why choose Thailand when you have Singapore – here’s the refrain – the fundamentals include the equity provision – you would rather have import-substitution? :lol:

  65. hey read your headlines – you have your streamlining, you have your re-engineering. but headlines are headlines – nothing beats the macroeconomic pressures competition that create the pressures for government to be more competition. and how do you exactly create competition? Free the market – get the fundamentals right :lol:

    Focusing on the tactical adjustments within a flawed economic protectionist strategy – is so RIDICULOUS. :lol:

  66. change the charter but don’t remove the 60/40 equity previsions – that’s not getting the fundamantals RIGHT – susmaryosep :lol: eh di Protectinism pa rin same shit.

  67. Changing the foreign ownership clause is fundamental… what’s the use of fixing “fundamentals” kung ang makikinabang mga malalaking local company lang. Of course, fixing fundamentals is part of what charter change addresses… no one said we won’t fix the fundamentals. Kasama talaga yan. Pero changing the system is needed for it. Fixing the fundamentals is next to impossible under the current political, economic, social and cultural system that we have. Better read Presidential Bandwagon by Yuko Kasuya and you’ll find out why this is so.

  68. Hung Hang permalink

    Hey those were YOUR examples so I just used them to illustrate the obvious points that even a blind man can see.

    So you want Singapore. OK I’ll grant your request to help EDUCATE YOU and to illuminate your clouded thinking.

    Singapore and Cambodia have similar foreign equity ownership regulations with majority of its industry sectors allowing 100% foreign equity ownership. One is on top of the ASEAN FDI list, the other 4th from the bottom. Does that prove that removing the 60/40 equity provision will attract FDI? OBVIOUSLY NOT!!!

    For the nth time, it’s all about the overall package you offer as a country. Foreign equity ownership is just one part of that package and there are other factors that can trump it depending on the foreign investor and what is more important to them. By fixing the fundamentals first, the Philippines can make itself more attractive on a wider range of criteria that are important to the foreign investors.

    By the way, you quoted $1.5 million FDI only for the Philippines? C’mon, check your figures again before you exaggerate things. That should read $1.5billion.

  69. Hung Hang permalink

    “hey read your headlines – you have your streamlining, you have your re-engineering”

    So you believe everything you read on the local newspapers? C’mon don’t be so gullible. Those are just press releases by politicians and sensationalized to condition the minds of the feeble-minded. Press-releasing doesn’t mean the Philippine government has actually done it.

  70. For the nth time again – your overall package suffers without a wholistic set of features. Thus for example in the case of Cambodia and Singapore – given they both have 100% no restrictions on foreign equity then they go down the list of other factors. In the case of Philippines versus Singapore – given equally English proficient folks – then investors drill down to other factors – including equity provisions. This is where the Philippines gets $1.5 million – and Singapore gets $ BILLIONS :lol: :lol: :lol:

  71. Exactly. What environment brings about macro-economic pressures that demand efficiency – thereby driving – true re-engineering? :lol: :lol: :lol: :lol: :lol: And what do you think will start the re-engineering process if we keep on doing the same thing – of retaining the very same macro-economic environment that produces inefficiency? CLOUDED? :lol:

  72. ulong pare permalink

    … daaang

    … flipland micro-eco process is for microbes, the flips… that’s is how oligarchs treat the flips, as microbes…

    … it’s perfect! :mrgreen:

  73. Hung Hang permalink

    Tsk tsk wrong analysis again.

    Where is your proof that foreign investors have actually short listed both Cambodia and Singapore when looking for an offshore destination and used 100% no restrictions on foreign equity as their first and main criteria before they drilled down to the other factors? C’mon you are making HUGE UNFOUNDED ASSUMPTIONS here and grappling at straws now with your straw man argument… hehehe :D

    Again check your figures first before you quote, it’s $1.5 Billion FDI (actually $1.9 billion for 2009) for the Philippines, B as in your name BongV, not M as in Mongoloid to make it clear enough for you.

    http://www.chinadaily.com.cn/world/2010-03/10/content_9567625.htm

  74. @hunghang – in the first place, you came up with assumptions – that equity participation is not part of the mix of the fundamentals. as to the $1.5M being $1.5B – admittedly it is a typo – plus the fact that Singapore didn’t make $25B but it actually made $32B in 2008 – which it considers a reduction from a previous high of $45B – $45B… even $32B vs $1.5B :lol: :lol: MONGOLOID nga
    hey, it’s you who wanted to take the route of an unfounded Cambodian situation -now that I explain it – you say it is unfounded. Suit yourself :lol:

    were you looking for these?

    Cambodia

    There’s more metrics on Cambodia here – http://www.doingbusiness.org/exploreeconomies/?economyid=33

    Philippines

    Korea

    Singapore

    Or these?
    Philippines
    Ease of… Doing Business 2010 rank Doing Business 2009 rank Change in rank
    Doing Business 144 141 -3
    Starting a Business 162 155 -7
    Dealing with Construction Permits 111 106 -5
    Employing Workers 115 114 -1
    Registering Property 102 101 -1
    Getting Credit 127 125 -2
    Protecting Investors 132 127 -5
    Paying Taxes 135 126 -9
    Trading Across Borders 68 66 -2
    Enforcing Contracts 118 116 -2
    Closing a Business 153 153 0
    Note: Doing Business 2009 rankings have been recalculated to reflect changes to the methodology and the addition of two new countries.

    Or these?

    Indicator Cambodia East Asia & Pacific OECD Average
    Extent of disclosure index (0-10) 5 5.1 5.9
    Extent of director liability index (0-10) 9 4.6 5.0
    Ease of shareholder suits index (0-10) 2 6.3 6.6
    Strength of investor protection index (0-10) 5.3 5.3 5.8

    Indicator Philippines East Asia & Pacific OECD Average
    Extent of disclosure index (0-10) 2 5.1 5.9
    Extent of director liability index (0-10) 2 4.6 5.0
    Ease of shareholder suits index (0-10) 8 6.3 6.6
    Strength of investor protection index (0-10) 4.0 5.3 5.8

    Indicator Singapore East Asia & Pacific OECD Average
    Extent of disclosure index (0-10) 10 5.1 5.9
    Extent of director liability index (0-10) 9 4.6 5.0
    Ease of shareholder suits index (0-10) 9 6.3 6.6
    Strength of investor protection index (0-10) 9.3 5.3 5.8

    You see, when your investors come knocking because they got interested about your factor advantages (well trained work force, incentives, infrastructure) – only to find out they are not allowed to invest in the manner they want. Since their participation is limited by the constitution to 40% – you missed out on a wider range of equity mixes starting from 41% going all the way to 100% – on a wide spectrum of industries. given the global economy’s volatility – what makes you so sure that the legislation you put in place a year ago is still competitive with the needs of the market? Another congressional meeting of congressmen who never show up for work?

    So – you are correct – begin with the fundamentals. We agree on the need to get the fundamentals right.

    However, we differ in the definition of “fundamentals”. Moreover, it is not a mutually exclusive proposition. Given all factor costs – i.e. labor costs equal – the investment regime can make the difference.

    And so the facts speak for itself -Singapore leads the pack – $32B in 2008, $25B in 2009. Philippines at $1.5B in 2009 – Philippines FDI is only 6% of Singapore’s FDI in 2009.

  75. miriam quiamco permalink

    BongV, do any of the above countries with high per capita have loose armed groups running around with impunity, with rebellion problems, with weaker state institutions, with enormous natural resources that could compensate for low FDIs (Russia is rising because of state resources and it is not even pursuing a thoroughly open free market economy, doesn’t have a manufacturing sector to speak of), etc., etc., etc. At times, data like you quoted above could be misleading. Having written this, I do agree with you we need to make it easier for anyone not just foreigners to start a business in our country by guaranteeing the rule of law, simplifying business procedures, etc.

  76. @miriam – KPIs for Russian Federation can be found here – http://www.doingbusiness.org/ExploreEconomies/?economyid=159 – you can also look at KPIs of other countries

    Singapore used to be a part of the Malayan Federation – of which Malaysia was a part. Singapore had its share of radicals and martial law – like the Philippines. Singapore took a global view and hitched its wagon on the global economy – it cast a wider net so to speak. In contrast, the Philippines – well, is content with being a hermit archipelago. Monopolies, scarce resources, high prices, inefficient industries, vested interests in government – it walks like, it talks like, it is a textbook case in protectionism. Where’s the enabling law that embeds protectionism across all industries in the Philippines? It does not get as basic, as fundamental, as primeval, as atomic – the building block of all Philippine economic policy stems from the charter – it defines what agencies can allow or disallow. For all intents and purposes – the protectionist provisions gave birth to an economy with congenital cancer – corruption, cronies, and circuses.

  77. 60 local/40 foreign rule is a fundamental that needs to be fixed. Change that, it’s a start. Of course other fundamentals have to be fixed… like our government system to parliamentary (this will reduce corruption, bureaucracy and other instability issues). I repeat, as we are now, under the current system, changing the “fundamentals” is next to impossible.

  78. miriam quiamco permalink

    BongV, this is really news to me that the Philippine economy is protectionist, almost all consumer goods that we use are produced for us by Multinational Corporations, palmolive, colgate, unilever, lux, camay, tide, procter and gamble, pharmaceuticals are also run by multinationals, there are hotels in tourists spots or even in commercial districts that are foreign-owned,coca-cola, pepsi, macdonalds, starbucks everywhere, you mean in vital public services, multinationals have been kept out. FDIs are trooping to China because of the huge market, the Chinese consumers that they want to buy their products. The Philippines is a huge market too, but not as huge as the Chinese, well, India is a huge market too, but the people are not as consumer-oriented as the Chinese, the Chinese are materialistic and embrace business opportunities with gusto. And yet, the Indian economy is showing magical results recently. What is it that they are doing right that we are not doing. I recall a discussion here of how open the Indian economy is. Singapore being full of Chinese and a city state could easily be controlled and developed. A small state like Singapore could easily pursue development, they are proficient in English, politically and economically stable, a perfect gateway to Southeast Asia. Malaysia could have developed because of the proximity of Singapore.

    The Philippines from the very start would be a difficult country to manage, even if we had a Lee Kuan Yu in our midst. We are too big, too disparate in culture, if as you said it is protectionism that is responsible for our underdevelopment, I really cannot see this protectionism. When I go to public markets back home, I can buy apples from the U.S., oranges from Taiwan, supermarkets are full of meat from Australia, New Zeland, U.S. etc. Electronic goods are all manufactured by multinationals, at times in our own country, but most of the time from China and even Thailand.

    The Philippines needs to compete by having an economic policy that is very clear on the promotion on certain industries. These industries could be nurtured by the state, the problem with our system is that, no government guidance and active assistance is offered to our own businessmen. Our exporters should be taught how to be competitive and be given preferential loans, they should not be allowed to go under, the government could promote businesses and help save jobs for the poor. Even America, the strongest advocate of free market capitalism does practice state capitalism, it does pour money into sectors that are drowning to save jobs, we should do the same.

  79. Miriam, some of the foreign brands, like Coke and McDonalds, are mostly owned by the local partners, like Coke with Coca-Cola Bottlers Phils. (mostly Filipino-owned shares, a different entity from the MNC Coca-cola corp.), and McDo by George Yang (McDo Phils is 100% Pinoy-owned according to the Philippine website). Note, the local owners are mostly local oligarchs or business biggies… sila sila pa rin. They carry the brand, but thanks to the constitution, most of the ownership is by locals. The “multinationalism” is successfully reduced. The foreign headquarters probably just supplies the formula and product, then bahala na kayo to make and sell the product in your country. They just need a presence in the country, though I’m sure hey get their cut. This is a fact that I have only discovered recently, but it makes sense to conclude that we have been protectionist ever since. We were never an open economy. I’m surprised you didn’t believe the Philippines was protectionist.

  80. Even Indonesia is doing somewhat better than us, except for shareholder suits:

    Extent of disclosure index (0-10) 10
    Extent of director liability index (0-10) 5
    Ease of shareholder suits index (0-10) 3
    Strength of investor protection index (0-10) 6

  81. miriam quiamco permalink

    Really Chino F, if this is the case then, we are truly protectionist. I never realized all the foreign corporations that are controlling the economy are not wholly foreign controlled. They are all in partnership with the oligarchs. i seemed to have this view that we are the most open economy in Asia at least, cause all foreign goods are easily bought in our country. This is not the case in Japan, and yet despite these partnerships with big multinationals, we are still an undeveloped economy, now, BongV’s theory that we need to completely liberalize makes sense. We are only letting foreign partners who are big enough to form an economic alliance with the oligarchs. Come to think of it, the plantations in Davao are also into this alliance, the Ayalas with Dole and the Florendos with the Japanese banana importers and exporters. In effect, we are excluding those foreign investors who are not going to be chosen by the partner oligarchs due to terms that are not favorable to them. With this, it is clear that the elimination of the 60/40 ownership restriction makes sense.

  82. miriam quiamco permalink

    Chino F., okay you said some foreign brands are in partnerships with local businessmen, what makes others able to operate in the Philippines without the local partnership requirements, despite the legal restriction on ownership?

  83. Hung Hang permalink

    “So – you are correct – begin with the fundamentals.”

    I’m glad you can finally see the obvious. :D

    But Singapore is the wrong model for the Philippines to emulate for trade liberalisation. It is only a small island with 5 million people and with virtually no natural resources to speak of except for its location as a port (which is not unique in our part of the world). They also have much higher wage levels than the Philippines and the rest of Asia. So to make Singapore attractive to foreign investors with little natural and environmental wealth to speak of, they had no choice but to offer 100% foreign equity ownership to attract FDI, after having sorted their fundamentals like well-functioning legal institutions especially for commercial disputes and arbitration, efficient bureaucracy for dealing with business, respect for the rule of law, ample infrastructure. Not only that. Singapore recognised early on that China is sucking up all the manufacturing industries in the world like a giant vacuum cleaner since the 1990s so they have to up-skill their workforce to reduce their manufacturing industry unemployment in the wake of the manufacturing migration towards China, and in order to participate in the higher value-added chain of the emerging knowledge and digital economy.

    Business is all about negotiation and you only give in enough ground to your customer or supplier (in this case foreign investors) to close the deal. You don’t offer the whole farm if one carabao will do the trick. Otherwise that is gross overkill and a waste of your precious assets.

    A more appropriate role model for trade liberalisation for the Philippines is Thailand given our similarity in land mass and population size. They are also rich in natural resources plus we are pretty much at the same level in the industry value chain.

    China is another role model worth comparing notes with for obvious reasons but they are not really an appropriate like-for-like model due to their much larger land area and population. Thailand and China countries did not adopt the 100% foreign equity ownership model of Singapore but choose to restrict them to various percentages, mainly 49% for Thailand and a wider range for China from 49% to 85% depending on the sector, with 100% given only for agriculture and forestry.

    But the question is – what % foreign equity ownership is good enough per sector to implement in the Philippines? The answer to this question to find the right tipping point per industry sector will require extensive expert research from the leading minds and top economists. This will also require a change in the Constitution which can take ages.

    In the meantime, my main point is still the same. The Philippines should focus on the fundamentals first, especially on the low hanging fruits such as fixing the education system, building the right infrastructure, ensuring the rule of law is respected, etc… all the things that can be done now without requiring charter change. Once we have sorted out the fundamentals, then that will be the time we start tweaking the % foreign equity ownership per sector to just the right amount to get sufficient FDI flowing into the Philippines.

  84. You mean foreign companies that may have a bigger share than we think, or than 40%? I’m not that knowledgeable, but I can assume they connive with a Filipino to be the name under which the rest of their capital is registered. One way is that technique of marrying a Filipino/Filipina and putting the business under their name. It ends up though with Filipinos still the name on most of the business, being mostly Filipino-owned. They do this because they can own only 40%, even if they have money for 100%. Note the constitution says, 60% of capital should be owned by a Filipino. Basically, it’s almost like the foreigner is signing away the money to the Filipino. I would consider that a type of corruption, since the money is not being owned by the name. That’s why I propose changing the 60/40 rule – it’s a cause of corruption too. But the arrangement I believe is mostly, the foreign companies lend their name and brand, and the Filipinos do all the running and moneying (my own words). Bong may know more.

  85. miriam quiamco permalink

    No Chino F., I am talking about a lot of multinationals that are supplying all our consumer needs, eg. Procter and Gamble, pharmaceutical companies, I heard one pulled out its operations from the Philippines due to labor disputes, Good Year and Tire Company, lots, almost all of our consumer needs are really supplied by multinationals already. This is not something you can say about Japan, you cannot even buy Pepsi here, Coke has to compete with multiple drink brands that are produced by Japanese corporations, beer is almost wholly Japanese, soaps are all Japanese, shampoo, only two brands are foreign I think, Lux and Vidal Sassoon, the rest are big Japanese corporations, detergent soaps, only one foreign brand, Tide (P&G is here), but its market share is very low, lotions, well, Nivea is here, Johnson’s is sold at limited shops, what I am saying is that, as opposed to the Philippines, Japan seems a lot more protectionist, and yet, it is economically developed. . .

  86. I disagree on Singapore. It is a good model because it shows how good use of FDI makes a nation prosperous. They knew what to do. In fact, you can call it the gold standard. As they say, “aim for the top.” How about indonesia? It’s not 100%, but 95% FDI, and that’s good enough to invite foreigners in. They are also a good comparison model in terms of similarity, and have similar problems, such as patronage politics, tribal factionalism, high population and corruption. But they’re overtaking us as well.

    Focusing on low-hanging fruit can be considered by some to be a Juan Tamad method, because it’s low-hanging nga. Ika nga, If the bigger and more substantial fruit is higher in the tree, why not go for it? I’m getting the impression you prefer us to lower our standards, and thus focus on “fixing the education system, building the right infrastructure, ensuring the rule of law is respected, etc.” because it’s perceived to be easier. Yes, we can focus on these. But I’m sure our people have tried to do that all these years, and failed, because it’s not really that easy. It needs the system change (like charter change) to enable these fundamental fixes. Also, even if fundamentals are fixed, like education and infrastructure, it may not result in adequate wages and a total uplifting of the quality of life… but could help a bit.

    What other fundamentals would you like to fix? Revise the transport system, eliminating the slow, overcrowded and inefficient jeepney? Eliminate song and dance numbers (that involve every student) from schools that waste valuable study time and revise a better curriculum? Eliminate the bilingual policy and make pure English the medium of instruction? Pass the FOI Bill? Pass the RH Bill? Legalize abortion and divorce? Yes, I’d agree with these fixes. They’re mostly short-term solutions though. Well-increased FDI remains the best solution country-wise.

  87. I don’t really know about Japan, but I’ll assume an ironic situation: that Japan uses foreign investment to develop local businesses to compete with these MNCs… because these are other foreign investors who want to be competition with the big MNCs. I have the impression that the big MNCs are not the only “foreign investment.” Other companies or investors (even individuals, like millionaires) have money, but prefer to put elsewhere than the MNCs. So they help local Japanese people. I assume these investors are Asian as well as western. Here in the Phils, only the big companies you named are able to enter the market, and yet cannot invest in smaller people who want to have their own businesses or brands – because these smaller people can’t front 60% to match the constitutional requirements. The bigger companies or entities, like the oligarchs, that can afford the 60%, instead used the lazy way of contracting with the big MNCs and sell the already-known big brands – like Coke, Tide and Colgate – for easy sales. They never thought of making a “uniquely Pinoy” brand; they just want easy sales. Well, that’s my idea. Again, I’m willing to let others who really know jump in.

  88. Jay permalink

    The Philippines should focus on the fundamentals first, especially on the low hanging fruits such as fixing the education system, building the right infrastructure, ensuring the rule of law is respected, etc… all the things that can be done now without requiring charter change.

    You don’t think past administrations have tried to get some sort of continuity with this? The problem is the fundamentals IS related to the system which is capable of changing those low hanging fruits to make them more attractive! Marcos builds infrastructure, has projects that may go past his tenure then Cory stops with it. PGMA planned to build an airport out of Clark air base that would be done in 2016, P.Noy stopped it. None of admins after Marcos have looked for a specific spot to build another nuclear plant, which certainly adds to the appeal of those low hanging fruits.

    If the current political system is still capable, then it would have done much more than bare its fangs and complete these long term projects with some worth for the future, thus further supporting your claims for the realistic capability of improving fundamentals in the near future.

  89. Hung Hang permalink

    I think the best way to reach a quicker resolution on this issue is to look at the foreign equity ownership by specific sector.

    I don’t see any major downside if the Philippines liberalise certain sectors (even up to 100% foreign equity ownership) to provide large employment as long as they do not tap our non-renewable natural resources and they are properly regulated (what I would call Category A).

    - light manufacturing
    - banking
    - insurance
    - transportation
    - construction
    - retail
    - telecommunication

    Some sectors are rather sensitive such as utilities where natural monopolies exist due to lower economies of scale with one supplier. It may be a far-fetched scenario but if a foreign company owns a particular public utility (e.g. Metro Manila electricity distribution), they could hold the country hostage or cause economic sabotage if they decide to immediately pull out or shut down.

    I also have strong reservations in allowing majority foreign ownership in the following sectors that deal with our non-renewable natural resources and the environment (Category B)
    - mining, oil, gas
    - forestry
    - tourism
    - waste management (e.g. landfill)

    The rest of the other sectors I prefer to have their % foreign equity ownership set based on the investment priority for these sectors so their intake can be better controlled and limited if need be. For instance in education where we need to rapidly upgrade our education system to have at least 12 years of basic but high quality education, then foreign investment will be welcome and even 100% foreign equity ownership can be allowed if the domestic players cannot sufficiently supply the requirements of our growing population.

    - education (high %)
    - health care (high %)
    - media (low-medium %)

  90. @HH – your argument still boils down to the infant industries argument – sorry dude, your “fundamentals” are WRONG :lol:

    Logical fallacy of equivocation going on :lol:

    “fundamentals” A = tactical administrative adjustments – under a flawed economic policy (aspirin for cancer)

    “fundamentals” B = strategic economic policy (chemo/surgery/radiotherapy for cancer)

    obviously, your patient dies faster when you just give aspirin :lol: :lol: :lol:

    given the tons of empirical evidence = I am definitely shooting for getting the “fundamentals” of economic policy FIRST – create the macroeconomic policy that has the best environment for stimulating competition. then, calibrate the “fundamentals” of tactical adjustments, SECOND.

    for instance in the experience of Davao City – you can only provide incentives so much, you can only streamline the procedures. you can only deal with factor costs so much (labor, education, infrastructure) – when the factor costs and are all looking good only to find out that they can’t invest BOOM.

    I’ll go back to the classic case – how will you get the investment of 2000 retired expats with at least $50,000 to invest each in retail stores all over the country – and who want control of their investment – without having to get married to a Philippine citizen or using a dummy. guess what – they can’t – the constitution does not allow it.

  91. @miriam – the constitution is very specific – sec 10 and 11, article 12 – 60/40 – is the name of the game. All republic acts must conform with the constitution or be rendered unconstitutional it doesn’t get any better than that.

  92. America’s inroads in to state capitalism – made the recession happen in the first place – Ferdie Mac and Fannie Mae – is a government intervention that required extending credit even to those which the market considered subprime. the intent was good – housing for all. but in practice – if subprime debtors don’t pay because well they really didn’t have that ability to pay in the first place – who winds up paying for the defaults – TAXPAYERS. That has got the Tea Party – started as Democrats and Republicans stray away from America’s “fundamentals” and take a path to state capitalism ala socialist China.

  93. Miriam Quiamco permalink

    BongV: You see, even the U.S., a strong proponent of free market enterprise system does practice state capitalism, sure, it boomeranged after decades of economic prosperity for the U.S. One problem there is corporate greed, corporate America is sooo corrupt, involving trillions of dollars, Americans have the right to be incensed, but the idea of helping the poor get affordable housing is a good idea, with government backing. The unregulated financial sector in the U.S. and the corruption in corporate America are shocking to say the least. Those republicans I am sure enjoyed some of the windfall of the corrupt system for years, but how else could they expect to continually enjoy money created our of thin air, out of blank paper, it is a fact though that the bubble global economy was led by the U.S. and now it is time for reckoning. The tea parties are a natural consequence of the corrupt corporate system in the U.S., the unregulated financial markets, but to discount the well-intentioned government policy which has helped the economy for decades, including the world economy is not right, BongV. Our government has never looked after the poor members of our society, in our country it is the government that is corrupt, in America it is the corporate world, but State Capitalism does work in alleviating the economic status of the poor, it has worked in Japan, in South Korea, and in China and to some extent in the U.S. We can try some of it in our country, not on the same scale as the U.S., but we can try some active government intervention in helping the private sector create some economic windfall for the poor. We can begin by nurturing key industries with government assistance and make these industries accountable by the number of jobs they can create. Opening the health, education and other sectors to 100% foreign ownership could also be the answer. I don’t know. . . we need a government that is determined to bring progress to this country in the 21st century, we need charter change now more than ever.

  94. ulong pare permalink

    … daaang

    @mirriam q… ‘merkans practice “good corruption” >>> when the whole country benefits, tnts/illegals included…

    … flips practice “bad corruption” >>> only relatives & ka-iyutan benefit while the country goes down the cesspool…

    … so, flips ‘bakwet to ‘merka to reap what the ‘merkan corruption produces… then, flipflams aka ‘bakwet flips mouth off flipland corruption… :mrgreen:

    … flips are excellent leeches… they go where it’s easy to suck somebody’s work… :oops:

  95. ulong pare permalink

    … daaang

    @mirriam q: i lived in hayashi-cho… i am familiar with sakangs… i was a japayuki for six years… was kicked out of kabuki… :oops: :mrgreen:

  96. Indolent Indio Circa 1521 permalink

    The monopolists thru their respective controlled press preferred Aquino to be their Rubber-Stamp-President-to-the-Oligarchs. They controlled the format of the debate, contents of the news, how it is reported and how skewed it would be.

    This are the Thought Enforcers.

  97. @miriam -straying away (as opposed to keeping with) from the free market causes the distortion.

    it’s just like evolution – you restrict the fauna – and you get homogeneity instead of diversity. that’s what distinguishes a plantation from a brazilian forest.

    there is always a price to pay for restrictions on economic freedom – is it worth it? history shows that those who are willing to give up their economic freedom wind up losing more freedoms.

    if the japanese market didn’t open up to competition – do you think there will be a race towards innovation? how does one compete against a larger competitor? how did Japan do it? Read Kehnichi Ohmae -”The Mind of the Strategist” is an excellent read – here’s an outline:

    Mind of the strategist (by Ken Ohmae)

    * Mind of the strategist (by Ken Ohmae)
    o The Art of Strategic Thinking
    + Analysis the starting point
    + Strategic advantage
    + The Secret of Strategic vision
    o Building Successful Strategies
    + The Strategic Triangle
    + Job of strategist
    + Strategy is defined as
    + Figure 8-1
    + Strategic Planning Units
    + The Players: (strategic triangle)
    o Corporate strategy with multiple businesses
    + What is a Corporation
    + Business vs. Product
    + Management resource allocation
    + Summary
    o Modern Strategic Realities
    + Understanding the Economic environment
    + Coping with Strategic Change
    + The real differences between Japanese and Western Business Systems
    + Foresighted Decisions
    + A Strategic Success Formula?
    o other
    + strategists weapons
    + everyone in the corp…
    + how best performing businesses do it…
    o Illustrations
    + Shifting Functions

    In his book the Mind of the Strategist, Japanese strategy consultant, Kenichi Ohmae, wrote “Analysis is the critical starting point of strategic thinking. Faced with problems, trends, events, or situations that appear to constitute a harmonious whole or come packaged as a whole by common sense of the day, the strategic thinker dissects them into their constituent parts. Then, having discovered the significance of these constituents, he reassembles them in a way calculated to maximize his advantage.

    In business as on the battlefield, the object of strategy is to bring about the conditions most favorable to one’s own side, judging precisely the right moment to attack or withdraw and always assessing the limits of compromise correctly. Besides the habit of analysis, what marks the mind of the strategist is an intellectual elasticity or flexibility that enables him to come up with realistic responses to changing situations, not simply to discriminate with great precision among different shades of gray. (pp. 12-13)”

    It is important to think about competitively situations strategically. Such an approach can be reinforced and it is a valued skill.

    http://planningskills.com/tips/9.php

  98. Miriam Quiamco permalink

    Kenichi Omae BongV was the president of McKenzie Japan for years, an American management consulting company. He must have learned the American way of doing business, I cannot say that the Japanese big corporations would have made it without government support for their exports. Ministry of International Trade and Industry’s industrial policy has directed the big industrial sector here which technological priorities to pursue. Like right now, it is the race to green technology which Japan sees it has a cutting edge. Need I say the government here has given incentives to the Japanese consumers to buy the eco-cars of Toyota, with a purchase of the eco-car, consumers could give a rebate of 5,000 dollars from the government, now that is some clear incentive to trade in an old car for an eco-car, Prius. Sometimes business has all these illusions that they could make it all on their own without government, but in many successful cases, government has played a big hand in pushing businesses to succeed. Internet was a government-funded project, courtesy of the Cold War, many cutting edge technologies came about due to government funds put into military research.

  99. @miriam -government can provide a nudge but it’s the market that runs away with the ball. MiTI takes it cue from the private sector. It dialogs with the private sector and asks for recommendations on how it can improve the ability of japanese companies to compete. in contrast the philippines is figuring out how to keep competition out – paktori depek. :lol:

  100. Miriam Quiamco permalink

    yeah I believe you, I bet you were the best japayuki around then. do you know japayuki comes from a word karayuki-san, in reference to japanese women who had to go abroad and work to support their poor families back in japan, more specifically, japanese women who went to china. . .

  101. Miriam Quiamco permalink

    Oo nga BongV, kulang talaga ng dialogue between the government and private sector back home, they seem to view each other as enemies, with one sector not understanding the interest of the other, or that the private sector views the government as too incompetent to partner with. sayang talaga, we are lagging behind our neighbors in development, sayang si Teodoro, he had a clear economic vision for the country, ooops, I know you supported Gordon, he was only my second choice, sayang silang dalawa, now, I don’t know how else the country can catch up with our neighbors.

  102. it’s that the government is front loaded with kamag-anaks and their vested interests – thus it is not to their interest to pursue policies that promote competition. what that implies then is the battle will be fought outside the government – but at the root of the relationship between the governed and the government – freeing the market is an economic prescription that needs political will because amending the contract between the governed and the government is a process that entails charter change or charter amendments at the least.

  103. Which are the best places to do business in Asia.

    Hong Kong and Singapore.

    Why?

    Because they have few restrictions on foreign ownership of business. Setting up a business and obtaining permits is fast and inexpensive. Minimum paid-in capital is $2.

    Taxes are low corporate 16% and low personal income tax. And they both actually use tax money to maintain their counties.

    Should the Philippines emulate them? Yes. Will it happen? No, for all the reasons mentioned above in previous comments.

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