In the News: RP Among Most Restrictive in Foreign Investments (Manila Standard, Jul 8, 2010)
A July 8, 2010 article filed by Roderick dela Cruz in the Manila Standard shows that the Philippines is among the “world’s most restrictive countries in allowing foreign capital into the economy“.
RP among most restrictive in foreign investments
by Roderick T. dela Cruz
THE World Bank has listed the Philippines as among the world’s most restrictive countries in allowing foreign capital into the economy.
“Among the 87 countries covered by the Investing Across Sectors indicators, the Philippines imposes foreign equity ownership restrictions on more sectors than most other countries,” said a new World Bank report called Investing Across Borders 2010.
The Philippines was lumped along with Ethiopia and Thailand with an indicator score of 0 for several sectors.
By comparison, more than a quarter of the 87 countries surveyed had few or no sector-specific restrictions on foreign ownership of companies. Countries with no restrictions received a full index score of 100. The main indicators in the study included the process of starting a foreign business❗ , access to industrial land❗ , and commercial arbitration regimes❗ .
The Philippines aside, the other economies that restrict foreign ownership in a third or more of the sectors were Bolivia, China, Ethiopia, Greece, India, Indonesia, Malaysia, Mexico, Morocco, Saudi Arabia, Sudan, Thailand, and Vietnam. The 200-page study covered various indicators of foreign direct investment regulation in 87 economies.
The Philippines, along with Bosnia and Herzegovina, are listed as the only nations that do not allow foreign companies to lease public land.❗
The Philippines also received poor scores for imposing ownership limitations on many industries, in particular on the primary and service sectors.❗
The World Bank study notes that foreign capital participation in the country’s mining and oil and gas industries is limited to a maximum share of 40 percent by the Philippine Constitution, although it acknowledges that foreign ownership in those sectors may be allowed up to 100 percent if the investor enters into a financial or technical assistance agreement with the government.
In the service sectors, the Philippine Constitution limits foreign capital participation in public utilities such as telecommunications, electricity and transportation to a maximum of 40 percent.❗
Newspaper publishing and television broadcasting are closed to foreign equity ownership.❗
“It takes 17 procedures and 80 days to establish a foreign-owned limited liability company in Manila, slower than both the average for East Asia and the Pacific and the global average,” the World Bank report says.
The study notes that two additional procedures are required exclusively of a foreign-owned company establishing a subsidiary in Manila: an authenticated and legalized copy of the documents of the parent company abroad and another set of registration documents with the Bureau of Customs.
“This registration usually takes 27 days,” the report says.
It ssays the Philippine Constitution also prohibits foreign companies from buying land and the best option available is to lease private land. A foreign company’s exercise of rights over the land such as subleasing, subdivision, or making improvements is limited by the terms of the lease contract.❗
In the Philippines a foreign company cannot mortgage leased land or use it as collateral to buy production equipment.❗
Another problematic area is arbitration, where it takes around 135 weeks to enforce an arbitration award rendered in the Philippines—from the filing of an application to a writ of execution attaching assets (assuming there is no appeal)—and 126 weeks for a foreign award.
“Enforcement of arbitration awards is slow in most of the region, taking more than a year in the Philippines and Thailand.”
Countries in Eastern Europe and Central Asia and Latin America and the Caribbean are said to be the most open to foreign ownership of companies. Worldwide, restrictions on foreign ownership are strictest in media, transportation, electricity, and telecommunications industries.
The report says overly restrictive and obsolete laws are an impediment to foreign direct investment and their poor implementation creates additional costs to investment.❗
“Foreign direct investment is critical for countries’ development, especially in times of economic crisis. It brings new and more committed capital, introduces new technologies and management styles, helps create jobs, and stimulates competition to bring down local prices and improve people’s access to goods and services,” said Janamitra Devan, vice president of Financial and Private Sector Development of the World Bank Group.
The report found that countries that do well on the Investing Across Borders indicators also tend to attract more foreign direct investment relative to the size of their economies and population.
On the other hand, countries that score poorly tend to have higher incidences of corruption😯 , higher levels of political risk😯 , and weaker governance structures😯 .
The World Bank says the report is intended to help countries develop more competitive business environments by identifying good practices in investment policy design and implementation.
For your convenience, the pertinents provisions in the 1987 Constitution and the Foreign Investments Negative List are provided below. I will comment on some of the provisions – and you can follow the lead. The items I have not commented on will be left as items tobe covered in the comment threads.
Protectionism in the 1987 Philippine Constitution
NATIONAL ECONOMY AND PATRIMONY
Section 1. The goals of the national economy are a more equitable distribution of opportunities, income, and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially the under-privileged.
The State shall promote industrialization and full employment based on sound agricultural development and agrarian reform, through industries that make full and efficient use of human and natural resources, and which are competitive in both domestic and foreign markets. However, the State shall protect Filipino enterprises against unfair foreign competition and trade practices. (BV: Definition of unfair is ambiguous, how about Filipino companies that resort to unfair competition? )
In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum opportunity to develop. Private enterprises, including corporations, cooperatives, and similar collective organizations, shall be encouraged to broaden the base of their ownership.
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant.
The State shall protect the nation’s marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fish- workers in rivers, lakes, bays, and lagoons.
The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources.
The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution.
Section 3. Lands of the public domain are classified into agricultural, forest or timber, mineral lands and national parks. Agricultural lands of the public domain may be further classified by law according to the uses to which they may be devoted. Alienable lands of the public domain shall be limited to agricultural lands. Private corporations or associations may not hold such alienable lands of the public domain except by lease, for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and not to exceed one thousand hectares in area. Citizens of the Philippines may lease not more than five hundred hectares, or acquire not more than twelve hectares thereof, by purchase, homestead, or grant.
Taking into account the requirements of conservation, ecology, and development, and subject to the requirements of agrarian reform, the Congress shall determine, by law, the size of lands of the public domain which may be acquired, developed, held, or leased and the conditions therefor.
Section 4. The Congress shall, as soon as possible, determine, by law, the specific limits of forest lands and national parks, marking clearly their boundaries on the ground. Thereafter, such forest lands and national parks shall be conserved and may not be increased nor diminished, except by law. The Congress shall provide for such period as it may determine, measures to prohibit logging in endangered forests and watershed areas.
Section 5. The State, subject to the provisions of this Constitution and national development policies and programs, shall protect the rights of indigenous cultural communities to their ancestral lands to ensure their economic, social, and cultural well-being.
The Congress may provide for the applicability of customary laws governing property rights or relations in determining the ownership and extent of ancestral domain.
Section 6. The use of property bears a social function, and all economic agents shall contribute to the common good. Individuals and private groups, including corporations, cooperatives, and similar collective organizations, shall have the right to own, establish, and operate economic enterprises, subject to the duty of the State to promote distributive justice and to intervene when the common good so demands.
Section 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain.
Section 8. Notwithstanding the provisions of Section 7 of this Article, a natural-born citizen of the Philippines who has lost his Philippine citizenship may be a transferee of private lands, subject to limitations provided by law.
Section 9. The Congress may establish an independent economic and planning agency headed by the President, which shall, after consultations with the appropriate public agencies, various private sectors, and local government units, recommend to Congress, and implement continuing integrated and coordinated programs and policies for national development.
Until the Congress provides otherwise, the National Economic and Development Authority shall function as the independent planning agency of the government.
Section 10. The Congress shall, upon recommendation of the economic and planning agency, when the national interest dictates, reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of investments. The Congress shall enact measures that will encourage the formation and operation of enterprises whose capital is wholly owned by Filipinos.
In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to qualified Filipinos.
The State shall regulate and exercise authority over foreign investments within its national jurisdiction and in accordance with its national goals and priorities.
(BV: And this is how the Foreign Investments Negative List came about – see the list further down).
Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.
(BV: And this is why the utilities are still in the hands of MERALCO, DAVAO LIGHT, MAYNILAD. They can keep on charging higher rates because thee Filipino businessman is protected.
There is NO WAY that any company with foreign majority owners will ever enter the Philippines and compete against the locals – because the Constitution prohibits it. The Filipino oligarchs win, the Filipino customers pay the bill. If MERALCO hikes the bill, there’s no one to turn to – no competitor to switch to. You can thank the Constitution for your high electricity rates.)
Section 12. The State shall promote the preferential use of Filipino labor, domestic materials and locally produced goods, and adopt measures that help make them competitive.
(BV: Import substitution has not worked and has lead to higher prices of goods because of inefficient production. There are no alternatives because there are no competitors. The local producers are into collusion as well. The Filipino business owners wins and their Filipino employees keep their jobs- but a larger number of the Filippino people (the Filipino consumers/the Filipino customers) bear the brunt of the business owners inefficiency – case in point MERALCO/PLDT).
Section 13. The State shall pursue a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and reciprocity.
Section 14. The sustained development of a reservoir of national talents consisting of Filipino scientists, entrepreneurs, professionals, managers, high-level technical manpower and skilled workers and craftsmen in all fields shall be promoted by the State. The State shall encourage appropriate technology and regulate its transfer for the national benefit.
(BV: Protectionism has kept foreign investors away. Higher paying jobs, compared to dirt cheap jobs in the sweatshops of the Philippine oligarchy (Ayala, Lucio Tan, Cojuangco, etc), are being kept away.
If the high paying jobs that keep the best and brightest happy are not available locally – the best and brightest will go overseas, very simple!)
The practice of all professions in the Philippines shall be limited to Filipino citizens, save in cases prescribed by law.
(BV: It’s ironic that we work in countries that allow people who are not their citizens (Filipinos) to work – and here we are limiting professions to Filipino citizens. In Cebuano we call this “bentahoso” – greedy. It’s someone who just takes and takes but does not give anything back. That’s the Philippines – puro hingi, bilmoko, keeps on taking – but doesn’t give back)
Section 15. The Congress shall create an agency to promote the viability and growth of cooperatives as instruments for social justice and economic development.
Section 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability.
Section 17. In times of national emergency, when the public interest so requires, the State may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any privately-owned public utility or business affected with public interest.
Section 18. The State may, in the interest of national welfare or defense, establish and operate vital industries and, upon payment of just compensation, transfer to public ownership utilities and other private enterprises to be operated by the Government.
Section 19. The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.
(BV: Really? Tell that to the Marines – note the clause “when the public interest so requires”.
It can be interpreted that “public does not require regulating or prohibiting it yet so it is still okay to have monopolies” – ergo, PLDT, MERALCO, MAYNILAD by virtue of lack of competition are monopolies – and yet they operate.
When they raise their prices, you can only complain, you have nowhere to go – but them – that’s what monopolies are for. Take it or leave it – you have no choice.
Section 20. The Congress shall establish an independent central monetary authority, the members of whose governing board must be natural-born Filipino citizens, of known probity, integrity, and patriotism, the majority of whom shall come from the private sector. They shall also be subject to such other qualifications and disabilities as may be prescribed by law. The authority shall provide policy direction in the areas of money, banking, and credit. It shall have supervision over the operations of banks and exercise such regulatory powers as may be provided by law over the operations of finance companies and other institutions performing similar functions.
Until the Congress otherwise provides, the Central Bank of the Philippines operating under existing laws, shall function as the central monetary authority.
Section 21. Foreign loans may only be incurred in accordance with law and the regulation of the monetary authority. Information on foreign loans obtained or guaranteed by the Government shall be made available to the public.
Section 22. Acts which circumvent or negate any of the provisions of this Article shall be considered inimical to the national interest and subject to criminal and civil sanctions, as may be provided by law.
(BV: There’s a lot of foreigners who are using dummies. Our laws encourage it. It also becomes a fertile ground for corrupt dealings. May foreigners are being ripped off. It gives a very bad image of the Philippines – and Filipinos, like you and I)
Protectionism in the Foreign Investments Negative List
The FINL shows the depth of the Philippines protecionist investment policy. It shows the different sectors and their limits to FDI. N ote that no corporation can own more than 40% under the Constitution.
Thus, technically – all corporations in the Philippines are Filipino-owned (excluding of course those, foreign corporations within the export processing zones engaged solely in exports).
FIFTH REGULAR FOREIGN INVESTMENT NEGATIVE LIST
[Executive Order No. 139 dated October 22, 2002]
FOREIGN OWNERSHIP IS LIMITED
BY MANDATE OF THE CONSTITUTION AND SPECIFIC LAWS
No Foreign Equity
1. Mass Media except recording [Article XVI, Section 11 of the Constitution; Presidential Memorandum Order dated 04 May 1994].
(BV: This is supposedly to protect Filipinos from “evil” foreign influence. Every Filipino must be given the right to determine for themselves what is “evil” and what is “good”. Preventing foreigners to own mass media is a form of censorship and prior restraint.
Limiting ownership of mass media to irresponsible local Filipino companies like ABS-CBN is doing more harm than good. Our choices are limited between WORSE and WORST. )
2. Practice of professions 1
vi. Electronics and Communication
xi. Naval Architecture and Marine
b. Medicine and Allied Professions
ii. Medical Technology
vi. Nutrition and Dietetics
ix. Physical and Occupational Therapy
x. Radiologic and X-ray Technology
xi. Veterinary Medicine
g. Customs Brokerage
h. Environmental Planning
k. Interior Design
l. Landscape Architecture
o. Marine Deck Officers
p. Marine Engine Officers
q. Master Plumbing
r. Sugar Technology
s. Social Work
(Art. XII, Sec. 14 of the Constitution; Sec. 1 of R.A. 5181)
3. Retail trade enterprises with paid-up capital of less than US$ 2,500,00 (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 C.A. 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 C.A. 541)
Up to Thirty Percent (30%) Foreign Equity
16. Advertising (Art. XVI, Sec. 11 of the Constitution) (BV: Why?)
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 C.A. 141) (BV: Foreigners who are actively doing business in the Philippines should be allowed to own 100% of residential land and land for its corporate HQ during the time when the investment is actively employing Filipinos)
19. Operation and management of public utilities (Art. XII, Sec. 11 of the Constitution; Sec. 16 of C.A. 146) (BV: We need the option of switching to a better service instead of being stuck with lousy utilities like MERALCO and MAYNILAD – Allowing foreigners to own majority shares will encourage more investments that will compete against the lousy inefficient Filipino companies that rip-off the Filipino consumers)
20. Ownership/establishment and administration of educational institutions (Art. XIV, Sec. 4 of the Constitution) (BV: We need the option of switching to a better school instead of putting up with the ridiculous religious classes of the sectarian schools like Ateneo and Lasalle. Allowing majority foreign equity into our private schools that meet local regulations should be allowed. It will force our local schools to innovate instead schoveling those decripit religion -laded globally-disconnected curriculum. We also need more schools that can provide lower costing technical certification (MCSE/ A+/CCNA/ etc) instead of the rip-off rates of local diploma mills and sectarian schools.)
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 P.D. 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) (BV: We need the option of allowing foreign-owned majority companies to bid against the outrageous prices of local Filipino companies that habitually practice collusion.)
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 of 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 houses regulated by the SEC (Sec. 5 of P.D. 129 as amended by R.A. 8366) 6
You can go through each item in the Constitution and the FINL and read it with a critical mind with the intention of identifying protectionism and how it affects our daily lives.
One thing’s for sure – the Constitution needs to be amended because it’s not making things any better.
Noynoy can do something right – abandon the “walang mahirap kung walang corrupt yarn” – and embrace the truth – maraming naging corrupt dahil sa tindi ng paghihirap at dahil sa pagnanasang maging marangya tulad ng oligarkya.
Many have become corrupt due to severe economic needs. Further, they are following the lead of the oligarchy in this tale of grand corruption.
Noynoy can turn this around – but he has to bite the bullet. Exercise decisive leadership and amend the constitution.
Noynoy’s existential question is this – will I be a spokesman of the Oligarchy – or will I be the President of the Philippines?