[OPINION] The investment and infrastructure challenges in implementing the 10-Point Agenda

Thinking Beyond Politics by Victor C. Manhit | September 20, 2017

In the medium term, the government is aiming to reach an annual GDP growth of between 7% and 8%. These rates are higher than we’ve seen in recent years, but our officials are optimistic. At the sidelines of the recent Arangkada business forum, Socioeconomic Planning Secretary Ernesto Pernia assured us that these rates are achievable, particularly when the current restrictions on foreign investments are lifted. While listening to the presentations, it seemed as though all our economic officials are similarly bullish for what they can accomplish.

NEW DYNAMISM IN THE INVESTMENT ENVIRONMENT?
At present, the government is reviewing the foreign investment negative list (FINL), which is the official list of sectors where foreign participation in excluded. Revised every two years, this round is the first time that the administration will have a hand in deciding where foreign investment is welcome.

By all accounts, this government is taking a more liberal approach than its predecessors.

At a different event, Secretary Pernia even shared that he had sent the initial draft of the 11th FINL back to the drawing board — deeming the first round of proposed changes too “puny.” This aggressive push is more than welcome for our economy, and Secretary Pernia’s statements are certainly an encouraging development.

The new list is expected to be released sometime in the next quarter, as the next draft will still have to be presented to the NEDA board for approval. According to Secretary Pernia, the sectors that he aims to open for foreign inclusion are: retail trade, professions, public utilities, and contractors. Some of these sectors are also expected to liberalize in line with the rest of the region as part of the ASEAN Economic Community.

As important as it is, liberalizing the investment environment is only one step to attracting more investment in the country. Deeper reforms are needed if we are to propel our economy to greater heights. Which reforms are necessary to improve our country’s competitiveness and foster an even more dynamic investment climate? These were the questions tackled during a recently held forum organized by the Joint Foreign Chambers, called “Arangkada Philippines: Implementing the 10-Point Agenda.”

Arangkada is a Tagalog word that translates to “accelerate,” a term that aptly captures the pace of our economy’s expansion over the last few years. While the previous administration made significant strides in fueling our economy, it fell short in achieving some of its growth and development targets. President Duterte and his team are capitalizing on these shortcomings.

Even before Duterte gave his oath of office, his economic team had already laid out its 10-point socioeconomic agenda. The speed with which it had declared its objectives reflected the administration’s obvious commitment to bringing about swift and impactful reforms — reforms that have to be implemented if we are to turn our ambitious targets into reality.

For those who were not able to make it, the Joint Chambers have published their lists of recommendations, covering macro-economic reforms, competition, infrastructure, rural development, human capital, poverty alleviation, and science, technology and the arts, in the conference proceedings.

BRIDGING THE INFRASTRUCTURE GAP?
The decrepit state of the country’s infrastructure is often cited as the Achilles heel of our economic potential. Thankfully, with the launch of the Build, Build, Build campaign earlier this year, there is no discounting that infrastructure is a centerpiece project of our current leadership. As a result, there has been renewed interest in the infrastructure sector and in how the administration will accomplish its targets.

For its part, the Duterte administration has announced a list of priority infrastructure projects.

During the forum, it was encouraging to listen to our government officials talking about the big-ticket projects that they intend to break ground on or even complete during this term. These projects include the Japan-funded Mega Manila Subway and 13 bridges across the Pasig River, two of which will be built with Chinese grants. Given the state of our traffic situation today in Manila, all of these projects will be watched and waited for with great anticipation.

Yet, several of these projects are reboots from the previous administration — a sobering reminder that they had failed to advance despite years of gestation. As always, the devil is in the execution, not the planning.

While the government has promised to increase infrastructure spending, this should also be complemented with institutional and policy reforms. The approval of the National Transport Policy this year is a good step towards unifying all transport projects. The administration’s push to right-size the bureaucracy is also a welcome measure to address the fragmented institutional setup of various transport agencies. Over the long term, a mechanism should be in place to ensure policy continuity every time a new administration steps into office.

FISCAL SPACE
With great anticipation also comes great apprehension about whether the Duterte administration will be able to see its commitments through to the end and achieve them as planned. Thankfully, it has everything going for it: years of sound fiscal policy have afforded the government a wide-enough fiscal space to make these necessary investments. It would be a waste to let the best opportunity that we have had in decades slip between our fingers.

Source: http://bworldonline.com/investment-infrastructure-challenges-implementing-10-point-agenda/

Spend, spend, spend

Corporate Watch by Amelia H.C. Ylagan | September 18, 2017

Diokno
Budget Secretary Benjamin Diokno reveals the means on how the government can source funds for the different infrastructure projects under the “Build! Build! Build!” program during the DuterteNomics Forum at Conrad Manila in Pasay City on April 18, 2017. Also in the photo are Presidential Spokesperson Ernesto Abella, Transportation Secretary Arthur Tugade, and Executive Secretary Salvador Medialdea. — PRESIDENTIAL COMMUNICATIONS

Budget Secretary Benjamin Diokno and National Economic Development Authority (NEDA) Secretary Ernesto Pernia keynoted the Arangkada 2017 Forum on Sept. 14, when the Joint Foreign Chambers of Commerce and Filipino partners in business listened to economic opportunities in the near-, medium- and long-term.

“The Duterte administration will be different. We envision that by the time we step down in 2022, we would have ushered in the Golden Age of Infrastructure in the Philippines, an era that Filipinos will look back with affection as one that laid the necessary foundations for robust and equitable growth in the long-term,” Diokno said.

Sec. Diokno lamented the opportunities lost in the less than 2% of GDP of infrastructure spending from 1986 to 2016, which he said “reflected decades of neglect and misallocation of public resources.” He noted that “the suggested ratio for infrastructure spending as a share of GDP is 5% for developing countries.” Loud and clear, the “Build, build, build” program will reverse previous alleged “inaction” to high-gear “Spend, spend, spend” to stimulate economic development.

Sec. Pernia acknowledged past administrations’ accomplishments: “GDP growth has been on a sharp monotonic uptrend over the last three and a half decades. With a 6.9% GDP growth in 2016 — high end of the government’s target of 6% to 7% — the Philippines is poised to be one of the fastest rising economies in Asia over the medium-term.” Regarding the relative slowdown in the first two quarters of 2017 under Duterte, Pernia pointed out that this phenomenon seems normal, reflecting post-election-year effect on growth.

“The economy is also undergoing structural transformation — growth is increasingly being driven by investments vis-à-vis consumption, and is led by the industry sector relative to the service sector. In other words, sources of economic growth have broadened. Total factor productivity growth of the economy in recent years has been the fastest among ASEAN-6 countries at 3.3% for the period 2010-2014, and the highest in the group at 1.48% over the period 2010-2016” Pernia objectively said of the economic situation prior to “Dutertenomics.”

Pernia is confident that the economy is robust and sustainable, but he laments the inequality across households and regions, and the chronic poverty that persists amidst the glowing GDP numbers. “The country’s GDP remains concentrated in the Mega Urban-Industrial Region comprising the National Capital Region (Metro Manila), Calabarzon (Region 4A), and the Central Luzon Region (Region 3), which collectively accounted for nearly two-thirds of total GDP for the period. But the per capita income of NCR is almost triple the national average of P78,712 for 2016, while ARMM’s per capita income is now only 1/4 of the national average and 1/13th of NCR’s,” Pernia said.

“This is why we have identified infrastructure development as a priority of the Duterte administration,” Diokno emphasized. “We have to close the infrastructure gap soon if we are to realize our development objectives of becoming an upper-middle income economy by 2022 and reducing poverty rate to 14%. DBM is targeting at least 5% of GDP for infrastructure financing in the medium term; 5.4% for 2017; and 6.3% for 2018. In nominal terms, these figures translate to P858 billion and P1.1 trillion for FY 2017 and 2018, respectively.”

Diokno plans to finance this through an expansionary fiscal policy that first, increases the planned deficit from 2% to 3% of GDP. Second are the assumed increased revenues from the Tax Reform program. Combining the two expansionary measures, the government would generate an additional fiscal space amounting to P309 billion in 2018 and rising up to P524 billion in 2022, Diokno assumes.

But what if Diokno’s assumptions on revenue inflows do not actually happen? Would the brave swing to “Spend, spend, spend” from past “inaction” dent the “monotonic (boring?) uptrend of GDP” — the close to 7% GDP growth — acknowledged by Pernia?

The government will have to borrow more, that’s what it means.

Hopefully, the shortfall from unrealized revenues will not drive up long-term debt for future generations to pay for — we are still paying, until 2025, for the debts in Marcos’s martial law: “During the Marcos regime… many ‘successes’ were built on ‘debt-driven growth.’ While it is true that the regime embarked on an infrastructure spending spree, this was pursued largely to justify its existence and at the exorbitant cost of the ballooning of the country’s external debt (Rappler, 03.25.2016).”

And the spending of Marcos did not translate to higher GDP growth for him to brag about. “The economic setback due to the Marcos regime cemented our title as the ‘sick man of Asia’ for the good part of the past 3 decades, and prevented us from partaking of the so-called ‘East Asian miracle’ where by the time we recovered in 2003 the incomes of our neighbors had grown 2-4 times their 1982 levels (Ibid.).”

Many economists have warned that increased government spending does not necessarily stimulate GDP growth, and that the Keynesian recipe of “Spend, Spend, spend” (originally for the post-war economic rehabilitation) has lost flavor in the recent unpredictable, anti-cyclical booms and busts of financial and economic crises. Some even say that increased government spending can hamper economic growth, for the “crowding out” of the private sector, and for the politics that murk the decision factors for government intervention in economic planning.

Professor Emeritus of Law at George Mason University Gordon Tullock suggests that politicians and bureaucrats try to gain control of as much of the economy as possible. Demand for government resources by the private sector leads to misallocation of resources through “rent seeking” — the process by which industries and individuals lobby the government for money. Rather than spend money where it is most needed, legislators instead allocate money to favored groups. Though this may yield a high political return for incumbents seeking reelection, this process does not favor economic growth (mercatus.org, 06.10.2010).

A note to our present leaders and economic planners: Yes, we need roads and bridges, and other infrastructure. But when and if you decide to (over)spend on the “Build, build, build” hybrid PPP program, please be careful to study recent abundant analyses on the advantages and disadvantages of government spending as a stimulus to that much-desired GDP growth figure — make sure there is something to brag about in the end, as our economic history writes itself.

Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.

Source: http://bworldonline.com/spend-spend-spend/

PH plays catchup on FDIs

September 15, 2017

The Philippines should catch up with Asean countries in terms of attracting foreign direct investments (FDIs) but foreign investors said this will depend on how fast government would be able to remove restrictions.

While the Philippines has broken out of its low level of FDIs – from $1.1 billion in 2010 to $7.9 billion in 2016 and h averaged $6.5 billion per year — – the number still lags behind Asean, according to John Forbes, chief of party of the Arangkada Philippines Report and senior adviser of the American Chamber of Commerce of the Philippines.

The Philippines breached the Arangkada target of $7.5 FDIs but the group will not set any new targets.

The Joint Foreign Chambers had said FDI should be targeted to exceed $10 billion and be measured in erms of jobs and exports generated.

Forbes said the group is not making an assessment of the Arangkada goals but said these have been updated to reflect the 10-point agenda of the Duterte administration and the Philippine Development Plan.

Julian Payne, president of the Canadian Chamber of Commerce of the Philippines for his part said the relevant criteria here is how the Philippines fares with Vietnam and Thailand.

But Payne said the key point is how quickly the administration proceeds to remove the restrictions on foreign investments.

There have been moves to lift foreign restrictions on public utilities as well as on construction. The Foreign Investment Negative List is also being reviewed.

“With these initiatives, it obvious FDIs will grow but to set a specific target is risky… it’s better to benchmark with the Asean average… (the Philippines is) clearly below it,” Payne said.

In 2015, the Philippines attracted $5.7 billion FDIs which pale in comparison with Singapore whose FDIs stood at $61 billion; Indonesia $17 billion and Malaysia and Vietnam with more than $11 billion each and Thailand’s $8 billion.

Ernesto Pernia, socioeconomic planning secretary, said he wants to “drastically shorten” the FINL and that he supports aggressive liberalization to be able to open up more business areas to foreign investors.

Pernia told reporters on the sidelines of the Forum the current draft is a long list and “ I want to really shorten it drastically.”

Pernia said areas up aggressive liberalization are retail trade, certain professions, public utilities, and contractors. “

The final form will be more aggressive, it will be closer to the Asean. There are many things in there they are not increasing it by 40 to 60 percent equity, I said bring it up to 100 percent for certain areas,” Pernia said.

Pernia cited professors, as one of the professions that will be likely removed under the FINL.

The Regular Foreign Investment Negative List, which was last promulgated by the previous administration in May 2015 through Executive Order No. 184, enumerates the investment areas and activities reserved exclusively for Filipinos as well as industries where foreign equity of up to a maximum of 40 percent is allowed, as mandated in the Constitution.

The review of the FINL issued periodically by Malacañang under the Foreign Investments Act of 1991 started in May this year.

The Duterte administration seeks to open up the economy by lifting economic restrictions in the Constitution, in order to open more business areas to foreign investors. Under the 2015 Negative List, 100 percent foreign participation is allowed only for retail trade enterprises under certain conditions specified in Republic Act 8762 or the Retail Trade Liberalization Act and also in the rice and corn industry under certain conditions. The 2015 list also allows full foreign participation in the exploration, development and utilization of natural resources through financial or technical assistance agreements with the President. — I. Isip. and A. Celis

Source: http://www.malaya.com.ph/business-news/business/ph-plays-catchup-fdis

PH should give foreign investors more leeway – NEDA chief

By Reuters | , 8:46 AM
NEDA chief Ernesto Pernia (Reuters file)

MANILA – The Philippines should “drastically” cut the number of sectors and activities closed or limited to foreign investors to get more of the investment flows into Asia, the socioeconomic planning secretary said on Thursday.

Ernesto Pernia said that when he was given an initial draft of an updated “foreign negative list”, he sent it back for amendment because it was “puny.”

“I want a more aggressive liberalization,” Pernia told reporters on the sidelines of the Arangkada business forum organized by foreign business chambers.

The Philippines is one of Asia’s fastest-growing economies but it lags regional peers in terms of attracting foreign direct investment because of foreign ownership restrictions, high power costs and poor infrastructure.

Pernia said that among the sectors and activities targeted for opening or further opening were the practice of all professions, retail trade enterprises, ownership and management of public utilities and contracts for construction.

Since coming to power in June 2016, President Rodrigo Duterte has vowed to open up the economy and liberalize sectors such as energy, power and telecoms to make the country more competitive and give Filipinos better services and lives.

In terms of openness to foreign investment, “we have to be at par with other countries, no choice, otherwise we will continue to be left behind,” Pernia said.

Foreign direct investment hit a record $7.9 billion in 2016, central bank data showed, but the figure pales in comparison with those it has for Vietnam ($12.6 billion) Malaysia ($13.5 billion) and Singapore ($61 billion).

Investors have long been frustrated at being shut out of some sectors in a market of more than 100 million Filipinos, either squeezed by local monopolies or regulations that bar or limit foreign ownership in certain activities.

“The key point is how quickly the new administration is going to proceed with its stated intention to remove restrictions on foreign direct investment,” Julian Payne, president of the Canadian Chamber of Commerce of the Philippines told reporters.

“You want to at least have the ASEAN average (of FDI flows) and we still got a long way to go,” Payne said.

Source: http://www.interaksyon.com/ph-should-give-foreign-investors-more-leeway-neda-chief/

PH to add more sectors allowing 100% foreign ownership

‘I want to be more aggressive and to be at par with other ASEAN countries,’ says Socioeconomic Planning Secretary Ernesto Pernia

 

MORE AGGRESSIVE. 'I want a more aggressive liberalization. The draft list is too puny in terms of changes. I want to be more aggressive and to be at par with other ASEAN countries,' Socioeconomic Planning Secretary Ernesto Pernia says. File photo
MORE AGGRESSIVE. ‘I want a more aggressive liberalization. The draft list is too puny in terms of changes. I want to be more aggressive and to be at par with other ASEAN countries,’ Socioeconomic Planning Secretary Ernesto Pernia says. File photo

MANILA, Philippines – The government is targeting to release a “shortened” list of investment areas or activities reserved solely for Filipinos by year-end, citing the need to liberalize more sectors and to be at par with its Association of Southeast Asian Nations (ASEAN) neighbors.

To do this, Socioeconomic Planning Secretary Ernesto Pernia said the Philippines will allow more investment areas where foreigners can fully own a company.

 “I want a more aggressive liberalization. The draft list is too puny in terms of changes. I want to be more aggressive and to be at par with other ASEAN countries,” Pernia told reporters on the sidelines of the Arangkada Philippines Forum 2017 in Pasay City on Thursday, September 14.
In the draft list, some areas were allowed foreign ownership of up to 60%, according to Pernia. “I said bring it up to 100% for certain areas.”

Although Pernia declined to enumerate the areas where 100% foreign ownership will be allowed, he said those that are being looked into are “retail, trade, professions, public utilities, and contractors.”

Former president Benigno Aquino III in 2015 issued Executive Order No. 184, or the 10th Regular Foreign Investment Negative List, which mainly kept intact the foreign ownership restrictions in the previous list. The government is mandated to release a new list every two years.

“It is being revised now. The final form will be more aggressive. It will be closer to ASEAN [neighbors]. The negative list is still a long list and I want it to be shortened drastically,” Pernia said.

Once his office gets comments from all government agencies by the end of the month, Pernia said the revised list will be up for review and approval of the National Economic and Development Authority (NEDA) Board.

Under the 10th negative list, investment houses and financing companies regulated by the Securities and Exchange Commission (SEC) were allowed up to 60% foreign ownership.

“There is no opposition yet. It is [undergoing] staff work by NEDA, then we’ll show it to other agencies. Our argument is we have to be at par with ASEAN countries,” Pernia said.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed net inflow of foreign direct investments slid by 14% year-on-year to $3.6 billion in the 1st 6 months of 2017. – Rappler.com

Source: https://www.rappler.com/business/182205-neda-pernia-philippines-sectors-foreign-ownership

Pernia rejects draft RFINL for being ‘too puny’

The Duterte administration wants to adopt a more aggressive stance when it comes to reducing the country’s Regular Foreign Investment Negative List (RFINL), according to the National Economic and Development Authority (Neda).

On the sidelines of Arangkada Pilipinas Forum 2017, Socioeconomic Planning Secretary Ernesto M. Pernia said he wants to allow 100-percent foreign ownership in certain sectors. 

While he declined to name these sectors, Pernia has already made known his position on the need to liberalize sectors, such as public utilities, the media and the practice of professions, such as teaching. 

“[We want more] aggressive liberalization…. They have shown me a draft, and I find it too puny in terms of the changes, you know. I want a more aggressive [list] and we have to be on a par with the other Asean countries,” Pernia said. 

“There are many things in there; they are not increasing it by 40-percent to 60-percent equity. [But] I said bring it up to 100 percent for certain areas,” he added. 

Pernia said this was the reason the revised version of the RFINL was not discussed in the Neda Board meeting on Tuesday evening. 

However, he assured that the revised version will be presented in the next Neda Board meeting. Pernia also said this will ensure that the President will be able to issue an executive order (EO) on the matter. 

Neda Undersecretary Rosemarie Edillon told the BusinessMirror on Thursday that the new EO only has to do with the administration’s agenda for reform. 

The EO will be released to instruct agencies to liberalize sectors that they regulate. This means that the EO will mandate agencies to actively seek amendments to existing laws that further the liberalization of industries and professions. 

“Actually, the EO is an agenda for reform. It provides the marching orders for the concerned agencies to work toward the easing of foreign-equity restrictions of certain sectors,” Edillon said via SMS. 

Earlier, Pernia said once the Neda Board approves the new list, the President can already issue the needed EOs to allow more foreigners and foreign investments to practice their profession and do business in the country. 

These include allowing foreign professors to teach in various universities in the Philippines. Currently, private and public universities cannot hire foreign faculty members. 

This becomes a problem, especially in the case of Filipino-American professors, who, based on their credentials, are qualified to teach in the Philippines. But before they can teach here, they have to renounce their American citizenship. 

“The reason our universities are not highly rated—its only UP [University of the Philippines] that’s rated—is we don’t allow foreign professors to teach and be paid, get an item that is already standard in other countries,” Pernia said. 

The Neda is tasked to review and revise the country’s RFINL, which contains restrictions on foreign investments and the practice of professions based on the constitution and Philippine laws. 

The RFINL contains investment areas/activities where foreign-equity participation is limited by mandate of the Constitution and specific laws. It also consists of investment areas/activities where foreign- equity participation is limited for reasons of defense, security, risk to public health and  morals, and protection of small- and medium-sized domestic market enterprises.

The amendment of the list is headed by the Neda Secretariat, as provided for under Section 8 of Republic Act 7042, or the Foreign Investments Act of 1991, which states that amendments may be made upon the recommendation of the secretary of national defense or the secretary of health, or the secretary of education, endorsed by the Neda, approved by the President, and promulgated by a Presidential Proclamation.

Source: https://businessmirror.com.ph/pernia-rejects-draft-rfinl-for-being-too-puny/

Join us as the Philippines continues to Arangkada!

We would like to invite everyone to The Sixth Anniversary Arangkada Philippines Forum: Implementing the 10-Point Agenda. We have invited President Rodrigo Duterte to be the keynote speaker and National Economic Development Authority (NEDA) Secretary Ernesto Pernia and Department of Budget and Management Secretary Ben Diokno to be among the key speakers to discuss the Ten-point Agenda, the Philippine Development Plan, and Ambisyon Natin 2040.

We have prepared a distinguished panel of industry experts from both the government and private sectors to discuss the 10-point Socioeconomic Agenda of the Duterte Administration as well as key programs and policies that support achievement of the ten points in the years ahead.

The Arangkada Philippines Forum 2017 will be held at the Marriott Grand Ballroom on September 14, 2017. REGISTER NOW!