February 10, 2022
Congress just passed the Public Service Act. The law redefined “public utilities” such that, among others, telecommunications, aviation and shipping industries can now be 100% foreign owned (from 40%). Opening such sectors would hopefully attract foreign direct investments (FDIs), increase competitiveness, create jobs and enhance the economy. The passage of PSA was widely hailed by the foreign chambers of commerce.
Anything that promotes the objectives cited is wonderful. Indeed, Philippine business has been guilty in the past of hiding behind Constitutional protection, tariff walls and political cronyism to under invest, cartelize, and exploit the undiscerning consumer rather than compete internationally; for oligopoly profits.
The PSA is said to be the dawning of an era, a game changer, a silver bullet. However one must sometimes be careful of what one wishes for, be aware the PSA is not the be all of an economic miracle. There is the danger of unintended consequences.
What are possible concerns?
The PSA will promote FDIs. Yet not all FDIs are created equal or even always good for the country. First, understand that FDIs are not permanent capital. The principal and profits thereof are eventually repatriated to their host country.
Two, FDIs do not per se always create new jobs or economic opportunities. If a foreign entity was to buy say Globe or PLDT, the only beneficiaries would be the already wealthy owners of these two companies not its employees nor the Filipino. What we need instead are FDIs that add value and that do not simply replace existing investment. Sure the shareholders of Globe and PLDT can then reinvest back in the country but there is no assurance or requirement for this (In PLDT’s case some of it will just revert to its Indonesian shareholder).
Three, certain FDIs can be harmful to our security interest. All developed nations have laws that restrict foreign ownership in strategic industries or companies with valuable intellectual properties. The PSA is said to provide for this by disallowing investment from so called foreign State Owned Enterprises (SOEs). Now we know that Governments like China have undue influence even over private enterprises. There is no such thing as a Chinese non-SOE as Alibaba and Tencent have discovered to their chagrin. The U.S. disallowed Huawei, a private Mainland company, from selling its telecom equipment in America because of national security concerns. The U.S. and European countries have prohibited Chinese and Russian corporates from buying some of their tech companies because of the loss of valuable technology.
There are many ways to hide investments by SOEs be it via shell companies in tax haven jurisdictions, multi-layer holding companies or dummies. To believe that we will always be able to detect a SOE investment is naive. Having said that there are also good SOEs. I refer in particular to sovereign wealth funds like Singapore’s Temasek or the Norwegian Pension Fund which technically have Government oversight but are politically neutral and worthwhile. To ban them would be a mistake.
Four, many foreign companies like the Middle Eastern and Chinese airlines are heavily subsidized economically by their host countries and have huge excess capacity allowing them to “dump” their services in the Philippines at lower than fair market prices putting local companies like PAL and Cebu Pacific at a competitive disadvantage. This will result in massive disruption, bankruptcies and loss of Philippine jobs. Once their local competitors are destroyed in a ruinous price war, these foreign players will have a monopoly and raise their prices to the detriment of the Filipino consumer.
The PSA requires reciprocity in allowing certain foreign investments i.e. foreigners can invest in the Philippines as long as we can invest in their host countries. This is an illusion. Local companies are not big enough nor dumb enough to invest in say a strategically important industry in China.
There are certain grey areas in the PSA where the sitting President can say who gets to invest in some of our key industries. Executive discretion is the mother of corruption. With our record of malfeasance this loophole means our patrimony could be sold to unfriendly foreign players without our knowledge or consent.
We need laws that will introduce good FDIs. These laws should attract investment into new areas and not simply replace existing ones; investments that create new jobs at fair wages in important sectors like agriculture and infrastructure; investments that transfer technology and skills and instill a culture of hard work, meritocracy and discipline in our managers and workforce. We need FDIs that create scaleable employment. The number of new jobs in the now “open” industries like telecom or transportation are minuscule compared to the needed employment in already allowed sectors like tourism, agriculture, knowledge industries and manufacturing; that is where our attention should be. We need FDIs that will leave a legacy in physical capacity and culture long after they are gone.
We do not need FDIs that will bribe their way into town. We do not need FDIs that will rape our natural resources and abscond with the profits. We do not need FDIs who are bad corporate citizens, mistreat their workers and not pay their taxes. We do not need FDIs that in a geo-political crunch will hold us hostage to the dictates of their masters, SOEs or not. We do not need FDIs that will leverage their investment from local banks and crowd out our struggling SMEs from much needed financing. We do not need FDIs who will get our valuable telecom frequencies and sovereign air rights for free. We do not need FDIs who will use their muscle to ruin their Filipino owned counterparts through unfair competition.
On their side, good foreign investors want a level playing field; no corruption; simplification and speed of processes; protection from political interference; and consistency in the design and application of rules and policies. These are the concerns that ultimately will have a bigger impact on our economy.
The law is passed but the Implementing Rules and Regulations have still to be crafted by the NEDA. The details and safeguards are where we need to focus while recognizing that in this country IRRs are there to be amended, re-interpreted or misinterpreted for the right price and influence.
The legislators and their advisers who crafted the PSA have their hearts in the right place. Thank you, Rep. Sharon Garin and Sen. Grace Poe for your leadership and the work you put into it. The most important take-away is we are open for more business with foreign investors. However in our effort to help the country we should be mindful of not throwing out the baby with the bath water.
Source: https://heneralunacy.wordpress.com/2022/02/10/the-public-service-act/