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Constitutional amendments needed to boost FDI

Constitutional amendments needed to boost FDI

By Elijah Joseph C. Tubayan | August 18, 2017

The government needs to amend the constitution to open up industries currently restricted from foreign participation, to unleash the economy’s full growth potential, economists said.

At a forum, former Socioeconomic Planning Secretary Cielo F. Habito said that efforts to open up new sectors for foreign direct investment (FDI) require comprehensive efforts to amend the charter, noting that current tweaks to redefine “public utilities” to allow more FDI will have only a temporary impact.

“The reason we continue we lag behind our neighbors, in spite of dramatic improvements already made, is still because of these legal constraints to more foreign participation in our industries,” Mr. Habito said during Ateneo de Manila University’s Mid-Year Economic Briefing 2017 in Makati City yesterday.

Asked whether the government’s efforts to remove sectors from the upcoming Foreign Investment Negative List ( FINL) will boost the economy, Mr. Habito said: “It will only provide limited relief, in the sense that we will only be able to open it, or even just partially, just public utilities,” in an interview after the forum.

“Big foreign infrastructure companies have already been investing massively in India and Latin America, in railways which, in our law, is considered a public utility. So they can’t come in. They can only come in up to 40% but many of them said, when it’s only 40% why even bother?” Mr. Habito said.

Although the government seeks an aggressive overhaul of the FINL, Finance Secretary Carlos G. Dominguez III said earlier that they are limited to “what is legislated and what is in the constitution,” even noting that they will only review “those things that can be done administratively.”

The FINL defines areas where foreign investors are allowed to fully or partially participate, including those blocked by the 1987 constitution.

Economic managers said they are looking into amending the Public Service Act through House Bill No. 4389, authored by former president and now Deputy Speaker Rep. Gloria M. Arroyo (Pampanga, second district), to redefine what public utilities are, and open it up for external investors — especially in telecommunications sector.

“Public utilities” are defined in the Public Service Act, or Commonwealth Act No. 146.

The government has yet to release the 11th FINL.

Even as increasing investments has been fueling the robust economic growth in recent years, Mr. Habito said that amending the constitution for the entry of more foreign players would expand the country’s investment take, and push economic growth to as high as 9%.

“The hope is we will be willing to amend economic provisions of the constitution because that is what really is holding us back. It is outdated. Many of the restrictions in foreign advertising, mass media, education, are really out of date. Given the technology in recent years, those rationales don’t apply anymore to the information age,” he said.

“We have to sustain the seven to 8% growth for at least 10 years to reduce poverty significantly. But we really have to get to a new growth plane. Without a dramatic change in policy, we will still just be muddling through in the same level we have been in the six to 7% until now. Hopefully we can catapult ourselves to a higher plane of seven to 8% or even eight to 9%,” added Mr. Habito.

Other areas where foreign ownership is completely prohibited by the Constitution or laws are: the practice of all licensed professions; retail; cooperatives; private security agencies; small-scale mining; utilization of marine resources; ownership, operation and management of cockpits; and manufacture, repair, stockpiling and/or distribution of nuclear weapons.

The areas where foreigners can own stakes of up to 25% are: private recruitment for local or overseas employment and construction and repair of locally funded works like infrastructure and foreign- assisted projects. The areas where foreigners can own up to 30% include: advertising; exploration, development and utilization of natural resources; private land; public utilities; education; rice and corn administration; financing and investment companies; firms that supply state-owned corporations and agencies; public utility franchises; and private domestic and overseas construction contracts.

Industries allowing up to 40% foreign ownership include security; defense; those industries that pose a risk to health and morals, such as gambling, bath houses and massage clinics; and small- scale and medium- scale enterprises of a certain size.

Economist Alvin P. Ang said during the forum that the country needs to seek new sources of exports, and maximize the capacity of its food manufacturing sector.

“We are being limited. Electronics is still the largest export product, but still we have to find other export products,” said Mr. Ang.

“The global market is integrated you need to connect to the global value chain. In the region, we have to value that connection. In the Philippines, our food sector is big. How can URC ( Universal Robina Corp.), Liwayway [Marketing Corp.] become players abroad? It’s because they have the capacity. We should take that advantage,” he said.

Mr. Ang also noted that the government’s infrastructure gap has capped the tourism sector’s growth, which may limit overall economic growth as he noted that some 12.7% of workers are in tourism-related jobs.

Mr. Ang also noted concerns for the tourism sector over the Marawi City crisis that led Mindanao to be placed under martial law.

“We can’t do anything about multiple travel advisories, but we do have to solve the crisis,” Mr. Ang said. —


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