British firms are keen to invest in the Philippines – and the “strong leadership” of President Rodrigo Duterte is one reason why. The UK’s Prime Ministerial Trade Envoy to the Philippines, Richard Graham said that Duterte’s stance on law-and-order issues and his clear message to foreign investors – that they can depend on him to get a fair deal – is playing well with Britain’s investment community. But ownership restrictions for foreign companies remain a concern.
Heading a team of British diplomats, he was in Cebu as part of a region-wide mission to promote a new era of trade relationships with member countries of the Association of Southeast Asian Nations (Asean) following Britain’s exit from the European Union. Earmarking target markets and sectors for foreign direct investment (FDI) is part of his brief. Graham is also UK Prime Ministerial Trade Envoy to Indonesia, Malaysia and the Asean Economic Community.
He said that Duterte’s pro-investment provisions in his socio-economic plan, along with his repeated assurances that foreign businesses investing in the Philippines will be treated well and that their assets will be safe under his presidency, has sent a strong positive signal.
Graham was also hopeful that the 60:40 rule – the provision set in the 1987 Philippine Constitution that limits foreign companies to no more than two fifths ownership of any company they establish in the Philippines – can be amended. Duterte has said that this is something he will be looking at. According to Graham, a relaxation of the regulation would have a positive impact on British companies seeking to enter a number of market sectors, among them schools and pharmaceutical manufacturing.
The foreign-ownership rule is one of the biggest killers of overseas direct investment to the Philippines, and one reason why foreign companies set up elsewhere in Southeast Asia. Over the years it has dissuaded countless businesses from entering the Philippine market and continues to be a major stumbling block to attracting FDI.
Nobody, leaving aside corporations with vested interests in retaining the status quo – companies that have a lock on a particular sector and want to hang onto control – doubts that overseas funds would flow in and employment would increase if the ownership rule was relaxed. Let’s call Section 2 under Article XII of the Constitution what it is; it’s protectionist. And it’s a millstone around the neck of the Philippine economy.
The corporate cabals have profited greatly from keeping foreign rivals off their patch; Filipino consumers have not, paying ever-rising costs for inferior services – look no further than the telecom sector: The Philippines’ Web-less masses. Local Philippine partners have done well from their 60% holdings in companies set up by overseas players, but the economy as a whole has paid the price for their gains.
Total FDI net inflows to the Philippines last year amounted to US$5.72 billion. By comparison, elsewhere in Asean, Singapore received US$62.28 billion net inflows; Indonesia, US$16.07 billion; Malaysia, US$11.29 billion, Vietnam, US$11.08 billion, and Thailand, US$11.03 billion. Furthermore, while Philippine net inflows saw a US$96.8 million decrease from 2014, incoming investment for two of Asean’s smaller economies posted increases – Myanmar, up from US$946.2 million to US$ 2.82 billion; Laos, from US$ 913.2 million to US$1.08 billion.
This is a picture which Duterte and his economics team want to reverse. They are under no illusion that the lifeblood for building the economy will come from a transfusion of FDI, and are equally aware that competition for that lifeblood is very tough within Asean and other parts of Asia. If the Philippines is going to be successful in attracting foreign investors to its shores, the wisdom of the 60:40 rule is one thing it needs to be questioning. The VolatilianTM believes that if this cork is removed, or at least loosened, investments will splash in. And not just from the Brits.