Charter Change (or, Cha-Cha) is now on the Philippines’ agenda. On Wednesday, President Rodrigo Duterte signed an executive order establishing a 25-member consultative body to study possible amendments to the 1987 Constitution. This is not a boring piece of administrivia; this is a clear declaration of intent and by issuing it Duterte has set in motion what is likely to be the biggest shake-up in the country’s entire constitutional history.
The writing’s been on the wall for some time; now it’s on an executive order. It’s plain writing; here’s what it says: “There is a need to review the 1987 Philippine Constitution to ensure that it is truly reflective of the needs, ideals and aspirations of the Filipino people and to ensure that the mandate of the people as expressed thereon, is responsive to changing times”.
This short paragraph opens the way for an overhaul of the rules that restrict foreign participation in the economy and brings to centre stage Duterte’s long-held desire of founding the Philippine Federation – a union of self-governing states that will replace the Republic’s one-state rule. The Philippine Federation – the shape of things to come
Furthermore, the Philippine Reformation – and it’s nothing short of that; it’s a removal of the old order – signals the end of the oligarchies that have controlled business in these islands since Spanish times, and threatens to turn the page on the corporate imperialism of Manila and its inner sanctum of Makati.
If successful, it will free whole sectors of the economy from the corporate clans and move the country from a protectionist backwater to become a global player. It will encourage the inward flow of foreign cash to areas of enterprise which for overseas investors have long been either too restrictive or off-limits, lift employment across the board and allow the spirit of entrepreneurism to breathe at last.
Key among the Constitution’s provisions is Article XII which limits foreign ownership of property to 40%. Widely believed to be the single biggest inhibitor of foreign direct investment (FDI), this is among the main targets of the reforms.
Originally envisioned by the drafters as a tool to protect the country’s sovereignty from foreign incursion, its actual effect was to repel foreign funds and hand whole chunks of the industrial landscape to the large domestic players – energy, mining and telecoms being three prime examples. Consequently, protectionism flourished and monopolies consolidated their control as big fish got bigger while the pond stayed the same size.
In short, to foreign investors Article XII has stood as a toxic-hazard sign and the main reason why their capital is spent elsewhere – such as practically everywhere else in Southeast Asia. This reluctance by invested interests in the Philippines – and successive governments the wheels of which they have regularly greased – is par for the course in countries where the playing field is sloped to disadvantage ‘outsiders’. But that may be about to change.
Two days ago, at a conference organised by the Statbase-Albert Del Rosario Institute for Strategic and International Studies, three Filipino billionaires, all of Spanish descent and leading figures of Philippines Inc., came out in support of Cha-Cha. They were Ayala Corporation chairman and CEO, Jaime Augusto Zobel de Ayala; International Container Services chairman and CEO, Enrique Razon, and RFM president and CEO, Jose Concepcion III.
Men with considerable clout in the country’s corporate corridors of power, they understand all to well that writing on the wall and the need to position themselves to ensure that as the Old Order fades their corporations will emerge strong in the New Order.
Zobel, head of the country’s oldest and largest conglomerate, said: “We should do what is good for the country and I think an open environment for investment is good for the country and I think there are limitations in our Constitution that make foreign investments uncomfortable. We should release those clauses and allow those people to come in and invest. … I think the economic provisions should be opened up”.
Razon, head of the world’s ninth largest port operator, said: “What is good for the country is to open up for investments. It doesn’t necessarily mean it’s good for me as a businessman but it’s good for the country. It’s good for everybody”.
Concepcion, head of one of the Philippines largest food and beverage companies, agreed with these sentiments. His only caution was over how the change is handled. “We have to start to understand the pros and manage the change. This has to be managed really well,” he said.
Given this development, and given the determination of the Duterte administration to make the Philippines attractive to foreign investors and thus make the country more competitive as an FDI destination, The Volatilian™ believes that Article XII will be denuded of the senseless 40% foreign-equity limit. But we’d like to see more than that.
Exclusive Filipino management control of companies in which foreigners have a stake should also go. Ownership of industrial land should be opened to foreigners; they should also be given greater access to the exploration, development and utilisation of natural resources, as well as full participation in the telecoms, media and education sectors.
Frankly, anyone who doesn’t want to see a slashing and burning of Article XII – a set of clauses that has kept the Philippines on the bottom rung of the FDI ladder for longer than most of us care to remember; and to the great joy of its regional rivals – should move to the Hermit Kingdom and mediate on some remote mountain top. The Philippines is no longer being governed by the Law of Diminishing Returns with regard to failing FDI, it’s being controlled by the Law of Increasing Losses.
Once the consultative committee sits it will have six months in which to deliberate. The mechanics of Charter Change will then be handled either by a Constitutional Convention or a Constitutional Assembly (ConAss) – and most likely by the latter. The less-expensive option, ConAss will be populated by three quarters of sitting lawmakers; in effect realigning the existing Congress for the express purpose of debating Cha-Cha – and that involves figuring out whether the Philippines should go federal, and if so, how?.
From what we can gather, there certainly seems to be an appetite for Cha-Cha in Congress. The real question is, how big an appetite? How boldly will they go to this new frontier?
Not to diminish the pressing need to remove the impediments to full foreign participation in the economy, the federal issue is the big one in terms of its scope and its impact on the political structure of the Philippines. Duterte believes that without it, peace in Mindanao – a region torn apart by sectarian conflict – is virtually unattainable.
But there will be opposition to this and plenty of it. Anti-federalists argue that dividing the country into a series of self-governing regions will destroy unity and fragment the nation leading to its disintegration. Failed and failing states, they maintain, could become susceptible to annexation by stronger states.
How all that will pan out, right now we have no way of knowing. What is clear though is that Duterte is 100% committed to delivering the Philippine Federation before the end of his term in 2022 and will be mobilising every asset at his disposal to ensure he does. But by that date we expect the business landscape in the Philippines to have changed considerably as the logos of foreign multinationals become as common there as they are today around the rest of Southeast Asia.