Will 100% Foreign Ownership Help the Philippine Economy?

Will 100% Foreign Ownership Help the Philippine Economy?
Photo Credit: AP / TPG Images

What you need to know

President Duterte has been keen on removing barriers for foreign businesses in the Philippines, following his predecessors to encourage investments.

The Philippine Congress ratified a bill for amending the Public Service Act (PSA) last month, lifting restrictions on foreign ownership in several industries. On March 22, President Rodrigo Duterte approved the motion in the hope of a greater surge in Foreign Direct Investments (FDI). 

Under the Philippine Constitution, foreign entities are only allowed to own a maximum of 40% of public utilities. The amendment changes the definition of public utility, rendering transportation infrastructure, telecommunications, and domestic shipping completely open to foreign investments.

President Duterte has been keen on removing barriers for foreign businesses in the Philippines, following his predecessors to encourage investments. The Retail Trade Liberalization Act was modified in April, reducing the minimum capital required for foreign enterprises to operate locally. 

Senator Grace Poe, a major force behind the amendment, said that encouraging industry competition and thus improvement in operations is at the heart of the move. She said, “By allowing more FDIs to enter our country, companies who are engaged in the operation and management of our public services will be incentivized not only to improve their quality but also to make their prices more competitive so that a significant portion of the public could afford them.”

Duterte has been on a crusade to rake in greater FDI since the start of his term. The Philippine Development Plan and his administration’s infrastructure spending program Build Build Build (BBB) emphasize transport mobility and an injection of greater foreign capital. 

Earlier this month, Duterte signed into law amendments of the Foreign Investments Law, lowering the minimum paid-in capital for foreign investors to establish small or medium-sized enterprises in the country from US$200,000 to US$100,000 if they directly employ 15 employees. Administration ally and Senator Christopher Go lauded the move, saying “Times are different now. We need help to encourage investors to come here. More investors means more jobs.” 

Duterte’s push for a liberalized economy in adherence to globalization is nothing new. All past presidents have in some form enacted similar policies.  But pushing more FDI does not equate to greater economic modernity, according to the Ecumenical Institute for Labor Education and Research. Rochelle Poras, the group’s executive director, said, “tracing economic reality shows that the government’s dependence on FDIs as a primary means to achieve national industrialization and sustainable development has led us to continued underdevelopment.”

In 1995, the group investigated the emergence of Special Economic Zones, overseen by the Philippine Economic Zone Authority (PEZA) to host foreign manufacturers and commerce. EILER said their existence, symptomatic of the country’s unhealthy insistence on FDIs, puts domestic interests at a severe disadvantage.  

According to Poras, PEZA exports from 1995 to 2018 was around US$760.505 billion. But in the same period, remittances only amounted to $384 million. The disparity favors foreign profits over domestic gains, she noted. 

Think-tank Ibon Foundation says that even after decades of FDI liberalization, the Philippine economy is in worse shape. The amount of FDI increased from around US$80M or 0.5% of GDP in the 1970s to US$10.5 billion or 2.7% of GDP in 2021. Yet manufacturing, the most heavily invested sector by foreign companies in the Philippines, shrunk to its smallest share of the economy in 70 years. 

“The Philippines is not underdeveloped because of strict FDI regulations. It's underdeveloped because the government does not want to protect, support and invest in domestic agriculture and Filipino industrialization,” said Sonny Africa of Ibon Foundation. 

Senator Poe pointed out that some protections in the transport sector remained intact. Jeepneys and other public utility vehicles will still be subject to the Constitution’s 60-40% foreign equity cap. “This is in recognition of the fact that public transportation is an integral sector in the country that must always be under the control of Filipinos.”

Yet on the whole, the transport sector along with other parts of the economy will benefit from increased FDI, she said. “We have envisioned FDIs on our public services to be a fitting complement to local industries. We will have more and better opportunities to promote our local goods, products and services to the global market once foreign investors are allowed entry into the country.”

But Africa disagreed, saying that loosening limits on foreign ownership casts a wide net on the transport industry and will stunt the growth of the economy. PUV drivers will retain their vehicles, but be beholden to a reshaping of the industry that can disenfranchise them. He believes this isn’t the right way to account for a developmental approach towards industrialization.  

“The transport sector is not underdeveloped because of FDI restrictions but because there isn't enough public investment. FDI becoming entrenched in domestic transport will make it even more difficult for the country to develop capacity in the sector because it will always seem more convenient to just defer to foreign firms in the industry.”

Poras provided an alternative take. “The current framework serves business-interests. For example, our train system is built mainly to make malls and corporate infrastructure accessible. Increases in FDI inflows in the public transport sector undermine the social and environmental cost. FDIs do not guarantee workers’ rights and transfer of technology, including green technologies in the transport sector.”

Transport group Piston opposed opening up the economy further. While Senator Poe is hopeful the move will create job opportunities, Mody Floranda, Piston chairperson, said historically, various forms of labor flexibilization, the process of diminishing a worker’s rights and benefits, was implemented  as FDI grew. 

“We are giving freedom to corporations to control our economic fates,” he added. “This will wash out small operators and businesses as foreign entities monopolize public transport.”

Philippine Lawmakers often drum up support for their policy recommendations by touting that they will take the country on the same route as South Korea, Singapore, or Taiwan. Yet Africa pointed to South Korea and Taiwan’s history of domestic industrialization in the 70s and 80s. During their economic booms in the period, South Korea's annual FDI inflows accounted for 0.5% of GDP and Taiwan just 0.4% — compared to some 1.8% in the Philippines over the last decade. 

“Foreign capital is beholden to its foreign owners and not to domestic development,” she said. “This is very much confirmed by the economy's experience over the last nearly five decades of investment liberalization. Corporations profit greatly from the country's skilled labor and natural resources but do not contribute anything to domestic industrial capacity.”

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TNL Editor: Bryan Chou (@thenewslensintl)

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