RP among most restrictive in foreign investments

THE World Bank has listed the Philippines as among the world’s most restrictive countries in allowing foreign capital into the economy.

“Among the 87 countries covered by the Investing Across Sectors indicators, the Philippines imposes foreign equity ownership restrictions on more sectors than most other countries,” said a new World Bank report called Investing Across Borders 2010.

The Philippines was lumped along with Ethiopia and Thailand with an indicator score of 0 for several sectors.

By comparison, more than a quarter of the 87 countries surveyed had few or no sector-specific restrictions on foreign ownership of companies. Countries with no restrictions received a full index score of 100. The main indicators in the study included the process of starting a foreign business, access to industrial land, and commercial arbitration regimes.

The Philippines aside, the other economies that restrict foreign ownership in a third or more of the sectors were Bolivia, China, Ethiopia, Greece, India, Indonesia, Malaysia, Mexico, Morocco, Saudi Arabia, Sudan, Thailand, and Vietnam. The 200-page study covered various indicators of foreign direct investment regulation in 87 economies.

The Philippines, along with Bosnia and Herzegovina, are listed as the only nations that do not allow foreign companies to lease public land. The Philippines also received poor scores for imposing ownership limitations on many industries, in particular on the primary and service sectors.

The World Bank study notes that foreign capital participation in the country’s mining and oil and gas industries is limited to a maximum share of 40 percent by the Philippine Constitution, although it acknowledges that foreign ownership in those sectors may be allowed up to 100 percent if the investor enters into a financial or technical assistance agreement with the government. In the service sectors, the Philippine Constitution limits foreign capital participation in public utilities such as telecommunications, electricity and transportation to a maximum of 40 percent.

Newspaper publishing and television broadcasting are closed to foreign equity ownership.

“It takes 17 procedures and 80 days to establish a foreign-owned limited liability company in Manila, slower than both the average for East Asia and the Pacific and the global average,” the World Bank report says.

The study notes that two additional procedures are required exclusively of a foreign-owned company establishing a subsidiary in Manila: an authenticated and legalized copy of the documents of the parent company abroad and another set of registration documents with the Bureau of Customs.

“This registration usually takes 27 days,” the report says.

It ssays the Philippine Constitution also prohibits foreign companies from buying land and the best option available is to lease private land. A foreign company’s exercise of rights over the land such as subleasing, subdivision, or making improvements is limited by the terms of the lease contract.

In the Philippines a foreign company cannot mortgage leased land or use it as collateral to buy production equipment.

Another problematic area is arbitration, where it takes around 135 weeks to enforce an arbitration award rendered in the Philippines—from the filing of an application to a writ of execution attaching assets (assuming there is no appeal)—and 126 weeks for a foreign award.

“Enforcement of arbitration awards is slow in most of the region, taking more than a year in the Philippines and Thailand.”

Countries in Eastern Europe and Central Asia and Latin America and the Caribbean are said to be the most open to foreign ownership of companies.Worldwide, restrictions on foreign ownership are strictest in media, transportation, electricity, and telecommunications industries.

The report says overly restrictive and obsolete laws are an impediment to foreign direct investment and their poor implementation creates additional costs to investment.

“Foreign direct investment is critical for countries’ development, especially in times of economic crisis. It brings new and more committed capital, introduces new technologies and management styles, helps create jobs, and stimulates competition to bring down local prices and improve people’s access to goods and services,” said Janamitra Devan, vice president of Financial and Private Sector Development of the World Bank Group.

The report found that countries that do well on the Investing Across Borders indicators also tend to attract more foreign direct investment relative to the size of their economies and population.

On the other hand, countries that score poorly tend to have higher incidences of corruption, higher levels of political risk, and weaker governance structures.

The World Bank says the report is intended to help countries develop more competitive business environments by identifying good practices in investment policy design and implementation. –Roderick T. dela Cruz, Manila Standard Today