World Bank study cites RP’s restrictive policy on foreign ownership

MANILA, Philippines – A World Bank study has cited the Philippines for imposing one of the strictest regulations regarding foreign ownership of businesses in the country.

In a study titled Investing Across Borders: Indicators of Foreign Direct Investment (FDI) Regulation, the World Bank said the Philippines ranked second only to Ethiopia, which does not allow foreign equity ownership in any business.

Under the Philippine Constitution, only up to 40 percent equity in a domestic corporation is open to foreign ownership.

In contrast, Brazil, France and Ghana allow foreign ownership in all of their domestic firms up to a hundred percent.

The World Bank report specifically pointed out that foreign capital participation in the mining and oil and gas industries is limited to a maximum share of 40 percent.

“Foreign ownership in those sectors, however, may be allowed up to 100 percent if the investor enters into a financial or technical assistance agreement (FTAA) with the government. Such agreements are granted for a 25-year term and require a minimum investment of $50 million,” the report said.

Media, including newspaper publishing and television broadcasting, and industries related to national security are, however, closed to foreign equity ownership.

Investing Across Borders is a new World Bank initiative comparing regulation of foreign direct investment around the world. It presents quantitative indicators on laws, regulations, and practices affecting how foreign companies invest across sectors, start businesses, access industrial land, and arbitrate commercial disputes.

In the Philippines, the World Bank said foreign companies are likewise prohibited from buying land, although leasing is allowed.

“FDI must get approval from the Board of Investment for long-term leases. Land may be leased for an initial term of 50 years, renewable for another 25 years. There are restrictions on the amount of land that may be leased. 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. Only absolute owners of the land may mortgage it. The transfer of the lease to other foreign entities is restricted. Registration of leases is not mandatory. It is recommended that the lease be registered with the local register of deeds to ensure that lease rights are enforceable against third parties. Most land-related information can be found in the land registry and cadastre,” the report said.

South Korea, Kazakhstan and China, meanwhile, allow up to 49-percent ownership for foreign firms while Saudi Arabia and South Africa opens up to 70-percent equity into their local firms.

In another study made by the World Bank, called Doing Business 2010, the Philippines was ranked 140th in a field of 183 countries in terms of the ease of doing business.

In conrast, neighbors Singapore and Hong Kong were ranked first and third, respectively. –Ted P. Torres (The Philippine Star)