More than curbs on ownership

MUCH has been said about how relatively low the inflow of foreign direct investments to the Philippines is compared to other countries in the region.

Foreign direct investment (FDI) inflows to the country actually went up by 9.8 percent from 2011 to $2.03 billion in 2012, according to the Bangko Sentral ng Pilipinas.

The United Nations Conference on Trade and Development (Unctad) said in its Global Investment Trends Monitor report that FDI inflows to the Philippines reached $1.5 billion last year, 15.5 percent higher than in 2011. But the same report showed that FDI inflows to our neighbors are higher year-on-year. For instance, Vietnam’s FDI grew 12.5 percent to $8.4 billion from 2011; and Thailand’s FDI went up 3.9 percent, also to $8.4 billion.

Singapore FDI inflows fell 15.1 percent, yet it still got $54.4 billion. Investments to Malaysia dropped 16.8 percent, yet it still got $10 billion. Inflows to Indonesia went down 0.1 percent but it still got $19.2 billion.

Why have there not been similar substantial inflows of foreign investment to the Philippines despite the country’s high economic growth rates and the Aquino administration’s fiscal reforms, which Fitch Ratings cited as the main reasons for recently upgrading our sovereign rating to investment grade?

Perhaps it would take time, even more than one presidential term, to grow foreign investors’ confidence in the country’s macroeconomic stability, in our much-improved ratings grades (12 favorable credit actions and counting since 2010) and the government’s anti-corruption efforts, which have somewhat reduced the uncertainties and distortions in the way business is conducted in the country.

It certainly won’t hurt, however, to continuously look for ways to increase our attractiveness as an FDI destination, especially as the global competition for investment capital has become very intense, with more countries aggressively marketing and promoting themselves to investors.

Foreign businessmen have long been calling on the Philippine government to lift its restrictions on foreign ownership of land, utilities, media and other services. Whether this, indeed, is one of the key prerequisites for luring more investments should be studied. It is worth noting though that Thailand also has strict foreign equity rules and yet it still got $8.4 billion in FDI last year as previously cited.

Clearly there may be other factors that serve to undermine the efficacy of conducting business other than ownership and equity rules alone. The government needs an honest and comprehensive assessment of the country’s investment climate, including our tax incentives, labor regulations, work-force skills, infrastructure and resources and costs of production.

Two respected columnists, former National Economic and Development Authority chief Cielito Habito and Gerardo Sicat, said last week that despite the country’s Fitch Ratings upgrade to investment grade, FDI inflow is being hindered by lack of infrastructure, particularly in Mindanao, where a power shortage is causing daily power outages of up to eight hours since summer set in.

Indeed, Mindanao is a good case in point, because it could easily rival, if not surpass, Luzon as an investment destination, particularly in the agri-industry sector. But any business enterprise in Mindanao cannot hope to provide quality goods and services at very competitive prices and cannot hope to earn a reasonable profit without a stable, efficient and cheap power supply. Power is central to industrialization and the overall development of any industry.

Aside from power, the government needs good roads, highways, bridges, ports and other forms of physical infrastructure. Government revenues are simply not enough to provide these. We direly need private-sector investment in public infrastructure. This makes the success of the administration’s public-private partnership (PPP) scheme all the more crucial. Unfortunately, only one PPP project—the 4-kilometer South Luzon Expressway-Daang Hari extension project—is in progress while the others are still merely in the planning or processing stages nearly three years since the PPP Program of the administration was launched.

So, again, there are more factors here at play other than just foreign-ownership restrictions, which the government must consider in order to encourage more foreign investors to come here and stay. –Businessmirror