Economists: PHL to lose out on investments under ASEAN integration

More Philippine and foreign and companies are likely to invest in Southeast Asia, taking advantage of the opportunities offered by a single market ASEAN Economic Community (AEC), a losing proposition for Manila unless the government starts relaxing the conditions for foreign investors.

Confidence in the Philippine economy continues to grow, but it does not stop “wealthy and endowed individuals or companies” to invest elsewhere when it is the more advantageous route for them, Ateneo de Manila University Economics Professor Cielito Habito said at the launch of the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2014 in Makati City Tuesday.

In the case of the Philippines, foreign direct investments (FDI) have been flowing out more than in since 2010, according to the UNCTAD report.

In 2013, FDI reached $1.07 billion but $2.712 billion were withdrawn at the same time. Then in 2011, total inflows amounted to $2.007 billion while withdrawals totaled $2.350 billion. By 2012, total foreign direct investments in Philippines reached $3.215 billion, but $4.173 billion were also taken repatriated by foreign investors.

It was only in 2013 when FDI inflows outpaced outflows, with investments reaching $3.86 billion compared to $3.624 billion in actual repatriation.

Instead of attracting more overseas investments in the Philippines, Habito said Filipino companies will likely be the first to advantage of the upcoming AEC starting 2015.

“The context for that is the AEC, where it will make a lot of sense for Filipino firms to actually locate some of their operations in other ASEAN countries because of the privileges that other members of AEC provides, including duty free movement of goods across the ASEAN,” said Habito, a former National Economic and Development Authority (NEDA) director-general during the time of President Fidel Ramos.

“If you put your factory in another ASEAN country, where it might be better to do so because of better access to raw material, then that might be a reason for an outward investment by Filipino firms,” Habito added.

By 2015, the AEC sets in motion the creation of a single market and production base characterized by the free flow of goods, services, skilled labor, investments and capital for the 10-nation bloc.

ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

Foreign ownership ceiling

Habito said a major impediment to FDI is the foreign ownership limits.

“When they see the necessity of needing a 60-percent local partner, that diminishes the attractiveness of coming in,” he said.

“It’s really time to revisit our age old resistance to opening up because we are one of the few remaining around in the ASEAN who are still quite restricted. The sooner we do this, the better,” he added.

The 1987 Constitution limits foreign ownership in certain industries, particularly utility companies, to 40 percent. The Charter was written during the time of then-President Corazon C. Aquino, mother of President Benigno S. Aquino III.

To amend the foreign ownership rule will require constitutional change.

“There are challenges since there are many bills pending and Congress is not taking action, as it is busy with other issues,” Habito said.

A challenge to this amendment is public perception on foreign ownership, University of the Philippines Professor Leonor Briones said in the same briefing.

“You also have to take public sentiment, which still has lingering concerns on foreign ownership,” she added. – VS, GMA News