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Business

To expand FDIs and good jobs at home

CROSSROADS TOWARD PHILIPPINE ECONOMIC AND SOCIAL PROGRESS - Gerardo P. Sicat - The Philippine Star

As the principal leader and most powerful influencer on the direction of events in the country, the next president faces many challenges.

Good job creation. Major attention will naturally be focused on the direction of improving the record on job creation.

I mean “good” jobs. I do not mean the uncertain and low-paying jobs that we find in the ever-enlarging “informal market” when job opportunities in organized businesses are not expanding enough.

Inevitably, that issue relates to the attraction of foreign direct investments.

Turning the tide on FDIs. If the next president can change the trickle of entry of FDIs into a deluge of capital inflows to match what has happened among successful members of East Asian economies, then economic recovery can be expected to move at a faster pace.

This would mean good job creation will accelerate and Filipinos who have trekked to foreign lands to find jobs can come home and have a future in their own country!

Reversing our mentality. This means reversing our mentality about FDIs. It means putting action where political rhetoric was once cheap. Can we now, finally, walk the talk?

All the candidates are extolling the need for more foreign investments. We have the most important agenda to clear the road, to amend the restrictive economic provisions of the Constitution!

The recent legislative accomplishments are just a first step for there are further economic reforms down the road.

Have we not incrementally improved our policies to attract FDIs over time? Have we not just revised our corporate tax and investment incentives laws with the CREATE reform?

And only recently, the Senate – the slowest of the legislative chambers to move up the chain of command to reform economic policies – has passed
long delayed pin-pointed reforms related to attracting FDIs.

These are the proposed amendments to the Foreign Investments Act, the amendments to the Public Service Act to define public utilities more strictly, and to further encourage foreign direct investment participation in the Retail Trade Liberalization Act.

All these pieces of new legislation will still have to be signed into law.

President Duterte will end his term with major legislative victories as he leaves office.

But before we begin to rest and say we have finally done the right thing, I propose to remind all that one of the pending major acts of the House leadership is to amend the restrictive economic provisions of the Philippine
Constitution.

We need those amendments in order to cement the change in our mentality. Otherwise, we will falter on the way toward the promised land.

Our neighbors pull ahead with high value FDIs. The recent high-valued FDIs in the electronics industry that have flowed into our neighboring partners among ASEAN countries is a sign of how they have pulled ahead in achieving their industrial potentials.

Compared to them, we have languished in attracting FDIs and in catching the structural economic changes in the whole East Asia region as a result of trade wars and economic realignments of industries and capital flows.

A few major examples might be enough to remind us how far we have to work compared with our neighbors in the creation of jobs that are dominated by the inflow of critical foreign direct investments.

In Malaysia this week, Intel announced the agreement to set up a $7 billion investment to build a chip factory that will supplement its large portfolio of existing investments in that country. This is moving deeper in the supply chain of manufacturing. Malaysia’s industrial progress has been steady
over the recent decades, and FDIs have been a critical component of that thrust.

In Vietnam, Intel had set up huge investments in chip assembly in 2006 and they just boosted it with an additional $475 million capacity expansion this year. It is to be recalled that Intel was among the major foreign direct
investors in the Philippines. Their major investment took place in the 1970s.

After 35 years in the country, they left and consolidated their investments elsewhere in ASEAN.

Also, the largest foreign investor in Vietnam is Samsung, Korea’s major electronics firm. Vietnam reports that Samsung’s total investments is $17 billion in that country. The scale of Samsung’s exports of smartphones and parts in 2019 was significant, around $51 billion, most of it from Samsung.

It is also to be recalled that Samsung was an early major investor in the Philippines in sem conductor assembly. It also moved the bulk of its investments to Vietnam.

Of course, Thailand is one of the key success stories of ASEAN in bringing FDIs to energize its industrial and agricultural economy. Thailand’s success began when, in copying the framing of our investment laws, their government removed the restrictive provisions such as the 60-40 equity limits for joint ventures, which were the bastion of Philippine investment attraction laws in those early days.

They simply welcomed FDIs up to 100 percent foreign-controlled.

Indonesia has done quite well in FDIs, especially in natural resource exploitation, and lately, especially after 1987 in industry, commerce and agricultural ventures. Compared to the Philippines it now has a broader portfolio of FDIs in industry, agriculture and commerce.

Of course, Singapore is the model among models that could be studied as a success story in ASEAN. In the early 1970s, Singapore’s Lee Kuan Yew had written that once he was looking up to the Philippines as a potential model to
study!

The main point of this demonstration is that if the Philippines has to perform as well as its neighbors in attracting FDIs, it has to work much more intensely to improve the environment for foreign capital and for domestic investments. This certainly includes the reform of labor market policies.

The actions undertaken recently have been significant to correct these deficiencies, but more needs to be done. The market place is shifting in competition. Countries are working on the same objectives to raise the level of FDI investments.

 

 

For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/

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