Spooking investors

Thanks to the mad rush to amend the Constitution, the 38th anniversary of the people power revolt had a rallying point, with commemorative events drawing crowds larger than in previous years.

President Marcos refused to declare Feb. 25, his family’s day of mourning, a holiday. In yet another hint of the splintering of the UniTeam, however, the Department of Education under Vice President Sara Duterte ordered public schools to organize their individual EDSA commemorative activities.

VP Sara’s father, former president Rodrigo Duterte, whose government career was launched by Corazon Aquino, marked the EDSA anniversary by leading a prayer rally in Cebu last night against Charter change.

State security forces appear to be more concerned about Duterte’s camp than the traditional opposition rooted in the 1986 revolt. Duterte, who has been at odds with his successor over several key issues, has found a popular cause in his opposition to constitutional amendments.

The two chambers of Congress have become hopelessly divided over Cha-cha, threatening BBM’s legislative agenda.

The House stampede to amend the Constitution has made the effort suspicious. Supposedly aiming to attract investments, congressmen at the same time are now considering stepping into wage setting and amending the law establishing the regional tripartite wages and productivity boards.

Major business groups along with government economic agencies have warned against legislating wage increases and the negative economic impact of the P100 hike approved by the Senate. But congressmen are engaged in a game of one-upmanship with senators.

Businesses in this country are already hostage to politics, which makes for an unstable, unpredictable investment environment. Politicians control the issuance of franchises and a host of business permits. Contracts are canceled or radically amended from one administration to the next, and even from one department secretary to a new one. Politicians’ family businesses pose unfair competition to private enterprises.

Now politicians also want to get into wage setting, to suck up to workers (they think, but they won’t accept blame for job losses and business shutdowns).

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In the past three years, the country has passed new laws and amendatory legislation allowing 100 percent foreign ownership in a broad range of economic activities, and greater foreign equity in several others.

These include manufacturing (except in the defense industry as well as firecrackers and pyrotechnics), export (at least 60 percent of goods exported) and e-commerce (except in sectors still on the negative list).

Meanwhile, the amended Retail Trade Liberalization Act passed in December 2021 allows 100 percent foreign ownership of retail enterprises with minimum paid-up capital of $500,000 (down from the original $2.5 million) plus minimum $200,000 investment (down from the original $830,000) per brick-and-mortar store.

Under the implementing rules released last year for the amended Public Service Act of 2022, 100 percent foreign ownership is now also allowed for airports, railways, expressways and telecommunications.

Foreign ownership remains limited to 40 percent in public utilities: electricity distribution and transmission, seaports, water pipeline distribution and sewerage, petroleum and petroleum products pipeline transmission systems as well as public utility vehicles.

Tax incentives such as income tax holidays are also being expanded under the Corporate Recovery and Tax Incentives for Enterprises Act. Before the passage of CREATE, the 30 percent corporate income tax rate in the Philippines was deemed to be the highest in Southeast Asia. The rate is gradually being lowered, with 20 percent targeted by 2027.

Our country has also ratified the Regional Comprehensive Economic Partnership for liberalized trade. The implementing rules of the Build-Operate-Transfer Law have been amended and joint venture guidelines aim to attract more investments.

And yet, with a few notable exceptions such as the entry and rapid expansion of the Swiss-owned, Asian Development Bank-backed Dali hard discount retail chain, we see no rush among foreign investors to operate in the Philippines.

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Official statistics of the Association of Southeast Asian Nations show that in 2022, Singapore drew more than half of all foreign direct investments to ASEAN, amounting to a whopping $141.2 billion. Indonesia came next, accounting for 9.8 percent of total FDI in the region. Vietnam, which drew 7.9 percent, overtook Malaysia (7.6 percent).

Singapore, Indonesia and Cambodia registered FDI growth of 7.7, 4.7 and 2.7 percent, respectively, in 2022.

In contrast, Brunei saw the biggest drop of over 200 percent, followed by Laos (-40.7 percent), Thailand (-26 percent) and the Philippines (-21.8).

Singapore consistently ranked as the top FDI destination in ASEAN from 2013 to 2022.

In terms of income, Singapore again registered the highest GDP per capita in ASEAN in 2022, at an enviable $82,793.60. Brunei followed at $37,445.90; Malaysia, $12,448; Thailand, $7,494.40; Indonesia, $4,777.50, and Vietnam, $4,109.10.

The Philippines, at $3,623.50, ranked ahead only of Laos ($2,022), Cambodia ($1,758) and Myanmar ($1,161.20).

It takes more than the lifting of foreign ownership restrictions to attract FDI. Retired Supreme Court senior associate justice Antonio Carpio, speaking as a resource person at the Senate, pointed out that legislation has already liberalized the Philippine economy, with no need for Charter change.

A circular issued in November 2022 by the Department of Energy allowed 100 percent foreign equity in renewable energy exploration, development and utilization. The circular removed the Filipino equity requirement in the Renewable Energy Act of 2008. If this can be done merely through a department circular, why the need to tinker with the Constitution?

And yet the Senate and House of Representatives are locked in a bitter feud over the latest effort ostensibly for economic Cha-cha. The supposed targets for lifting of foreign ownership restrictions are mass media, schools and advertising.

Based on pronouncements of certain House members, however, it looks like congressmen are focused mainly on institutionalizing joint voting by the two chambers on any Charter amendment – a move that will marginalize the Senate.

The House seems hell-bent on getting this done before Congress goes on Holy Week break.

Meanwhile, the Senate seems hell-bent on preventing that from happening.  At best, the Senate reportedly could go along with Cha-cha only by the fourth quarter of this year.

President Marcos, with his pronouncement about getting economic Cha-cha done “without any fuss,” is expending political capital on something that has created deep divisions among his political allies, and even among his close relatives.

Surely Marcos recognizes that the political turbulence and uncertainty can only spook foreign investors.