Just recently, Vietnam announced in a landmark decree it is lifting the 49 percent foreign equity limit in public companies, subject to certain exceptions such as in banking, beginning September. Decree 60 is intended to boost Vietnam’s stock markets and provide an extra boost to the equitization of State enterprises.

But our trade officials say there is nothing to worry about. According to Trade Undersecretary Adrian Cristobal Jr., they do not anticipate being affected by Vietnam’s decision, saying we are in a better position in aspects of the economy such as macroeconomic fundamentals and the banking system.

From being Asia’s economic giant next only to Japan in the post-war era, the Philippines failed to catch up. Frontrunners Singapore, Thailand, Malaysia and Indonesia are too far in front and the Philippines can only hope to compete with second-tiers Vietnam, Cambodia and even Myanmar.

Philippine Chamber of Commerce and Industry (PCCI) president Alfredo Yao acknowledged the fact that Vietnam is our competitor so we have to be better than them.

For his part, Makati Business Club (MBC) executive director Peter Angelo Perfecto said Vietnam’s move “is an added plus for their competitiveness” and “the Philippines must consider similar policy shifts that... allow us to compete more aggressively with our neighbors.”

Meanwhile, Philippine Stock Exchange (PSE) president Hans Sicat said Vietnam’s move would give it a potential comparative advantage over the Philippines, everything else being equal. This, he added, may be more pronounced as Asean economic integration takes place and financial market integration also moves forward.

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Over the last five years, foreign direct investment (FDI) inflows into Vietnam rose from $7.6 billion in 2009 to $9.2 billion in 2014. In contrast, FDI inflows to the Philippines only totaled $1.963 billion in 2009 and rose to $6.2 billion in 2014.

The reversal of fortunes actually started at the turn of the century when Vietnam’s FDI inward stock surpassed that of the Philippines, $14.73 billion against $13.762 billion.

In 1990, the Philippines was way ahead of Vietnam, as its FDI inward stock totaled $3.268 billion compared to Vietnam’s paltry $243 million. But by 2014, Vietnam’s FDI inward stock already reached $90.99 billion, or over a third more than the Philippines’ $57.093 billion.

The good thing is that foreign and local business leaders believe the FDI battle is not yet over for the Philippines. That is, if policymakers and lawmakers will be serious enough to do a makeover of the local business environment that analysts see as hostile to investors and investments.

Alongside poor infrastructure, a high tax regime and an unpredictable policy climate marked by government’s perceived penchant for changing rules midstream and flouting its contracts with private partners, one more facet that has turned off the business community is the inward-looking Constitution that is overly protective of local businesses.

Analysts believe the protectionist provisions of the 1987 Charter, particularly the rule that puts a 40 percent cap on foreign ownership, is a major deal-breaker, as it is anathema to investors at this day and age when globalization has spawned an increasingly borderless world.

Bank of the Philippine Islands (BPI) associate economist Nicholas Antonio Mapa observed that Vietnam’s move “could further limit the ability of the Philippines to attract FDI flows given the many impediments to investment in the country.”

Foreign ownership restrictions has been cited in the past as a reason NOT to invest in the Philippines, he said.

Henry Schumacher, executive vice president of the European Chamber of Commerce of the Philippines (ECCP), shared the concern of local business leaders, believing the solution lies in a proposed legislation that aims to make the country as attractive as, if not more attractive than, Vietnam and Asean’s other FDI magnets.

Schumacher said Vietnam’s lifting of its foreign ownership cap makes it “more attractive for foreign investors, especially in the light of a hardly improved FINL (Foreign Investment Negative List) and the withdrawal of House Resolution No. 1, which was supporting the amendment of the economic provisions of the Constitution which, in turn, could have led to more competition in the country.”

Had Congress passed it before its June recess, the Philippines would have beaten Vietnam to the draw as the resolution seeks to open the Constitution to amendments lifting foreign ownership caps for businesses.

But there is still enough time for both Houses to pass the resolution of both Houses as the 16th Congress still has seven working months left to work on it.

Under the resolution principally authored by House Speaker Feliciano Belmonte, resolution, a five-word phrase —“unless otherwise provided by law”—shall be added to seven economic provisions of the 1987 Charter to allow greater participation of foreigners in Philippine businesses.

With the insertion of “unless provided by law,” the resolution will remove restrictions or caps on the following: exploration, development, and utilization of natural resources; alienable lands of the public domain, including agricultural, forest or timber, mineral lands and national parks; conveyance of private lands; reserved investments; grant of franchises, certificates, or any other forms of authorization for the operation of public utility; ownership, control and administration of educational institutions; and ownership and management of mass media and on the policy for engagement in the advertising industry.

The inclusion of the five-word phrase means that amending the Constitution would only require a simple legislation that needs to be approved by both the Senate and the House — and then subjected to a plebiscite.

Unlike ordinary legislation, constitutional amendments require an absolute three-fourths vote by both Houses of Congress.

Hence, for the resolution to move on to a plebiscite, it needs to muster at least 217 votes in the 289-member House and at least 18 votes in the 24-member Senate.

But once approved by Congress, the resolution does not have to be signed by President Aquino into law like the regular enrolled bills passed by both chambers, because it needs only to be ratified through a plebiscite synchronized with the 2016 polls. 

Source: The Philippine Star