Our ASEAN neighbor, the Socialist Republic of Vietnam, is all set to remove by September the current 49-percent cap on ownership of many listed companies in a bid to attract more foreign direct investments (FDI).

The 49-percent restriction will continue to apply only in areas where conditions were imposed on foreign investments, except for those sectors that are regulated by separate ownership rules such as banking. Otherwise, there will no longer be any cap on all other equities, unless restricted by the firms themselves.

The lifting of economic restrictions by Vietnam would no doubt give Vietnam an edge over the Philippines when it comes to attracting FDI.

Vietnam has already overtaken the Philippines as an investment destination in the last five years. According to official data, FDI inflows in Vietnam rose from $7.6 billion in 2009 to $9.2 billion in 2014. In contrast, FDI inflows in the Philippines only amounted to $1.963 billion in 2009 but increased to $6.2 billion in 2014.

Data showed that 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 measly $243 million.

But by 2014 Vietnam’s FDI inward stock already reached $90.99 billion, or over a third more than the Philippines’s $57.093 billion.

Amid this development, business leaders are saying that we should do likewise and proceed with changing the restrictive economic provisions in the 1987 Constitution.

According to Philippine Chamber of Commerce and Industry President Alfredo Yao, “Vietnam is our competitor so we have to be better than them or follow them…. If there [are] better conditions in another Asean country, foreign investors will go there unless we have a really superior economy.”

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

Philippine Stock Exchange President Hans Sicat says that Vietnam’s move would give it “a potential comparative advantage over the Philippines, everything else being equal. This may be more pronounced as Asean economic integration takes place and financial market integration also moves forward.”

With the approaching deadline for the creation of an Asean Economic Community by the end of 2015, Philippine Trade Foundation Inc. President Tony Lopa asserts that the Aquino administration should support the calls to amend the economic provisions of the 1987 Constitution by way of the recent Resolution of Both Houses (RBH) 1. By relaxing the limitations on foreign ownership, Lopa said the Philippines would be able to maximize the benefits from the Asean integration, and create much-needed jobs for the Filipino people.

Henry Schumacher, executive vice president of the European Chamber of Commerce of the Philippines, shares the concern of local business leaders, saying that the solution lies in legislation that aims to make the country as attractive as, if not more attractive than, Vietnam and Asean’s other
FDI destinations.

According to Schumacher, 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] released by Malacañang and the withdrawal of House Resolution 1, which supports the amendment of the economic provisions of the Constitution which, in turn, could have led to more competition in the country.”

The move to amend the economic provisions of the 1987 Charter to allow greater participation of foreigners in Philippine business has long been in the works. But the House of Representatives, led by Speaker Feliciano Belmonte Jr. led efforts to move it forward through a resolution that would pave the way for removing restrictions or caps as embodied in seven constitutional provisions.

These provisions are: (1) Section 2, Article XII on exploration, development, and utilization of natural resources; (2) Section 3, Article XII on alienable lands of the public domain, including agricultural, forest or timber, mineral lands and national parks; (3) Section 7, Article XII on conveyance of private lands; (4) Section 10, Article XII on reserved investments; (5) Section 11, Article XII on grant of franchises, certificates, or any other forms of authorization for the operation of public utility; (6) Section 4 (2), Article XIV on ownership, control and administration of educational institutions; and (7) Section 11 (1 and 2), Article XVI on ownership and management of mass media and on the policy for engagement in the advertising industry.

Alongside poor infrastructure, a high tax regime, an unstable peace and order situation and an unpredictable policy climate marked by the government’s tendency to change rules in midstream and flout its contracts with private partners, one more thing that has turned off the business community is a fundamental law that is overly protective of local businesses.

The protectionist provisions of the 1987 Charter, particularly the 60-40 rule that pegs a 40-percent cap on foreign ownership, is an obstacle to further economic growth and attracting more foreign investments when globalization has led to an increasingly borderless world.

The Philippines should follow Vietnam’s move if it really wants to overtake it—as well as our other vibrant neighboring economies—as the region’s No. 1 investment hub.

The RBH 1 seeks to open the Constitution to amendments lifting foreign-ownership caps for businesses by inserting the phrase “unless otherwise provided by law.”

The inclusion of this 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 RBH 1 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, RBH 1 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.

Both the House of Representatives and the Senate can still pass RBH 1 as the 16th Congress will have seven working months left to do so from the time its third and final regular session opens in July till it ends in February 2016. 

Source: Business Mirror