Philippines Opens to Foreign Investment – Maybe
Here come the Marcoses, ready or not
Although Philippine President Rodrigo Duterte last week signed what has been called the most significant foreign investment liberalization since the country gained independence in 1946, the question is what comes next, given the possible return of the Marcos family to power in elections scheduled for May 9 and the family’s previous rapacious theft of both public and private national assets.
The measure frees up an astonishing cornucopia of sectors including airlines, airports, airport services, canals, domestic shipping, railways, subways, telecommunications, tollways, and expressways to 100 percent foreign ownership. It is the second such liberalization to be enacted in the past month. An earlier one, a bid to encourage the entry of more investors and further boost economic recovery amid the Covid-19 pandemic, opens up industries not defined as public utilities to investment and foreign ownership. Power transmission, in a country where brownouts are endemic, is a top priority.
It remains to be seen, however, how much investment will flood into the Philippines, especially with the reappearance of the Marcoses. A wide range of investment banks, country risk and business advisory firms are almost unanimously cautious over the looming specter of their return. The matriarch, the now-92-year-old Imelda, said on their 1992 return from six years of exile: “We practically own everything in the Philippines.”
That, she said, included “electricity, telecommunications, airline, banking, beer and tobacco, newspaper publishing, television stations, shipping, oil and mining, hotels and beach resorts, down to coconut milling, small farms, real estate, and insurance” according to a 1998 story in the Philippine Daily Inquirer.
Among those companies to which she claimed ownership, she said, were some of the country’s pillar industries: Philippine Long Distance Telephone Co; San Miguel Corp., United Coconut Planters Bank, Allied Bank and Manila Electric Co. It remains to be seen if her son, the 64-year-old Ferdinand Jr. (above, left center, with the family), known universally as Bongbong, is elected and the family attempts to reclaim what Imelda sees as its heritage.
That is doubtful. The past two decades have loosened the Marcos grip on the economy and it is hoped strengthened public institutions can withstand their return, if indeed Bongbong wins, but there are questions whether he is committed to governing or to taking up where the family left off for a plane to Hawaii just ahead of an enraged crowd numbering well over a million. He has been remarkably noncommittal about his plans on the stump and, as the UK-based Capital Economics said in a country report on the Philippines, “He has no legislative achievements to show for his six years in the Senate, where he was criticized for involvement in a massive corruption scandal,” the so-called pork barrel scandal in which he was accused of diverting the equivalent of US$3.92 million to his own use.
Bongbong was quoted on Twitter as saying he is open to foreign investment, “but I cannot allow foreigners to own land here,” he said, which isn’t particularly encouraging, nor is his public stance toward following Duterte’s unwillingness to confront China’s dominance of the South China Sea including waters within the Philippines’ Exclusive Economic Zone.
Although the country’s most respected polls make Marcos’s lead look almost unsurmountable, his leading opponent, Vice President Leni Robredo, has been drawing enormous crowds and is borne by a tide of endorsements by newspapers, establishment figures, and 100 economists. All other candidates are running in the single digits.
The advances since the Marcoses left off stealing everything they could get their hands on have been slow and painstaking. Nonetheless, “The government calls these reforms game changers, and so do we,” said John Forbes, a senior adviser to the American Chamber of Commerce of the Philippines and chairman of its legislative committee. “I can honestly say the foreign chambers have been working on these reforms for years. This is the biggest liberalization for foreign investment in 30 years. It is the first one, at the end of the day, where the government has made it clear where domestic market firms could be wholly owned by foreigners.”
The liberalizations are a sign that while the Philippines continues to make news on the surface by such public recklessness as Duterte’s murderous drug laws and the deep corruption of its lawmakers, a cadre of civil servants led by the National Economic Development Administration has been working steadily since the 2010 election of the late Benigno S. Aquino III to bring the country closer to alignment with the dynamic economies of the rest of Southeast Asia. NEDA has been aided in its mission by a professional central bank now under the guidance of Benjamin E. Diokno, formerly the director of management and budget.
It has paid off. Despite the consistent bad press, the Philippines has been one of the best-performing economies in Asia since 2010 – admittedly starting from a low base – although gross domestic product nosedived sharply by more than 9 percent with the onset of the Covid-19 pandemic and Duterte’s two-year lockdown, arguably the most stringent in the world, before recovering in the final quarter of 2021.
As expected, the rules have awakened multinationals who see new investment opportunity and jolted the Philippine economy into new areas of cooperation.
“Various foreign chambers and foreign investors are frankly ecstatic with the passage of the act through the bicameral committee. Members of the business community in the Philippines have been working to pass this kind of legislation for decades,” according to an analysis by the country risk firm Philippine Strategic Associates. “The amendments narrowly define public utilities to a specific set of industries, thus helping to open up other industries not defined as public utilities to investment and foreign ownership.
While many of its geographical neighbors have benefited dramatically from foreign investment, particularly in assembly industries, the Philippines has moldered for generations behind protectionist walls. Of 83 counties rated by the Organization for Economic Cooperation and Development in its foreign direct investment regulatory restrictiveness index, the Philippines ranked 81st, just ahead of Palestine and Libya.
Under the revised law, “lowered capital requirements allow big and small players to test the market with minimal exposure. While currently, foreign retailers must have minimum paid-up capital of US$2.5 million,” according to an analysis by PSA, the new law cuts required capital at PHP25 million (US$479,000). Other entry barriers such as required net worth, number of branches, and track record conditions were also removed.
“This new law’s lower capital requirement allows players, big and small, to test the Philippine market with minimal exposure,” said Orbis Alliance, a multinational business advisory firm.
Members of the business community in the Philippines have been working to pass this kind of legislation for decades.
“This new law will bring huge benefits for business and individual consumers alike, with the entry of more investors in the telecommunications and transport industries offering a wider choice at different price points,” according to a public statement by the Foundation for Economic Freedom, a Philippines-based good government organization. “We foresee increased investments in the sectors opened up to a maximum of 100 percent foreign ownership such as telecommunications, shipping, trains and railways, airports and airlines, toll roads, and transport network vehicles (TNVs). As new foreign investments enter the country, the amended Public Service Act establishes rules to protect the country from malign intentions that endanger our national security. The provisions on the vetting of potential investments in critical infrastructure, and the requirement for an ISO certification for Information Security for telecommunications investors ensure that the Philippines will be less vulnerable to cyber threats and domination of foreign interests.”