The Philip­pines looks to for­eign in­vest­ment to lib­er­al­ize trade

Business World - - THEECONOMY -

With an eye on re­vers­ing a dip in for­eign di­rect in­vest­ment (FDI), the Philip­pines has pro­posed a se­ries of re­forms aimed at in­creas­ing trade lib­er­al­iza­tion. In early Oc­to­ber Ernesto M. Per­nia, the di­rec­tor­gen­eral of the Na­tional Eco­nomic and De­vel­op­ment Author­ity (NEDA), told me­dia that the gov­ern­ment planned to sig­nif­i­cantly re­duce the for­eign cap­i­tal limit cur­rently in place for the re­tail sec­tor.

Un­der the pro­posed changes, the min­i­mum amount of paid-up cap­i­tal that for­eign­ers need to take up full own­er­ship of a re­tail com­pany will be re­duced from $2.5 mil­lion to $200,000.

EF­FORTS TO TAP IN­TER­NA­TIONAL FUND­ING FOR RE­TAIL GATH­ER­ING PACE

The re­forms are aimed at at­tract­ing more in­ter­na­tional in­vest­ment to the re­tail in­dus­try.

Both the Eu­ro­pean and Ja­panese cham­bers of com­merce in the Philip­pines told me­dia they wel­comed the move, say­ing it should im­prove com­pet­i­tive­ness. The an­nounce­ment also brought a fa­vor­able re­ac­tion from key for­eign busi­ness lead­ers based in the coun­try.

How­ever, the fa­vor­able re­sponse has not been univer­sal; lo­cal busi­nesses, in par­tic­u­lar, have ex­pressed con­cern that a ceil­ing of just $200,000 could crowd them out of the mar­ket by bring­ing in for­eign en­ti­ties seek­ing short-term gains.

In re­sponse, the Philip­pine Cham­ber of Com­merce and In­dus­try has called for the for­eign in­vest­ment cap to re­main above $200,000, ar­gu­ing that a higher limit would at­tract more strate­gic for­eign in­vestors, and, in turn, bring im­proved tech­nol­ogy and in­no­va­tion into the re­tail sec­tor.

RE­FORMS TO OPEN UP IN­DUS­TRIES TO IN­TER­NA­TIONAL OP­ER­A­TORS

The pro­pos­als form part of a broader na­tional strat­egy to lib­er­al­ize the econ­omy and are a key com­po­nent of the gov­ern­ment’s re­view of its For­eign In­vest­ment Neg­a­tive List (FINL).

Sched­uled to be re­leased by NEDA be­fore the end of the year, the re­view is ex­pected to re­duce the num­ber of ac­tiv­i­ties and sec­tors in which for­eign par­tic­i­pa­tion is pro­hib­ited. It is also ex­pected to al­low 100% for­eign own­er­ship of com­pa­nies in more ar­eas of the na­tional econ­omy.

In ad­di­tion, NEDA has pro­posed lift­ing re­stric­tions on for­eign con­trac­tors, highly skilled aca­demic pro­fes­sion­als and pub­lic util­i­ties.

Con­trac­tors are seen as key po­ten­tial part­ners in the gov­ern­ment’s am­bi­tious plans to build and up­grade roads, bridges, and mass ur­ban and sub­way sys­tems across the coun­try. The ad­min­is­tra­tion has tar­geted spend­ing 7% of GDP on in­fras­truc­ture needs, up from 4% in 2015 and 5% in 2016.

In­creas­ing the num­ber of for­eign aca­demics in the Philip­pines’ uni­ver­si­ties, par­tic­u­larly in the fields of science and tech­nol­ogy, will also im­prove the ed­u­ca­tion sys­tem, ac­cord­ing to Mr. Per­nia.

The Univer­sity of the Philip­pines was the only Philip­pine in­sti­tu­tion to make it onto the Times Higher Ed­u­ca­tion World Univer­sity Rank­ings 2018 list, ap­pear­ing in the 601-800 bracket of more than 1,000 as­sessed.

Ef­forts to lib­er­al­ize the econ­omy come at a time of de­clin­ing in­ter­na­tional cap­i­tal in­flows. FDI fell by 16.5% year on year in the first seven months of 2017 to $3.9 bil­lion, ac­cord­ing to data from the cen­tral bank. In July net in­flows fell to $ 307 mil­lion, the low­est monthly level since June 2016, when they reached just $238 mil­lion.

PHILIP­PINES TAR­GETS IM­PROV­ING ASEAN COM­PET­I­TIVE­NESS

The planned lib­er­al­iza­tion drive co­in­cides with ef­forts to make the Philip­pines more com­pet­i­tive with its ASEAN neigh­bors, as off icials look to boost the coun­try’s share of re­gional FDI.

At a re­cent speech to a Bank of China-or­ga­nized fo­rum in Shang­hai, Car­los G. Dominguez III, the Sec­re­tary of fi­nance, high­lighted what he has of­ten re­ferred to as the coun­try’s “de­mo­graphic sweet spot,” not­ing that a size­able gen­er­a­tion of young, ed­u­cated peo­ple will be en­ter­ing the work­place as the pop­u­la­tions of some other Asian coun­tries be­gin to age.

How­ever, the coun­try still has work to do; the Philip­pines ranked sev­enth out of the nine ASEAN coun­tries fea­tured in the World Eco­nomic Fo­rum’s Global Com­pet­i­tive­ness In­dex 2017-18, plac­ing 56th out of 137 economies over­all.

While im­prov­ing its po­si­tion in last year’s sur­vey by one spot, the coun­try lost ground to ASEAN neigh­bor Vietnam, which ranked 55th, and also placed lower than Sin­ga­pore (3rd), Malaysia (23rd), Thai­land (32nd), In­done­sia (36th) and Brunei Darus­salam (46th). The re­port cited in­eff icient bu­reau­cracy, in­ad­e­quate in­fras­truc­ture, cor­rup­tion and a prob­lem­atic tax sys­tem as the most press­ing bar­ri­ers to in­vest­ment.

De­spite these chal­lenges, the gov­ern­ment’s broader plans to lib­er­al­ize the econ­omy ap­pear to be gen­er­at­ing a gen­er­ally fa­vor­able re­sponse among busi­nesses. In OBG’s “Busi­ness Barom­e­ter: Philip­pines CEO Sur­vey,” un­der­taken in mid-2017, all C-suite ex­ec­u­tives sur­veyed de­scribed their ex­pec­ta­tions for lo­cal busi­nesses in the year ahead as ei­ther “pos­i­tive” or “very pos­i­tive.”

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