Competition good for Phl SME, says World Bank

The World Bank said the opening up of more economic areas to foreign participation would build up the competence of local businesses and enable the domestic economy to develop competitive industries.

The government is currently working to ease restrictions on foreign ownership and participation in more areas first through the crafting of the 11th Foreign Investment Negative List (FINL) and amendments of pertinent laws within the next few years.

Economic managers said this is meant to increase foreign direct investments in the country and create more jobs. This is also expected to spur innovation and competitiveness among local businesses as they will be forced to compete.

Despite the apprehensions raised by several business groups that this will kill small and medium enterprises in the country and goes against the government’s push for inclusive growth, World Bank economist Kevin Chua said this will actually work to the country’s advantage as it will ultimately improve the performance of firms and will ultimately benefit consumers.

“Opening up more areas to foreign investments will increase competitiveness. There will be better services and there will be price competition, so it will be better for households,” he said.

World Bank lead economist for the Philippines Birgit Hansl said local firms would indeed be pressured to come up with better products and services in a more open economy.

“The best conditions for firms to develop are competitive conditions because that is the reality that will hit any firm once they enter the open market. And it is a really tough climate out there especially at this stage when we see many countries very active in supporting growth domestically. So the best thing to do is to prepare your local firms in the best possible way so they can survive in that tough competition in the global environment. And the best way to do that is to leave them alone and compete first on the domestic side and then they be ready to compete in the global scene,” she said.

Global experience, she said, shows it is more beneficial to let market forces take over and see which industries would survive to become true engines of growth in an economy.

“In every country there is a discussion about specific sectors that should at first be given protection but in the global experience, it has shown that it is not necessary. The best condition is to let the market decide which industry can survive and be competitive and see what develops as the competitive advantage of that country rather than picking services sectors that can become the next growth sector,” she said.

The 11th FINL was transmitted to Malacañang last week for review by its legal staff.

The list will be presented for approval at the next meeting of the National Economic and Development Authority (NEDA) chaired by the President, with the goal of having the Executive Order promulgating the 2017 FINL to be signed before the end of the year.

The National Economic and Development Authority (NEDA) said several economic areas where restrictions on foreign ownership and participation would be eased.

These include the removal of restrictions on foreignowned investment houses and financial activities in line with the liberalization of the banking sector, practice of several professions, foreign infrastructure contractors, and lowering the paid-up capital requirement for foreign retailers to $200,000 from $2.5 million.

For other areas like public utilities such as telecommunications and water, President Duterte has expressed interest in the imposition of a 70 percent foreign ownership cap.

Raising the foreign ownership limit for public utilities, however, would require the amendment of the Public Service Act which prohibits majority ownership by foreign entities in public utilities. A bill is already pending in the House of Representatives seeking to amend the statutory definitions of public utility to open industries like telecommunications, transport, power and water to increased foreign ownership.