Comparing Philippine FDI law with Brazil

Foreign direct investment law by selected countries surveyed by the World Bank in 2010 (table 1).

Foreign direct investment law by selected countries surveyed by the World Bank in 2010 (table 1).

oreign direct investment law by selected countries surveyed by the World Bank in 2010 (table 2 with the Philippines highlighted in red box).

Foreign direct investment law by selected countries surveyed by the World Bank in 2010 (table 2 with the Philippines highlighted with red box). (Click the complete report in PDF)

It’s been 10 days after the 16th Congress of the Philippines started its 3-year term and as usual like the previous congresses, legislators have to pass their bills the moment a congress term starts and with the newly-opened Congress, House of Representative Speaker Feliciano “Sonny” Belmonte filed the first House resolution of the Congress calling to amend the restrictive protectionist but anachronistic economic provisions in the 1987 constitution especially the forced 60/40 forced equity sharing in favor of Filipino individuals or corporations in extracting natural resources, setting-up domestic corporations, public utilities, media, and advertising.

I am a bit disappointed with the content of the resolution wherein the 60/40 forced equity sharing will not really be scrapped, instead, Speaker Belmonte covered the 60/40 forced equity sharing with “UNLESS OTHERWISE PROVIDED BY LAW”, which means the current provision may be kept in constitutional paper but there would be more flexibility for the Congress to enact 100% foreign investment participation in mining, oil and gas extraction, manufacturing, agriculture, public utilities, media, advertising, land, and many more without too much explicit constitutional contradictions compared today. But, I think this is better with this gradual manner than none in order to silence anti foreign investment liberalization while not hampering the efforts to amend those provisions in the 1987 constitution, that is really needed for our country in order to have more inclusive and meaningful job generation and improving our dilapidated infrastructure in order for our country to move forward in this globalized economic order of today.

(Here’s the resolution of Speaker Belmonte to amend the 1987 constitution).

Foreign investors want to invest 100% then control what they invest because in the first place, the capital, technology, and ideas are theirs and also to anchor themselves from different notorious business practices all across the world including the Philippines like using dummies just to circumvent foreign investment restrictions and later on, the money will be swindled by these dummies and foreign investors cannot take the money back to them because law prohibits them from investing in particular economic sectors, thus the government will not going to protect them.

Yet, some legislators like Neri Colmenares of Bayan Muna are opposing Belmonte’s move to amend the protectionist economic provisions of the 1987 constitution for the reason that other countries have the same foreign equity ownership restrictions as ours. He even cited Brazil as one of the examples that have “strict” foreign direct investment laws than us where as far as I remember when he spoke during the public hearing about this issue, he said that Brazil only allows 25% foreign investment participation in businesses which is wrong as Brazil allows 100% foreign investment participation at MOST including mining, oil and gas extraction, manufacturing, agriculture, and public utilities, look the table below from World Bank’s Investing Across Borders 2010. (Click the complete detail)

Foreign investors can invest 100% in Brazil than in the Philippines.

Foreign investors can invest 100% in Brazil than in the Philippines.

See, Neri Colmenares has been lying to many people several times regarding this issue in whether to amend the protectionist economic provisions or not just to support his party-list agenda that he represent just to have their political survival assured in the face of increasingly globalized economic integrated, which makes their economic platform of “national industrialization” anachronistic as to set-up capital and labor intensive businesses like mining, oil and gas extraction, manufacturing, and public utilities need economic of scale to be operational that existing local conglomerates cannot fulfill nor the government as what these outdated left-leaning people have been advocating for many years.

The very point of Sonny Belmonte and many FDI liberalization advocates is this:

There should no constitutional constricts on foreign investments especially foreign investment participation. Our foreign direct investment laws should attune with the economic necessities in relative to global economic order. Putting any restrictions on foreign direct investments in the constitution especially in the 1987 constitution for the Philippine’s case, deprive any flexibility by the executive and the legislative branches of the government to adjust our FDI laws attune with a particular time without too much political noises from vested interests. Lesser or no constitutional debates in crafting FDI laws in the future mean that any investors especially foreign, will not going to have an anxiety on whether to continue invest in our economy or not.

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Remove the 60/40 equity limitations against foreign investments

House Speaker, Feliciano Belmonte (left) and Senate President, Juan Ponce Enrile (right). Credits to the Philippine Daily Inquirer.

This month, the talks about a constitutional amendment on certain provisions especially the economic ones of the 1987 constitution has been resurfaced once again as Juan Ponce Enrile suggested to amend the 25-year old constitution in order for the Philippines to compete militarily and economically and supported by the leadership of the House of Representatives lead by Feliciano Belmonte.

However, it never gained an approval from the President, Noynoy Aquino when he said that “if ain’t broke, don’t fix it” on which he referred to the economic provisions of the constitution especially the 60/40 equity restrictions against foreign individuals or corporations where any prospective foreign individuals or corporations who wishes to invest in our country needs to find a Filipino individuals or corporations to tap the 60% of equity shares asked by foreign individuals or corporations in order to operate their businesses in our country as stated in the Article XII, Section 10 of the 1987 constitution.

This is not the first time in 25-year lifespan of the 1987 constitution where the proposals for amendments or even revisions in our constitution have been in the conversation. Way back in 1997 when Fidel Ramos’ term as president was coming to fulfillment that time and when he felt that his economic reforms were not enough, it proposed for the revision of the 1987 constitution through the third method of amending the constitution which was the People’s Initiate where amending the constitution needed 12% of the total registered electorate in order to have a fulfillment however, in September 1997, he suffered a setback when the Supreme Court decided to grant the appeal of his political opponent, Miriam Defensor Santiago on the basis that there was no statutory law on People’s Initiative to give that constitutional provision with teeth (even until now) and also the People’s Initiative option of amending the constitution doesn’t apply for revising the constitution as what Fidel Ramos asked.

In 1999, after Joseph Estrada took over the Presidency from Fidel Ramos after the ill-fated initiative for the revision of the 1987 constitution, Estrada created a Preparatory Commission on Constitutional Reforms (PCCR) to study the possible amendments to the 1987 constitution and the recommendations of that commission was later approved by Estrada which the recommendations for constitutional amendment like the scrapping of the 60/40 equity restrictions against foreign investments, allowing foreigners to own land properties in our country, and allowing foreign investments in media sector. Later, this commission was renamed into a Constitutional Correction on Development or CONCORD. However, the CONCORD was faced with protests from different sectors in our society who felt that the 1987 constitution shall not be amended that time especially from Manila Archbishop, Jaime Cardinal Sin and former President Corazon Aquino, the president when the 1987 constitution was ratified. Later, Joseph Estrada dropped the CONCORD as he felt that he could not gain a traction from these two influential persons in our country that time.

After Joseph Estrada’s ouster in 2001 due to the aborted impeachment trial case against him regarding on his involvement, Gloria Macapagal Arroyo succeeded him on historic EDSA II Revolution on 20 January 2001. The entire Arroyo’s presidency from 2001 to 2010 was marred on severe political and economic instability due to lack of popular support in her installation as president in 2001 and she was nearly ousted many times in separate occasions during her entire span of her presidency. Her election for a full term in 2004 was marred on severe allegations of electoral fraud which made her most economic and political reforms unachievable for her entire term from 2004 to 2010 that includes her proposed revisions of the 1987 constitution from presidential to parliamentary system, from unitary to federal form of government, and from protectionist to free market economic system.

Right now, the both chambers of the Congress agreed the necessity of amending the restrictive economic provisions of the 1987 constitution which seems to be the most restrictive not just in Asia but also in the entire world as the economic policies of our country like the foreign investment laws are being stipulated to our constitution like the 60/40 equity restrictions against foreign individuals or corporations where any prospective foreign individuals or corporations who wishes to invest in our country needs to find a Filipino individuals or corporations to tap the 60% of equity shares asked by foreign individuals or corporations in order to operate their businesses in our country as stated in the Article XII, Section 10 of the 1987 constitution. That 60/40 equity restrictions almost covers the economic sectors in our country especially the sectors that really needs 100% FDI participation like mining, oil and gas extraction, agriculture, forestry, public utilities, transportation, education, construction and many others as these sectors that I have mentioned for many years have been deteriorated its services to the people and its technology is getting outdated by year because of lack of foreign capital inflows flowing in our economy as a result of that restrictive economic provisions stipulated in our constitution.

The 1987 constitution also restricts foreign individuals or corporations from investing or setting-up an advertising firms to 30% and also prohibits foreigners entirely of investing in media sector on which I believe it contributes to the deterioration of the Philippine media for the last half century as there is no much competition in producing movies, shows, and news in our media industry and being monopolized by the few rich local moguls who profiteered with no foreign competition policy of the 1987 constitution at the expense of the Filipino audience.

The restrictive economic provisions of our 1987 constitution are contributing to further and complex problem that our country plunging right now that is the severe unemployment and underemployment due to lack of competition in our job market as foreign investors are being driven out in our domestic economy and the local investors cannot provide the necessity of our growing labor force due to lack of capital and technology as foreign investors are reluctant to have a large-scale partnership with any local companies due to the notorious corruption in the Philippine business sector.

Those who were luckily educated were driven out of the country and forced to seek lucrative jobs abroad to earn money to support their remaining families here in our country at the expense of emotional troubles to their remaining children in a long-run which contributed to a further socio-economic problems among the Overseas Filipino Workers’ families where their remaining wife/husband in our country tend to dump their husband/wife who was working abroad or their remaining children tend to engage strange activities during their adolescence especially where some of them got married early of their ages or committed juvenile crimes due to the absence of one or two of their parents when they grew up.

If we, Filipinos wanted to have a real economic, political and social prosperity just just for today but also forever in our lives, let us support the initiate of Juan Ponce Enrile and Feliciano Belmonte of amending the restrictive economic provisions of our 1987 constitution.

REMOVE 60/40 EQUITY RESTRICTIONS! OPEN ALL ECONOMIC SECTORS TO 100% FOREIGN INVESTMENT!