THREE critical economic policy issues and the implementation of them have been facing the Philippines for several years. These are: the tax and revenue sharing scheme for the mining industry, the infrastructure projects under the Public-Private Partnership program and the rationalization of investment incentives particularly for foreign investors.
The mining policy has been stalled and in limbo for so long, obviously nothing is going to be accomplished in this area until there is leadership that is will to make hard decisions and offer hard choices. The PPP projects are moving so slowly that here again it will be until there is a new administration before any of the big ticket developments are completed.
The third, a new and more sensible and realistic investment incentive program could be done before 2015 ends.
We have been told repeatedly that the problem in the Philippines attracting more foreign investment is that we do not provide a legal framework that is attractive to the investors. Suggestions have ranged all the way to changing the Philippine constitution to allow, for example, foreign ownership of land.
However, changing same of the specifics of the rules and incentives for investment could be accomplished without too much drama.
The purpose of these changes would be, according to the proponents, of putting the investment landscape on a more competitive footing with our regional neighbors who seem to have better solutions to attracting investment.
The problem is that whenever we start talking about changing the incentives, it is the foreigners that start complaining.
This from the Businessmirror this past Saturday: “The Philippines could see a decline in investments from Japan if the government would push through with its plan of restructuring its incentive scheme for investors, according to an official of the Japanese Chamber of Commerce and Industry in the Philippines (JCCIP).” According to JCCIP Vice President Nobuo Fujii, “There is going to be less investment [from Japan] in the future. We don’t want any change in existing incentives.”
It is always good to listen to your customers. But here our question for Mr. Fuji: If the existing investment incentives are so great in the Philippines, why did Japanese companies invest over $10 billion in Thailand in 2013 and only $1.2 billion in the Philippines?
We have examined both countries investment laws and incentives. The major difference is that the list of excluded types of business is much less in Thailand and Thailand allows up to 100 percent foreign ownership unlike the Philippines which requires 60 percent local ownership.
But as to incentives, PHL and Thailand are about the same. Again for Mr. Fujii: what other factors led to 8 times as much Japanese investment in Thailand over the Philippines?
The World Bank estimates that it is costing PHL P200 billion annually by giving out various fiscal incentives, the majority going to foreign investors. We received about P270 billion in foreign investments in 2014. We spent over P100 billion in incentives. That may not be the best business model. We need some sensible changes.
But as Akio Mimura, chairman of the JCCI, says, the government needs to address obstacles such as infrastructure gaps, high transport and power costs. That is where we should start.