Foreign investors and local companies, as well, stand to benefit from the removal of barriers to foreign investments, since the removal of such barriers may also resolve domestic underinvestment, according to the Organisation for Economic Co-operation and Development’s (OECD) Philippine Investment Policy Review.
The international policy think tank has released the country’s investment-policy assessment paper with comprehensive review of domestic policies in the areas of investment, investment promotion and facilitation, competition policy infrastructure investment and business conduct.
The long-standing issue of foreign equity restrictions was once again a highlight of the review, saying that the number of restrictions on foreign direct investments (FDI) in the Philippines is generally high on a global scale, as evidenced by OECD’s FDI Regulatory Restrictiveness Index.
“The Philippines is one of the countries with the most statutory restrictions on foreign investment. It has more restrictions than any of the large Asean member-states with a score [on the index] almost as high as Vietnam—a country which is often seen as a close competitor for investment,” the review noted.
The review further pointed out that being enshrined in the Constitution, and unlike other countries whose restrictions to foreign investment are in sectoral legislation or in investment laws, the Philippines’s barriers to FDI are more inflexible, and reform more difficult to enact.
“Regional competitors for foreign investment are not standing still, but are continuing with their own reforms. Vietnam has revised its investment law many times over the past two decades, most recently in 2014, and Cambodia and Lao PDR are also currently doing so. Myanmar has also reopened to foreign investment and are continuing with their reforms,” the OECD said.
As a result, while the Philippines attracted a record-setting level of $6.2 billion in 2014, slightly cooling down to $ 5.7 billion last year, Manila is still considered a “laggard” in FDI inflows compared to its Asean peers.
On the part of local businesses, the review also pointed out that the “persistent problem of underinvestment” as far domestic investment is concerned is still below what it was in the 1990s, notwitstanding a rising economy.
“Policy reform should not aim to give foreign investors special treatment, but a strong argument can be made that removing barriers to foreign investment in the Philippines could help to address issues of underinvestment by domestic firms through the impact that foreign investors might have in improving overall investment climate,” the report stated.
For local firms, the report added, the spill-over effect can be seen in improved efficiency in their production because of the transfer of technology and increased competition in the market.
Liberalizing barriers to foreign investment, moreover, will enhance the impact of the Competition Act as it will be an impetus for new market entry, the think tank said.
“Foreign direct investment is not a panacea but in an open economy with contestable markets, it can have a strong impact on growth. All of the many success stories in Southeast Asia have been built in part on attracting FDI,” the report added.
The OECD report did not espouse specific changes to the Constitution but recommended reviewing the high minimum capital requirement in the Foreign Investment Act and the Retail Trade Liberalization Act. Modernizing the legislative framework for investment, pertaining to the Board of Investments’ Ombinus Investments Code was also recommended.
The Philippine Investment Policy Review was launched last April 26, in Paris France. and was done in collaboration with the Philippine government through the Department of Trade and Industry.