Europe-PH News

WE are fooling ourselves when our trade officials say that the government is not rattled at all by Hanoi’s plan to lift ownership caps on listed companies in Vietnam in order to attract more direct investments (FDIs) that would otherwise go to other venture havens in the region.

“We don’t anticipate being affected by Vietnam’s decision, but we’ll just have to see how it plays out,” Trade Undersecretary Adrian Cristobal Jr. was quoted in a business daily’s week-ago banner headline on Prime Minister Nguyen Tan Dung’s signing of a decree removing the 49% cap on many listed companies effective September.

Starting in September, the 49% restriction will continue to apply only in areas where “conditions” were placed on foreign investments, save for those sectors that are regulated by separate ownership rules such as banking. Otherwise, there will no longer be any cap on all other equities, unless restricted by the firms themselves.

“Vietnam’s economy faces different challenges than ours,” said Cristobal. “Their state-owned enterprises, for instance, are an issue they have to address as well as their macroeconomic fundamentals and banking system. We are in a better position in those aspects of the economy.”

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But, isn’t this is nothing but whistling in the dark? Local and foreign business leaders alike view this latest ASEAN development differently–and are apparently worried sick that the lifting of such an economic restrictions will give Vietnam an even sharper competitive edge over the Philippines when it comes to bringing in FDIs. One of the Philippines’ sob stories is that from being Asia’s economic giant next only to Japan in the postwar era, it has in subsequent decades transmogrified into Southeast Asia’s underachiever, having fallen way, way behind the frontrunners–Singapore, Thailand, Malaysia and Indonesia–and now competes only with second-tiers Vietnam, Cambodia and even Myanmar.

“Vietnam is our competitor so we have to be better than them or follow them,” Philippine Chamber of Commerce and Industry (PCCI) president Alfredo Yao said in the same banner story. “If there is a better condition in another ASEAN country, foreign investors will go there unless we’ll have a really superior economy.”

Makati Business Club (MBC) executive director Peter Angelo Perfecto said in the news report that Vietnam’s move “is an added plus for their competitiveness” and that “the Philippines must consider similar policy shifts that... allow us to compete more aggressively with our neighbors.”

Philippine Stock Exchange (PSE) president Hans Sicat said, “It will give Vietnam a potential comparative advantage over the Philippines, everything else being equal. This may be more pronounced as ASEAN economic integration takes place and financial market integration also moves forward.”

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But the real problem for the Philippines is that everything else is NOT equal because despite being a Johnny-come-lately on the capitalism front, Vietnam has overtaken the Philippines as an investment destination over the last five years.

Official data released by the same business daily showed that over the last five-year period, FDI inflows in Vietnam rose from $7.6 billion in 2009 to $9.2 billion in 2014. In contrast, FDI inflows in the Philippines only totaled $1.963 billion in 2009 and rising to $6.2 billion in 2014.

Data shows that the reversal of fortunes actually started at the turn of the century when Vietnam’s FDI inward stock surpassed that of the Philippines, $14.73 billion against $13.762 billion.

In 1990, the Philippines was way ahead of Vietnam, as its FDI inward stock totaled $3.268 billion compared to Vietnam’s paltry $243 million.

But by 2014, Vietnam’s FDI inward stock already reached $90.99 billion, or over a third more than the Philippines’ $57.093 billion.

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The good thing is that foreign and local business leaders believe that the FDI battle is not yet over as the Philippines still has a fighting chance to keep up with and later outpace not only Vietnam but probably even front-running Singapore, Thailand, Malaysia and Indonesia.

That is, if policymakers and lawmakers will be serious enough to do a makeover of the local business environment that analysts see as hostile to investors and investments.

Alongside poor infrastructure, a high tax regime and an unpredictable policy climate marked by Government’s perceived penchant for changing rules in midstream and flouting its contracts with private partners, one more facet that has turned off the business community is the inward-looking Constitution that is overly protective of local businesses.

Analysts believe that the protectionist provisions of the 1987 Charter, particularly the 60-40 rule that pegs a 40% cap on foreign ownership, is a major deal-breaker, as it is anathema to investors at this day and age when globalization has spawned an increasingly borderless world.

And if one has to do what the Romans do when in Rome, the Philippines needs to go the way of Vietnam if it were dead serious about overtaking it–as well as our other vibrant neighboring economies–as the region’s No. 1 investment hub by opening up its closed economy.

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Bank of the Philippine Islands (BPI) associate economist Nicholas Antonio Mapa observed that Vietnam’s move “could further limit the ability of the Philippines to attract FDI flows given the many impediments to investment in the country.”

“Foreign ownership restrictions has been cited in the past as a reason NOT to invest in the Philippines,” he said.

Henry Schumacher, who is executive vice president of the European Chamber of Commerce of the Philippines (ECCP), shared the concern of local business leaders, believing that the solution lies in a proposed legislation that aims to make the country as attractive as, if not more attractive than, Vietnam and ASEAN’s other FDI magnets.

Schumacher said that Vietnam’s lifting of its foreign ownership cap makes it “more attractive for foreign investors, especially in the light of a hardly improved FINL (Foreign Investment Negative List) released by Malacañang and the withdrawal of House Resolution No. 1, which supported the amendment of the economic provisions of the Constitution which in turn could have led to more competition in the country.”

Executive Order No. (EO) 184, which was issued last May 29, provided the 10th Regular FINL that kept the list of domestic activities and sectors restricted to foreign participation, as enumerated in EO 98 dated Oct. 29, 2012.

Meanwhile, the resolution mentioned by Schumacher was principally authored by Speaker Feliciano Belmonte Jr. and is actually known as Resolution of Both Houses (RBH) No. 1.

Had Congress passed this before its June recess, the Philippines would have beaten Vietnam to the draw as RBH 1 seeks to open the Constitution to amendments lifting foreign ownership caps for businesses.

“That will be to their (Vietnam) advantage... (and) will put us at a disadvantage,” said Belmonte in another news report. “We have to confront that idea. But I think that (RBH 1 approval) is still possible.”

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Belmonte is correct because there is still enough time for both the House of Representatives and the Senate to pass RBH 1 as the 16th Congress will have seven (7) working months left to do so from the time its third and final regular session opens in July till it ends on February next year ahead of May’s national elections.

Under Belmonte’s resolution, a five-word phrase–“unless otherwise provided by law”–shall be added to 7 economic provisions of the 1987 Charter to allow greater participation of foreigners in Philippine businesses.

With the insertion of “unless provided by law,” RBH 1 will remove restrictions or caps on the following constitutional provisions:

1. Section 2, Art. XII on exploration, development, and utilization of natural resources;

2. Section 3, Art. XII on alienable lands of the public domain, including agricultural, forest or timber, mineral lands and national parks;

3 Section 7, Art. XII on conveyance of private lands;

4. Section 10, Art. XII on reserved investments;

5. Section 11, Art. XII on grant of franchises, certificates, or any other forms of authorization for the operation of public utility;

6 Section 4 (2), Art. XIV on ownership, control and administration of educational institutions; and

7. Section 11 (1 and 2), Art. XVI on ownership and management of mass media and on the policy for engagement in the advertising industry.

The inclusion of this five-word phrase means that amending the Constitution would only require a simple legislation that needs to be approved by both the Senate and the House–and then subjected to a plebiscite.

Unlike ordinary legislation, constitutional amendments require an absolute three-fourths vote by both Houses of Congress.

Hence, for RBH 1 to move on to a plebiscite, it needs to muster at least 217 votes in the 289-member House and at least 18 votes in the 24-member Senate.

But once approved by Congress, RBH 1 does not have to be signed by President Aquino into law like the regular enrolled bills passed by both chambers, because it needs only to be ratified through a plebiscite synchronized with the 2016 polls. 

Source: Malaya Business Insight