As the impact of COVID-19 slowly recedes, the Philippine economy is showing promising signs of recovery. In a February interview with CNBC, Secretary of Finance Carlos Dominguez said the country had made significant progress containing the pandemic and that he expected a “return to normalcy” this year.
Another potential bright spot for the economy is the amendment of the Philippines Public Service Act (PSA). Through this, lawmakers are paving the way for full foreign ownership in telecommunications, railways, airlines and airports, as the country courts an increase in foreign direct investment (FDI).
WHAT ARE SOME OF THE FACTORS THAT MOTIVATED THIS DEVELOPMENT?
Aris Gulapa, founding partner of Gulapa Law Office, says there are range of factors underpinning the bill.
Among these are political motivations. “The president of the Philippines has made it part of his legislative agenda before the expiration of his term to ensure that amendments to the Public Service Act and other laws that deal with foreign equity restrictions are completed by certifying these amendments as urgent,” Gulapa explains.
Such changes would also take aim at oligopolies that span a number of industries, such as the telecommunications sector, due to foreign equity restrictions Gulapa says.
“Consequently, the lack of competition affects the quality of services provided to the public at large and stunts innovation because these oligopolies are not motivated to provide better quality services,” he notes.
HOW IS THE AMENDMENT BEING RECEIVED?
Judy Hao, senior partner at ACCRALAW, says that the bill endeavours to achieve a balance between expanding investment opportunities and the need to protect domestic assets. “The amendments try to make a distinction between industries which directly impact consumers and the public and those which may be considered public service but are not so much in critical areas,” she says.
Additionally, the amendments to the PSA gives the president rights to recommend that Congress “review a classification of an industry from public service to a public utility (for which Filipino ownership is required) when needed, such as when the commodity or service is a natural monopoly that needs to be regulated.”
Gulapa agrees that while the proposed amendment to the Public Service Act eases restrictions on foreign investments, protective clauses for the benefit of the domestic market and the state remain.
“For example, in the interest of national security, the proposed amendment grants the president the power to prohibit any acquisition or investment or in a public service which will grant direct or indirect control to a foreign individual or corporation,” Gulapa says.
He notes that the proposed law also prohibits foreign governments or foreign state-owned enterprises from owning capital in public utilities considered to be critical infrastructure.
“Finally, the proposed law contains reciprocity provisions, requiring that foreign states afford the same privileges towards Filipinos in order for their nationals to benefit from the eased restrictions. These limitations strike a balance between the easing of investment restrictions and protecting domestic interests,” Gulapa says.
WHAT OTHER MEASURES COULD BE TAKEN TO MAKE THE PHILIPPINES MORE ATTRACTIVE FOR FDI?
While Hao says the country currently has enough laws that aim to encourage foreign investment, the implementation of these laws “have to be made consistent and should be applied accurately and not restrictively in light of the objectives or policy of the law.”
Additionally, uniform requirements around the issuing of business permits should be adopted, and requirements for obtaining permits should be minimized, Hao says.
Gulapa concurs, noting that while the government has made an active effort to ease red tape around the permit process, further streaming of government procedures is required, as is “closer coordination between government agencies to avoid conflicting policies will make the Philippines more attractive for FDI.”
“At present, it can take anywhere between three months to a year in order to facilitate foreign direct investments, taking into consideration the entire investment, approval, and permitting process,” Gulapa says.
Additionally, “the government should invest in the education and training of its workforce to equip them with the unique and peculiar skills required by foreign investors in emerging and innovative indus-tries,” he adds.
