The impact of foreign investment liberalization on the Philippine economy

The impact of foreign investment liberalization on the Philippine economy

July 17, 2019 |

The Philippines is known for having one of the strictest rules and regulations when it comes to foreign investment. Now, these policies are seen to undergo a massive facelift to further benefit the Philippine economy through the infusion of more foreign capital.
 
Senator Sherwin Gatchalian, chairman of the Senate Committee on Economic Affairs, is currently pushing to amend the Foreign Investment Law, along with the Public Service Act, the Retail Trade Act, and other foreign trade measures. Upon amendment, these laws will entice more foreign direct investments and generate even more employment opportunities for Filipinos.

 

Fears of threats to national security, as well as the possibility of foreign groups taking over the country’s primary industries, were laid down to rest after weighing the pros and cons of further opening the country to foreign investments.

 

Importance of liberalizing foreign investments

The country’s economy stands to gain much from the planned easing of foreign investment restrictions in the Philippines. First, the country has the opportunity to diversify into more business endeavors. The more businesses opened up, the wider the selection of areas for foreign capital to be infused. At the end of the day, everybody profits and the country’s per capita income gets a huge boost.

 

Second, the entry of foreign capital into the country will provide the much-needed competition to shake up big-scale local corporations and monopolies. With these foreign-owned companies playing in the same field as local corporate giants, the pressure is now on for the latter to improve on their services, lest their customers be wooed by possibly better-performing foreign-owned counterparts.

 

How can these amendments help?

The proposal to liberalize the entry of foreign investments in the Philippines requires the revision of three trade laws: the Foreign Investment Act, the Public Service Act, and the Retail Trade Act.
 

• Also known as the Foreign Investments Act of 1991, this basic law regulates the amount that foreign investors are allowed to invest in. This will depend on the types of investment areas or activities stated in the Foreign Investments Negative List.
   
  With the proposed amendment, foreign investors may now own small and medium-sized enterprises with no minimum paid-up capital. A capital requirement will only apply to enterprises that involve advanced technology or those with at least 15 direct employees. Foreign professionals can even take on highly-skilled positions in said companies.

 

• The Public Service Act is a primary law governing all public services in the Philippines, including railroads, gas, canals, heat and power, water supply and power, petroleum, wireless communications, and other similar public services.
   
  Under the Public Service Act, Filipino citizens must own or control at least 60% of the public service provider’s capital. Foreign investors are only allowed to invest up to 40% equity, as per the 11th Foreign Investment Negative List. This restriction has led to the creation of monopolies since there are only a handful of local companies with enough financial clout to run this kind of service. Amending the Public Service Act will allow more domestic and foreign players to enter the market and compete against these monopolies.

 

• The Retail Trade Liberalization Act of 2000 must also be amended to attract more foreign investments. Under the current law, foreign investors are allowed to put up wholly-owned businesses if they can cough up at least $7.5 million paid-up capital. Reducing this required amount will be good news for foreign investors wanting to enter Philippine businesses.

Ready to start your business in the Philippines? Learn more about investing in this country’s promising economy by calling FilePino at 1.806.553.6552 (USA) or +63.917.892.2337 (Philippines).