And I favor a process where results are obtained from inclusive, open, and transparent nationwide consultations, processed in a constitutional convention and approved in a national referendum.
I disfavor amending the Constitution by adopting the phrase “unless otherwise provided by law” because it seems to me that current restrictions will remain in place until Congress decides to amend these on its own good time, ignoring the urgency of the matter. A caveat: deceitful overreach into political territory like term limits and language to accommodate the Comprehensive Agreement on the Bangsamoro-Bangsamoro Basic Law might be attempted. It must be prevented.
We need to grow the economy, attract foreign direct investments (FDIs), improve our competitiveness, reverse the diaspora, increase purchasing power and disposable income, raise gross national well-being, and enhance national security. The Philippines, although awash with domestic savings, needs long-term capital particularly in strategic services and infrastructure, energy, mining, national defense, public safety and others required to attain and sustain a 7%-10% growth in Gross Domestic Product (GDP).
Our average foreign direct investment in the past five years has been below $3 billion.
While 2015 is expected to be a banner year compared to past performance, the FDI flows today versus that of other countries in the region would still pale in comparison. Although we’ve improved our report card in the “Ease of Doing Business,” and Japan’s taking the risk of divesting and relocating some of its China business to the Philippines, we’re still generally unattractive because of the Constitution’s restrictions, institutional unreliability, and corrupt practices that turn off foreign investors.
Lack of foreign competition has enabled local conglomerates to tighten their grip of the economy.
If inclusive growth is the way to go, Article 2 of the 1987 Constitution should be restated as follows: “The State shall develop a self-reliant, productive and competitive economy that will best serve the interest of the Filipino people.” The Filipino people should be the ultimate beneficiary of dynamic economic growth and sustainable development.
The lack of vital infrastructure is a disincentive to FDIs needed in manufacturing, agriculture, and services to effectively reduce poverty. We need FDIs to build and operate new, efficient airports and seaports; tollways, telecom facilities; irrigation systems; power utilities; information technology and defense capacities, to name some strategic areas that investors weigh, consider, and compare before making a decision.
Unlike Vietnam that recently lifted its ownership restrictions to boost FDI flows, we still need to amend our land ownership and 60/40 rules that encourage dummyism and restrict the choices of foreign players to a limited bench of local partners. We must plug the entry of dubious investors with hidden agendas that feed the corruption of our institutions and harm national security. A telltale sign is when the scope and quality of bids in public-private partnership projects fall below expectations.
As such, the following game changers should be considered:
• Limit the negative list to vital infrastructure impinging on public safety and national security.
• No equity limit.
• Allow foreign investors in the exploration, development and utilization of natural resources.
• Allow foreigners to own residential, commercial and industrial property.
• Liberalize investments in new media and tertiary education.
Globalization, science, and technology have facilitated with ease the movement and spread of information, funds, goods, services and human capital. Transnationals are quick to spot new markets and opportunities and move their resources to the planet’s farthest corners. Direct investments reduce transportation costs, and take advantage of the local workforce and natural resources.
Properly directed and well-managed FDIs expand the pool of capital; speed up technology transfers and know-how; compel domestic firms to innovate and compete; and create other positive spillover effects. Economic downturns in leading economies have intensified competition to attract global FDI inflows. This leads to the big question as to what factors encourage or discourage foreign investors from placing their bets on a specific location.
The World Bank cites the following:
Market size
Market size, which is usually decided by the host country’s population, GDP and per capita income, is one of the most important in FDI location decisions. Market size provides insights about the host location’s general economic and demographic conditions; potential demand, purchasing power and growth; economies of scale and local resources.
Trade openness
Openness and market freedom encourages FDI and economic growth. Companies prefer host countries that are close to their export markets, have friendly import-export policies and participate actively in regional or global trade agreements.
Tax incentives
Tax incentives serve as an indicator for investors where the host country wants to channel investments to preferred growth areas. All things being relatively equal, tax incentives impact on investors’ decisions when compared to other locations. The records show that countries with tax havens and low corporate tax rates attract a steady stream of FDIs.
Labor costs
Export-oriented FDI companies tend to move their production to places offering low tax rates, labor rates, raw materials, and energy to control costs and optimize profits.
Economic and political stability
Stability and predictability increase investors’ trust and sense of security about returns on their investment. Corruption, confusion, and dysfunction do not. Geopolitical instability also drives away risk-averse investors. Example: China’s aggressive military expansion and recklessness in the East and South China Seas.
Due to the tensions and hostility toward Japanese investors, their companies are divesting from China and relocating elsewhere.
What’s clear is the region’s geopolitical and economic dynamics that are changing the direction of foreign direct investment flows.
We must be quick and nimble to catch the waves of change to alter course to where the sun burns bright and never sets on all Filipinos.
Rafael M. Alunan III is chair of the M.A.P. National Security Committee. He was former Secretary of the Interior and Local Government, and also held the post of chair of the National Action Committee on Anti-Hijacking and Terror in the Ramos administration.
rmalunan@gmail.com
map@map.org.ph
http://map.org.ph
Market size, which is usually decided by the host country’s population, GDP and per capita income, is one of the most important in FDI location decisions. Market size provides insights about the host location’s general economic and demographic conditions; potential demand, purchasing power and growth; economies of scale and local resources.
Trade openness
Openness and market freedom encourages FDI and economic growth. Companies prefer host countries that are close to their export markets, have friendly import-export policies and participate actively in regional or global trade agreements.
Tax incentives
Tax incentives serve as an indicator for investors where the host country wants to channel investments to preferred growth areas. All things being relatively equal, tax incentives impact on investors’ decisions when compared to other locations. The records show that countries with tax havens and low corporate tax rates attract a steady stream of FDIs.
Labor costs
Export-oriented FDI companies tend to move their production to places offering low tax rates, labor rates, raw materials, and energy to control costs and optimize profits.
Economic and political stability
Stability and predictability increase investors’ trust and sense of security about returns on their investment. Corruption, confusion, and dysfunction do not. Geopolitical instability also drives away risk-averse investors. Example: China’s aggressive military expansion and recklessness in the East and South China Seas.
Due to the tensions and hostility toward Japanese investors, their companies are divesting from China and relocating elsewhere.
What’s clear is the region’s geopolitical and economic dynamics that are changing the direction of foreign direct investment flows.
We must be quick and nimble to catch the waves of change to alter course to where the sun burns bright and never sets on all Filipinos.
Rafael M. Alunan III is chair of the M.A.P. National Security Committee. He was former Secretary of the Interior and Local Government, and also held the post of chair of the National Action Committee on Anti-Hijacking and Terror in the Ramos administration.
rmalunan@gmail.com
map@map.org.ph
http://map.org.ph
source: Businessworld
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