The inflow of foreign direct investment (FDI) into the Philippines plummeted by 83% in August this year. The Bangko Sentral ng Pilipinas (BSP) is hoping a total FDI inflow of $1.2 billion for 2012. That's low in comparison with the average FDI the Philippines has received in the last 11 years, approximately $1.5 billion, and puny in comparison with what our ASEAN-5 neighbors have attracted during the same period.

The truth is that the Philippines has not attracted much FDIs during the last 11 years. From 2001 to 2011, only $16.7 billion FDIs flowed into the country. By contrast, Malaysia attracted $58.2 billion, Indonesia $64.7 billion, Thailand $77.8 billion, and Vietnam $49.4 billion.

In 2011 alone, the first full year of the Aquino administration, total FDI inflows to the Philippines was $1.3 billion. How did that compare with the rest of the ASEAN-5 region? Miserably. Here are the numbers: Malaysia attracted $16.6 billion in 2011, Indonesia $18.2 billion, Thailand $9.6 billion, and Vietnam $7.4 billion.

What are our ASEAN neighbors doing that we’re not doing? Or, better yet, what are we doing that they are not doing?

For one, we failed to build the necessary public infrastructure -- highways, roads, transport systems, airports, seaports and others. We failed to provide affordable, sufficient and reliable power. We failed to streamline the procedures for investors. The cost of doing business is in the Philippines is just too high.

But in addition, we have not made investing in the Philippines more open. That’s the core of the statement issued recently by the Joint Foreign Chambers of the Philippines, entitled "Let’s Make the Foreign Investment List Less Negative."

The JFC is composed of the American Chamber of Commerce of the Philippines, Australian-New Zealand Chamber of Commerce of the Philippines, Canadian Chamber of Commerce, European Chamber of Commerce of the Philippines, Japanese Chamber of Commerce and Industry of the Philippines, Korean Chamber of Commerce of the Philippines, and Philippine Association of Multinational Regional Headquarters.

Apparently, the Philippine government, through Executive Order 98 dated Oct. 29, 2012, expanded the Foreign Investment Negative List (FINL) by adding four new minor restrictions legislated during the 14th Congress in 2007 to 2010.

‘TOO NEGATIVE’

"A Negative List that is too negative is one of the factors effecting FDI," the statement of the Joint Chambers noted. Instead of moving forward and becoming more foreign-investor friendly, the Aquino administration has taken a step back.

The Joint Foreign Chambers said: "The Philippine economy in 2012 remains more closed to foreign investment that its neighboring large ASEAN economies citing a World Bank report, "Investing Across Borders 2010," which measures how 87 economies facilitate market access and operations of foreign companies.

"Among the 87 countries surveyed, the Philippines and Thailand have some of the strictest foreign equity rules and fall below the East Asia and Pacific average as well as the high-income OECD economies."

"Despite continuous advocacy over almost a decade, responsible public sector leaders have yet to assign priority to shortening the list, with the exception of the economic provisions of the Constitution. Amending these constitutional restrictions has been advocated by Congressional leaders, and a study was reportedly prepared at the request of President Aquino but not publicly released. However, little attention has been paid to removing other restrictions from the list," the joint statement continued.

"During the 20 years since the important liberalizing reform of RA 6957, the Foreign Investments Act (1991) as amended by RA 8170 (1996), only two major changes have been made to the FINL: RA 8762, the Retail Trade Liberalization Act (2000) opening retail trade to foreign investors investing at least $2.5 million, and EO 158 (2010), the 8th FINL allowing 100% foreign equity in gambling in PEZA zones (by presidential proclamation)."

"While constitutional restrictions on foreign capital and foreign professionals are hard to change, restrictions in legislation and/or in interpretations of what should or should not be in the FINL should be easier to liberalize. Restrictions are scattered through various laws, some quite old, and most have rarely been reviewed to determine whether they remain in the national interest, especially whether they stand in the way of creating jobs."

"The introduction of the FINL was a major reform in 1991, improving transparency for foreign investors with a negative list of business activities foreign investors could not engage in or would be allowed to invest less than 100% equity. Although reissued every two years, the FINL rarely contains any significant reforms, exceptions being retail trade and gambling."

It is a pity that the Aquino administration has not moved forward. The presidential body language belies the rhetoric that the Philippines is open for foreign investors.

The year 2012 started with so much optimism. As a result of rising costs, floods, and political risks, there were reports that foreign manufacturing firms in China, Japan, and Thailand have been looking for places to relocate. These firms look at Vietnam, Indonesia and the Philippines as strong candidates for their new and expansion plans.

Sadly, instead of seizing these opportunities, the Aquino administration made the Negative List more, not less, negative. Is the Philippines going to miss the next wave of FDIs once more?

Benjamin Diokno is former secretary of budget and management and is Professor of Economics at the University of the Philippines School of Economics.

Source: Business World; Opinion; 15 November 2012