Bernardo M. Villegas
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Rebalancing Strategy
published: Mar 31, 2017



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Why FDIs Remain Too Low

           It is my contention that the "Filipino First" policy enshrined in some provisions of the Philippine Constitution has conditioned the government bureaucracy to put so many unnecessary obstacles to the foreigners who want to invest in the Philippines.  This ultranationalistic mentality embedded in the culture of the Philippine Government explains to a great degree the many rules and regulations that are promulgated by various government agencies that make life very difficult for the foreign investors.  Let me cite one among dozens of other cases with which I am familiar.  I am referring to the international logistics industry which finds the Philippines a most attractive site for transhipment to the whole of Southeast Asia because of its very strategic geographical location in the very center of East Asia.  Unfortunately, companies like FEDEX and DHL, among others, are inhibited from expanding their operations in the Philippines because of a circular of the Department of Transport and Communication (DOTC) that only Philippine citizens may operate 'Private Express and/or Messenger Delivery Services' invoking the constitutional provision that restricts the operation of public utilities to Philippine citizens, or to corporations or associations organized under the laws of the Philippines at least 60% of which is owned by such citizens.

          The existence of such a provision in our Constitution leads to some of the most bizarre cases that baffle foreign investors.  For example, Cathay Pacific, a foreign carrier of passengers and goods, may fly from Hong Kong to Manila and from Manila to Cebu.  The limitation only is that Cathay Pacific may not pick up passengers or goods from Manila and transport them to Cebu.  This is purely domestic transport, in which Cathay Pacific would not be qualified to engage.  However, Cathay Pacific may fly Passenger A from Hong Kong to Cebu, via Manila.  To be sure, the carriage has a domestic portion--Manila to Cebu--but this is part of the international transportation of Passenger A. The reader can just imagine if this complication is applied to international logistics companies that deliver packages to different points of the Philippines. 

          It would be ill advised to apply the DOTC circular to international express delivery companies.  It will restrict their ability to operate efficiently and will prevent them from increasing investment and productivity across the whole economy.  Express delivery services are meant to handle items on an expedited basis.  In addition to greater speed and reliability compared to ordinary services, express delivery services include value added elements such as collection from point of origin, personal delivery to addressee, tracing and tracking, maintaining control of items throughout the supply of the service by, for instance, offering the possibility of changing the destination and addressee in transit, and confirmation of receipt.

          The Circular would tend to restrict operation of international express delivery companies because they would be prevented from controlling every stage of a package's journey.  Even if the package weighing less than 20 kilograms is an international shipment, an international express delivery company is forced to contract and deal with a domestic agent to complete the delivery up to the package's final destination.  The good of the consumers (mostly Filipinos) require a seamless service, say from New York to Zamboanga.  Allowing international express delivery companies to fully provide their services, including the contiguous domestic leg of the international shipments, will enable the Philippines to enjoy the modern global transportation infrastructure which the international express delivery services industry provides.

          Even if it is true that foreign direct investments are already possible in 90 percent of Philippine business, as some of the members of the economic team of the President claim, I would like to point out that this 90 percent  still suffer from the many arbitrary rules and regulations coming from government agencies, both national and local, that result from the mentality that foreigners are here to take undue advantage of Filipinos and that Filipino investors are all angels that have nothing in mind except the common good. The Vietnamese, Indonesians, Thais and Indians are wiser.  They don't make such an unwarranted assumption, while maintaining that the State can protect the common good better than private enterprise in certain circumstances.   As a parting shot, let me be very blunt:  the Filipino First mentality has actually perpetuated the feudalistic nature of Philippine society because through the ultranationalistic polices, the Filipino elite have succeeded in capturing and monopolizing the strategic sectors of the economy.   

          There is no empirical evidence whatsoever that Filipino owners of business work more for the common good than foreign business people.  On the contrary, over the more than forty years I have been monitoring Philippine business, I have seen much more social responsibility in multinational corporations than many enterprises wholly owned by Filipinos, without denying that there are prominent cases of Filipino enterprises that were pioneers in practising Corporate Social Responsibility (CSR) as early as forty years ago.  For comments, my email address is bernardo.vilegas@uap.asia