As one of the members of the Constitutional Commission that drafted the 1987 Constitution, I am lending my voice to the clamor of some sectors led by House Speaker Lord Allan Q. Velasco to amend the restrictive economic provisions of this fundamental law of the land. Over these last thirty-three years since the Filipino people ratified the Philippine Constitution, I have witnessed significant changes in the global, regional, and domestic economies which convince me that removing restrictions against foreign direct investments in public utilities, infrastructures, media, education and even in real estate can help the Philippine economy recover faster from the pandemic, especially as regards generating more employment and reducing the poverty incidence. We badly need foreign equity to supplement our very scarce domestic long-term capital as we struggle to improve our pitifully inadequate public utilities (especially telecommunications), infrastructures (such as tollways, railroads and airports), and quality higher education institutions.
In 1986 when the Constitutional Commission was deliberating on the draft of the Constitution which was to replace the so-called Marcos Constitution, the Philippine economy was still notoriously known as the sick man of Asia, the worst performing in the East Asian region as a result of the mismanagement of the economy and rampant corruption during the last ten years of martial law. The Philippine economy was far from being an attractive destination for foreign direct investments. Our status as the “sick man of Asia” lasted for at least a decade after the EDSA revolution of 1986. When the majority of the members of the Constitutional Commission decided to take a protectionist and inward-looking stance against FDIs, the few of us who wanted to take a more liberal view about foreign investments took the majority decision in stride since the circumstances then were such that most foreign investors considered the Philippines as an unattractive place to invest. We also realized that it was not an appropriate time to take a completely rational approach to formulating the appropriate policies as regards long-term economic development of the Philippine economy. Practically all of us were so traumatized by the events of the EDSA revolution and the need to make sure that we would never again be subjugated by a dictator that it seemed that foremost in the minds of the Commissioners was to make sure that we included provisions in the Constitution that were the opposite of what the former dictator adopted. For example, since President Marcos was very liberal in his view towards FDIs, the majority of the Commissioners voted to incorporate provisions in the new Constitution that would be opposite to the martial law policies. The issues on foreign investments provoked so much controversy that, as can be read in the deliberations of the Committee on the National Economy (which I chaired), there were occasions of otherwise respectable commissioners throwing ash trays at one another in the heat of debate. Although I realize that there was an urgent need to come out with a new Constitution after the EDSA revolution, still the months following that politically turbulent period were not the most propitious time for calm and rational discussion that would consider the long-term common good for the Philippine nation. There was still too much emotion in the air.
Now, thirty-three years later, the global, regional and domestic economic environment is vastly different from what it was in 1986-1987. The Philippines is no longer the sick man Asia. For the last ten years, before the pandemic, the Philippines had one of the fastest growing economies, not only in the Indo-Pacific region but in the whole world. Registering an average of 6 percent annual GDP growth from 2010 to 2019, the Philippines was at the cusp of becoming an upper-middle income emerging market by reaching the threshold of $4,000 of per capita GDP income. The pandemic just postponed this important transition by some two to three years. The Philippine GDP is expected to decline by about 10 percent in GDP in 2019 and slowly recover in 2021 at 4 percent. The bounce back is expected in 2022 at anywhere from 6 to 8 percent. With its strong fundamentals of a young, growing and English-speaking population, well managed monetary and fiscal sectors, a large domestic market that is the primary engine of growth, and rich natural resources, the Philippines has been high in the lists of independent think tanks and financial institutions as among the most attractive emerging markets over the next decade or so. Just as a sample of these very positive assessments of the long-term prospects of the Philippine economy, Oxford Economics recently ranked the Philippines Number 2 among the leading emerging markets for the next decade or so, with India as Number 1, Indonesia Number 3 and China Number 4. The Economist Publication ranked the Philippine economy Number 6 in Financial Strength besting ASEAN countries like Indonesia, Thailand, and Vietnam. The UK-based think tank Centre for Business Economic Research in a long-term projection to 2035 for 193 countries saw the Philippines as one of the most improved by jumping from rank 32 in 2020 to rank 22 in 1935. The Japan Credit Rating Agency upgraded the credit rating of the Philippines from Triple B+ to A-, giving the signal to creditors to continue lending the Philippines billions of dollars needed to combat the ill effects of the pandemic because its debt-to-GDP ratio has been prudently kept at 30 percent pre-pandemic. These independent views about the Philippine economy make it clear that, unlike in 1987, the Philippines is in the best condition today to attract foreign direct investments if we are able to remove some of the remaining restrictions that discourage foreign investors to pour in large long-term capital into our capital-intensive industries, especially in telecommunications, infrastructures and the digital industry which includes media.
The attractiveness of any country to foreign investors is a result of a combination of several factors, i.e. the quantity and quality of its human resources, the ease of doing business, the size of its domestic market, the quality of its institutions such as the judiciary and regulatory bodies and its tax policies. The Philippines ranks high in the quantity and quality of human resources among emerging markets. Despite repeated efforts to improve the ease of doing business through such legislation as ARCA, the country still ranks low in the ease of doing business in the East Asian region. ARCA, also known as R.A.9485, was an act to improve efficiency in the delivery of government service to the public by reducing bureaucratic red tape, preventing graft and corruption and providing penalties therefor. Nothing much has happened after the law was passed. In 2019, Stastistica still ranked the Philippines very low in ease of doing business among Southeast Asian countries, besting only Cambodia, Laos and Myanmar. Among the institutions that investors monitor very closely are those affecting the financial sector. In this regard, the Philippines ranks high as mentioned above when The Economist placed the Philippines at sixth place in financial strength, thanks to our very competent and effective central bankers and fiscal managers. Investors still complain about the unpredictability of the judiciary system, especially in the lower courts. With the imminent passing of the CREATE bill, there are prospects of improving the investment climate through the lowering of the corporate income taxes and the rationalization of investment incentives. These are the pluses and minuses of the Philippine investment climate.
There are those who argue that opening up the sectors in which foreign equity is limited may not be necessary if we can just focus on such areas as improving the ease of doing business, reforming the judiciary system and getting rid of corrupt judges, electing better local government officials who will not pose all sorts of obstacles to investments in their respective localities, and in general improving governance at all levels of the public sector. I agree that all these reforms can improve the level of FDIs over the long run. We should be realistic though in accepting the fact that these reforms can be achieved only over the long run in an imperfect democracy like the Philippines. Meanwhile, we need long-term capital very badly in public utilities, infrastructures, the components of Industrial Revolution 4.0 (which includes media that is intricately integrated with telecom and the IT sector) and higher education. I contend that even if in the next five to ten years, we are still unable to significantly remove red tape, corruption, poor governance and other institutional and cultural obstacles to foreign investments, by removing the foreign equity restrictions in these vital sectors, we will be able to attract larger amounts of foreign direct investments because these are sectors that offer very attractive rates of return in the Philippine economy over the next decade or so. The larger the equity participation of the foreign investors, the greater their incentive to invest in the Philippines, even if they still have to face an imperfect investment climate due to the other negative factors cited above
The timing is very important. As mentioned above, the next decade or so will be the moment for the Philippines to shine as one of the most attractive emerging markets in the world. We must strike while the iron is hot. If we procrastinate, there will be other emerging markets in the Indo-Pacific region and elsewhere that may surpass us in attractiveness as Vietnam was able to do in 2020 when its GDP per capita reached a level higher than ours for the first time. The timing is also right because these strategic sectors can do much to increase employment opportunities and reduce poverty incidence in the medium term. The pandemic has worsened both unemployment (which has doubled) and poverty incidence (that has grown from 16.5 percent to 20 percent or more once the smoke clears after the pandemic is put under control). These considerations highlight the fact that issues like a more liberal view towards FDIs should be tackled not forever by constitutionalizing the provision but by legislation that takes into account the circumstances prevailing in any given period.
Let me stress that I am in favour of opening up these strategic sectors to more foreign equity not because I believe in untrammeled free market economics. Unrestrained free markets do not serve the common good. There should always be a strong role of the State to prevent the undesirable consequences of the absolute autonomy of the market, such as monopoly power that hurts the consumers, the inequitable distribution of income and wealth, the destruction of local enterprises by all-powerful global corporations and the employment of slave labor by multinational corporations. It is possible that ten to twenty years from now, some of these threats may loom very large in the global and domestic markets. Then, it would be necessary to have our future Legislature limit once again the foreign ownership of our strategic sectors. That is why, I find the phrase “unless otherwise specified by law” a wise legislative move. It will still be incumbent upon the legislative body to monitor what is happening to the global, regional and domestic economies and make whatever adjustments are needed in our laws to promote the common good. What is irrational is to enshrine foreign equity provisions in our fundamental law.
Let me stress the importance of attracting long-term capital from abroad in telecommunications, infrastructures, media and education. As mentioned above, despite the fact that our level of domestic savings has improved significantly in the last ten to fifteen years (from an average of 20 percent of GDP to 32 percent) these savings do not support long-term capital. Fortunately, our Government has been very prudent over the last decade or so in keeping our debt-to-GDP ratio at very manageable levels of 30 to 40 percent. Now that there is a need to borrow billions of dollars to address the double problem of the pandemic and the economic slowdown, our Government has a lot of elbow room to obtain more credit without endangering our financial stability. These borrowings will be used for expenses related to the pandemic and to continue the Build, Build, Build program as well as to spend higher percentages of the annual budget on education and health. There is need, however, to get the private sector to complement the government efforts in improving our infrastructures by spending heavily in telecom, airports, tollways and educational institutions for the reskilling and upskilling of our human resources. Domestic capital is grossly inadequate for the necessary levels of investments in these strategic sectors.
We don’t want a repeat of the disaster of the PIATCO case in the building of the Manila International Airport. The long delay in its completion would have been avoided if the German investors were allowed to own the majority share in the project so that they did not have to tolerate as partner a Filipino consortium that was plagued with corruption. A more recent example of how allowing greater equity participation in the building of an airport can redound to the common good is the Megawide case. Megawide, with a foreign partner, built one of the best international airports in Mactan, Cebu. Now its desire to replicate this success story in the rehabilitation of the Manila International Airport has been frustrated by the issue of foreign equity participation. It does not really matter if the Manila International Airport is rebuilt by an enterprise with a foreign group having majority share as long as the group can deliver a world-class international airport. There are literally dozens of airports all over the country that we have to improve over the next decade or so. Tourism, which has the largest multiplier effect on employment, has the greatest potential for growth in the next decade or so, especially as international tourism recovers. Meanwhile, domestic tourism will recover first. We need to invest heavily in airports. We should be thankful that Ramon Ang of San Miguel Corporation is bullish in constructing the Bulacan International Airport. But he is one in a million among Filipino investors. We need very badly foreign participation. Our Northeast Asian neighbours, i.e. Japan, South Korea and Taiwan are looking for opportunities to invest their surplus long-term capital in infrastructures like airports, railroads, and subways in which they possess the greatest technical competence to construct and manage. We should seize the opportunities now and in the next decade or so. Already the Japanese are helping us in constructing the railroad from Clark to Bulacan and one of the subway systems in Metro Manila. All these can be much facilitated if we allow greater equity participation of foreign direct investors in these vital facilities.
It is easier said than done to first try to improve the ease of doing business as compared with our neighbors. There are some deeply ingrained cultural and political factors that militate against immediate success in these endeavours. That is why, any additional sweetener that can compensate for the difficulties of improving governance, combatting corruption, and electing more competent officials at the LGU level, should be provided. I maintain that allowing more foreign ownership in strategic industries is one such sweetener badly needed in this most crucial period of our struggle to catch up with our neighbors in becoming at least an upper-middle income economy within a decade or so. In fact, to provide a another sweetener, I would even go to the extent of allowing foreigners to own the land on which they build a factory, a residence or commercial facility. Although it is true that long-term leases are sufficient for many foreign investors in manufacturing and agribusiness, the foreign ownership of land can be a competitive advantage the Philippines can provide for some of them to compensate for our weaknesses in the ease of doing business and good governance compared with most of our peers in the East Asian region. The legislation on this will limit ownership of land to those foreign investors who contribute to the increase in the value of our real estate by actually constructing some physical structures on Philippine land. I think it is unfair to prevent foreigners from participating in the increase in the value of a piece of land resulting from their actually constructing on it. The legislation should definitely not allow an unlimited purchase of raw land for pure speculation. Foreigners can be motivated to take a long-term point of view about the Philippines if they have a stake in the ownership of land that will give them additional security and profit. It is understandable that a country like Singapore does not allow foreign ownership of land. First, they have very scarce land and second they have more than enough attractions in their investment climate like ease of doing business, good governance and a highly educated manpower base. For imperfect societies like ours, we have to think of additional “sweeteners.”
To summarize, it is wise for Congress to amend the Constitution by adding the phrase “unless otherwise specified by law” in order to give the Government enough flexibility to consider different circumstances prevailing at different stages of our road to economic development before formulating policies that should be time bound. As a member of the Philippine Constitution of 1986, I can attest to the fact that we did not stick to writing the fundamental law but, because of the emotional state in which most of us were, included in the Constitution so many minute details that are more appropriate as legislative measures. In some instances, especially in matter affecting the national economy, we wore the hat of legislators rather than drafters of the Constitution. It is about time we correct this unintended anomaly by introducing an amendment that gives the Philippine legislature the freedom to amend those time-bound laws that have been enshrined in the Philippine Constitution to the detriment of the common good of Filipinos now and in the future. For comments, my email address is