Economic Undertakings

Hard arguments for PH investments

Last week, President Duterte signed into law Republic Act 11647, which amends the Foreign Investment Act of 1991.

Among other things, the new law allows qualified foreigners to do business in the Philippines or invest in a domestic company up to 100% of its capital.

Earlier this year, the Retail Trade Liberalization Act was amended primarily to reduce the minimum registered capital required for foreign retail businesses to operate in the Philippines.

And waiting in the wings for the president’s signature is the amendment to the eight-decade-old Civil Service Act that would allow 100% foreign ownership in telecommunications, airlines and rail companies.

All of these laws are aimed at attracting more foreign investment to the Philippines to help raise the revenue needed to meet the challenges caused by COVID-19.

At a recent forum, Finance Secretary Carlos Dominguez III, citing the government’s moves to attract foreign investment, urged foreign investors “to get involved with game-changing Philippine businesses.”

In truth, with over 12 trillion pesos in national debt, 3.27 million Filipinos unemployed (as of February) and thousands of businesses closed, the country urgently needs foreign investment that can help recover from the negative economic effects of the pandemic.

A similar invitation for more foreign investment has been made by other countries in the region as they reopen their markets. This means that the Philippines is in close competition with its neighboring countries to attract foreign capital to its shores.

Past experiences have shown that liberal or investment-friendly laws are more effective in convincing foreign investors to place their capital in a country and be assured of satisfactory rewards.

The beautiful words and phrases of these laws mean nothing unless they are scrupulously observed or implemented by the government officials tasked with this task.

When foreign investors enter into a contract with a government or one of its organs, or with private national companies, they expect its terms and conditions to be strictly observed by the parties.

They will also want the parameters by which they made their investments to remain constant and not change along the way.

And that in the unlikely event that disputes in the interpretation of their contracts arise, the mechanism previously agreed to by the parties to resolve them, for example mediation or arbitration, must be respected in good faith.

Ultimately, foreign investors want (and demand) consistency, uniformity and fairness in the treatment of their investments.

A government that fails to meet these standards could find itself a pariah in international investment circles. There is no shortage of countries that would welcome investors who feel they have been roughed up on their old sites.

It is common knowledge that in recent years, several foreign investors who have accepted the invitation to invest in the Philippines, either alone or in partnership with domestic companies, have complained of abrupt changes in the terms and conditions under which they have made their investments.

These include the reduction or reduction of promised tax privileges, the forced reorganization of the management structure to supposedly comply with the “anti-fictitious” rules and the refusal to comply with the awards made in the in a duly constituted arbitration proceeding to be allegedly unreasonable.

Investors who were harmed by these incidents could only grumble silently knowing that any protest would be futile. But they won’t forget and it would be in the back of their minds for years to come.

Against this backdrop, Dominguez’s rhetoric for more foreign investment may not go down well with his target audience, despite recently enacted liberal investment laws. INQ

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