Gov’t urged to relax foreign ownership rule

An official of the Asian Development Bank (ADB) has urged the Aquino administration to relax foreign ownership rules as this will help the country attract bigger foreign direct investments (FDIs).

Jayant Menon, lead economist from the office of regional economic integration at the ADB, noted that the Philippines would need to think seriously now about opening up more sectors to foreign direct investments and the entry of skilled labor to the country.

“There’s still a bit of protectionist overtone in the current Constitution which was born at a time when things were different. The Philippines has now come a long way and could seriously look at reforms that could be of benefit to the country,” Menon yesterday said on the sidelines of the 11th MAP International CEO Conference 2013.

There is a provision under the 1987 Constitution that limits foreign ownership of a business in the Philippines at 40 percent. This limit is among those seen as an obstacle to a healthy inflow of FDIs, which reached only $2 billion last year, reportedly marginal against the more than $20 billion in FDIs in Indonesia.

There has also been numerous calls from various business groups to ease this foreign ownership limit but the government has yet to act on these proposals and recommendations.

Meanwhile, Menon urged the government to institute more reforms that could further improve political stability and governance to make Philippine businesses more competitive amid the expected influx of foreign competition with the planned integration of Asean economies by December 2015.

He likewise cited the need to further reduce red tape, improve infrastructure and connectivity and to further bring down the cost of doing business in the country, which was still perceived as high. Although this cost is going down, competing countries like Malaysia and Thailand have an advantage given the huge investments made on infrastructure and other key facets over the past decades.

Although the country enjoys being the top destination for services, specifically for the IT-business process outsourcing sector, Menon also urged the Philippines to develop its manufacturing and agriculture industries, which are expected to generate value-added jobs for the country’s big workforce.

“I think the Philippines really has competitive advantage in terms of high-skilled services at low cost. It has high-skill level and competitive wage and we’ve seen that with the BPO industry. Now the challenge is to spread out from just the BPO sector to other related services and industries,” Menon explained. “At the end of the day, I think you cannot ignore manufacturing and agriculture. The Philippines is a populous country and to absorb the labor force into productive employment, manufacturing and agriculture will have to play major roles.”