Philippines: What its neighbours have done, that it hadn’t yet

WHAT THE PHILIPPINES' NEIGHBOURS HAVE DONE, THAT IT HADN’T DONE YET: Vietnam now allows 100% foreign ownership of a business in most industries — trading, IT, manufacturing and education. Malaysia has scrapped restrictions on foreigners in industries from IT consultancies, tourism and freight transportation, as well as healthcare, retail, education and professional, environmental and courier services. Thailand allows, through the treaty of Amity Company, 100% ownership. Why not the Philippines? It goes back to the 1986 Constitution, which imposes a 40% foreign ownership limit on key industries. It guarantees that the Philippines will be a laggard in attracting foreign direct investment (FDI), which has far-reaching effects on the economy. Photo shows Manila's poor residential district and squatter colonies forming the foreground for its high-rises.

3 CONSTITUTIONS: Three constitutions have effectively governed the Asian country in its history: the 1935 Commonwealth Constitution, the 1973 Constitution, and the 1986 ‘Freedom’ Constitution. The earliest organic law establishing a “Philippine Republic”, the 1899 Malolos Constitution, was never fully implemented throughout the Philippines and did not establish an internationally-recognised state, due to the Philippine–American War following its adoption. Photo shows General Aguinaldo (seated, center) and ten of the delegates to the first assembly that passed the constitution, in Barasoain Church, Malolos.

CURRENT CONSTITUTION: This is one of first published copies of the current Philippine Constitution. Only 50 copies were printed. It’s been 35 years since the 1986 Constitution was promulgated. The 1986 Charter, ratified in 1987, was written with the dialtone, telegram and legacy media in mind. Specific articles of the charter does need serious rethinking. For example, it prescribes that Filipino citizens should own 60% of “public utilities”. Moves to amend its key economic provisions are afoot, particularly Articles XII (National Economy and Patrimony), XIV (Education, Science, Technology, Arts, Culture, and Sports), and XVI (General Provisions).

PROTECTION: At the time the Constitution’s text was written (1986), the authors expressly sought to protect the “national patrimony”. But restrictions on foreign ownership of public utilities, educational institutions, media and advertising companies — are now virtually passé. Why? In the era of two-way broadband communications, the power of one-way broadcast media is gone. In the era of pandemics, a good internet connection is everything, especially for the millions of Filipino students. It’s something legacy companies have limited capacity to provide. Photo shows 10-year-old Jhay Ar Calma, who has often had to climb on to the corrugated iron roof of his home in a poor neighbourhood of Manila to get an internet signal. Up on the roof, he sits on a broken plastic basin and hopes there'll be a signal strong enough for his device.

LEAVING LOVED ONES: Some 10 million Filipinos, about 10% of the country’s population, are migrant workers. The Philippines’ lack of competitiveness are due to: foreign ownership restrictions in the Constitution itself, stipulations on management — such as regulations that nationals or residents must form a majority of the board of directors — and nationality-based restrictions on operations. The result: the Philippines today is the most foreign direct investment (FDI)-restrictive country in the Asean region. The “It’s more fun in the Philippines” tourism campaign is fine, but investors need more convincing (than fun slogans). Since the start of the pandemic, more than 1.2 million Filipinos abroad have been repatriated or have returned back to the Philippines. Many want to go away again at the earliest opportunity.

BIG DROP IN FDI: In March, the Philippine central bank reported that net foreign direct investment in the country dropped 24.6% to $6.5 billion in 2020, marking the third consecutive year of decline.

DUTERTE’S WATCH ENDS ON JUNE 2022: Duterter’s watch officially ends June 30, 2022, about 10 months away. In the Philippines, the push for “chacha”— short for “charter change” — tends to be instigated by politicians in power seeking to remove election term limits. However, any moves to skirt the constitutionally-mandated six-year limit for a president (and VP) may be seen as a Marcos-style move for self-perpetuity. Marcos ruled for 21 years, though the 1935 Constitution (amended in 1940), allowed only for a maximum of 8 years (two four-year terms). His rule ended in a military-backed “civil disobedience”, partly led by his tribal allies (Ilocanos from the north, like Juan Ponce Enrile) and Marcos’ own cousin, Army General Fidel Ramos, also an Ilocano.

TERM LIMIT: In January 2021, Philippine President Rodrigo Duterte had asked allies in the 304-seat House of Representatives — where his supporters command a “supermajority” — to begin proceedings aimed at amending the country’s 1986 Constitution.

1973 CONSTITUTION: Ferdinand Marcos, who first became president in 1965, pursued an aggressive infrastructure development funded by foreign loans. This made him wildly popular throughout his first term. He eventually became the first — and only President of the Third Philippine republic — to win a second term. The debt-fuelled spending, however, also triggered an inflationary crisis, which led to social unrest during his second term, and would eventually lead to his declaration of Martial Law in 1972. This enabled Marcos to replace the 1935 Constitution, with his own version of it — in 1973.

PROTECTION: The Philippines protects domestic industry, in part by capping foreign ownership at 40% in many fields under its 1986 Constitution and related laws. Full foreign ownership is permitted in retail, but heavy restrictions are imposed on paid-in capital and investment per store. This discourages entries. Local conglomerates, many family-owned, have grown to span industries including real estate, retail and telecoms. Despite decades of protection, and unlike Vietnam or Malaysia, the Philippines (more populous than both Asean neighbours) does not have its own indigenous car manufacturing industry besides the "jeepneys", whose engines are reconditioned hand-me-down diesel smoke belchers from Japan. Filipinos work at the assembly line of Taiwan-based Kinpo Electronics' factory in Malvar, Philippines.

CAP ON PUBLIC UTILITY OWNERSHIP: For 35 years now, the Philippines has been weighed down by the 40% constitutional limit on foreign ownership of public utilities, such as telecoms, power and water. What’s the guarantee a Filipino-majority-owned company would invest more, manage it well and render better service? Critics say the best way to improve public utilities like power, water and internet services is full competition and scrap nationality caps on investors — though with effective regulation — including penalties for poor service and monopolistic practices. Photo shows the Philippine flag being hoisted at Manila's Rizal Park.

LIMITS: The constitutional limit of 40% foreign ownership of "public utilities" such as telecommunications and energy is seen today as archaic, even toxic, given that the result is enduring suffering for millions of Filipino students having to bear with slow internet (where it’s available at all), especially in remote areas, or even in major cities, as the pandemic forced a reset torwards online learning. So, if a 40% foreign ownership-cap rule is applied to Starlink (broadband internet anywhere) to legally operate in the Philippines, for example, that would mean Elon Musk must relinquish 60% of ownership of its Philippine entity. Otherwise, any Starlink dish operating (or even beta-testing) in the country would be deemed illegal.

CAP ON PUBLIC UTILITY OWNERSHIP: Power services in many provinces in the Philippines are unreliable and expensive -- big disicentives for power-dependent industries to put up business and create local jobs. The Constitutional provision limiting foreign ownership to 40 % of power and water service companies is now proving to be a guarantee for Filipino oligarchs to continue having a stranglehold over the economy, despite the low grades of service their companies render. It cements the “Old Boy” network. How to improve utility services like power, water and internet? Proper regulation. The absence of penalties for public utilities who render poor service perpetuates poverty in the country. Photo shows a geothermal power plant in the Philippines, the world's second-biggest producer of geothermal energy.

POWER GENERATION, SERVICES: How to improve utility services? Innovation, competition, regulation and investments. Nanogrids and microgrids using hydroelectric power and other renewables are low-hanging fruits. Energy is heavily regulated in the Asian country. The provision of safe, community-based water services — with a hydroelectric power generation component — in tropical Philippines needs innovative use of capital. With foreign direct investments and fair regulations, utility services have a big room to grow. Photo shows a "big drop" utility-scale HDPE hose waiting for a string of turbines that could generate hydroelectric power for the local community.

ECONOMIC CHARTER CHANGE: On June 1, 2021, with 251 affirmative votes, 21 negative votes, and two abstentions, the Philippines' lower legislative chamber adopted Resolution of Both Houses (RBH) No. 2. The numbers meet the constitutional provision mandating three-fourths of votes from its members for the resolution to push through. On July 27, 2021, the Inter-agency Task Force on Constitutional Reforms (IATF-CORE) appealed to the Philippine Senate to start deliberating on a proposed joint resolution that will pave the way for economic reforms. The Senate has until February 2022 to pass the resolution.

ATTRACTING FOREIGN DIRECT INVESTMENTS: Filipinos face a tough choice: work at home or work overseas. But there are no jobs at home. In this pandemic, many overseas jobs have also disappeared. The so-called Resolution of Both Houses (RBH) No. 2 proposes economic amendments to the Charter in order to help the country attract more foreign capital — especially in utilities and infrastructure — create jobs for overseas Filipino workers who lost their livelihood due to the pandemic, and help the local economy recover sooner.

TEXT OF THE CONSTITUTION: The text on economic provisions of the Constitution— such as the figure of 40% foreign ownership limit on certain sectors expressly stated in an organic law — is an absolute non-negotiable, and therefore offers no leeway. Marikina congresswoman Stella Quimbo and Albay congressman Joey Salceda said removing the restrictions on foreign investors under the Constitution is a “necessary first step” to push the Philippine economy forward.

PRINCIPAL AUTHOR: The proposed charter change, authored by Speaker Lord Allan Velasco, a key Duterte ally, seeks to insert the phrase “unless otherwise provided by law” to several sections of the Constitution that restrict foreign ownership of public utilities, educational institutions, media, and advertising companies. Rep. Alfredo A. Garbin Jr., chair of the House Committee on Constitutional Amendments, said the proposals to insert the phrase “unless otherwise provided by law” in the Constitution would empower Congress to assess and evaluate prevailing economic factors before opening up certain sectors of the economy.

SPECIFIC AMENDMENTS: “It will contribute to our local economy, will bring in long-term capital that will significantly increase job opportunities sa ating mga kababayan (for our countrymen) and most importantly the technology transfer,” Rep. Alfredo Garbin Jr., chairperson of the House Committee on Constitutional Amendments. He said the foreign ownership limits on business enterprises, including public utilities, education, advertising — ultimately erodes the country’s competitive advantage. This creates a mismatch for its abundant supply of manpower, who are then forced to find opportunities overseas.

RESOLUTION OF BOTH HOUSES 2: Rep. Garbin said the “beauty” of the proposed amendments is that “Congress may reduce, remove or even restore the economic restriction as may be called by the prevailing circumstances.” The Constitution’s current restrictions preclude discussions of this nature, but under the proposed amendments in RBH 2, details with regard to opening the economy “would still be subject to constitutional procedure for legislation, which requires consultations, extensive deliberations and voting and the subsequent action of Congress,” Garbin explained. On May 26, 2021, the House approved RBH 2 on Second Reading. On June 1, the House adopted on third and final reading RBH 2.

PLEBISCITE IN 2022: Following the passage of the House of Representatives of the Resolution of Both Houses (RHB) No. 2, Albay Rep. Joey Salceda, one of the sponsors of the resolution, said there is time to complete the legislative process in the proposal “in time for plebiscite in 2022.” Rep. Salceda renewed calls for the Senate to pass its own counterpart measure. “RBH 2 is pure economic reform. We know and understand that any political charter change will be dead on arrival,” Salceda said.

CHANGES TO BE VOTED IN A PLEBISCITE: Philippine Senate President Tito Sotto said if the Senate approves it soon, it may have to wait until a plebiscite is held simultaneously with the 2022 elections. He favours amendments to key economic measures, which the Senate plans to prioritise when its sessions resume.

EMPOWERING REGIONS: The original campaign promise of Duterte is to set up a federal type of government in the Philippines, turning the administrative regions into states with their own economic policies. This is not going to happen now. For his part, Senator Sotto said that instead of creating regional governments under a federal setup, he proposes an alternative — a budget reform drive to decentralise funds to the provinces, municipalities, cities, and even barangays — which would not require an overhaul of the Constitution. Photo shows an impoverished fishing village in the Philippines.

DUTERTE’S FEDERALISM PROMISE NOW DEAD: Duterte won with a massive lead (16 million votes) in 2016 on a platform of anti-drugs, anti-corruption and a push for federalism. The latter would require the amendment of the Constitution. But in the past five years, Duterte has never made this into a priority agenda. It was only in January 2021 when concrete proposals for charter change began to be deliberated in Congress. It drew massive pushback from anti-chacha camp — who fear it may lead to the removal of the constitutional ban on foreign bases, nuclear weapons, the prohibition of political dynasties, and the insertion of the word “responsible” in the Bill of Rights, which guarantees freedom of speech and expression. Restricting charter change to economic provisions, on the other hand, would be a far easier sell to either side of the political fence.