Removal of charter’s curbs on FDI seen adding upside to PHL growth

THE proposed removal of foreign ownership curbs in the Constitution’s economic provisions will provide a measure of upside to the Philippines’ growth outlook, Fitch Solutions said.

“While it is still early days in the process, any pro-business changes to the Philippines’ business environment would pose upside risks to our long-term growth forecast for the Philippines and in particular to investment,” it said in a commentary on Thursday.

On Monday, the House of Representatives approved a resolution seeking to amend economic provisions of the 1987 Constitution.

Fitch Solutions noted in particular the significance of removing restrictions on foreign direct investment (FDI).

“Historically, fixed capital formation accounted for an average of about 23% of gross domestic product (GDP) from 2005 to 2022, and changes to legislation could see this ratio rise by several percentage points over the longer term,” it said.

“As such, it would also pose upside risks to our average real GDP growth of 6.6% over the coming decade,” it added.

The government’s commitment to ramping up investment and implementing economic reforms to ease the entry of FDI will also boost growth, Fitch Solutions said.

“The current Marcos administration has also been proactive in wooing investment to the country and this, alongside the creation of a sovereign wealth fund, will also help to boost domestic investment,” it said.

“We expect the administration to continue to enact pro-investment reforms over the coming quarters, especially as the President has reaffirmed his ambitions plans to make the Philippines a prime destination for foreign investors,” it added.

However, analysts said that the revision of the Constitution is not the main issue hindering FDI.

“New legislation can help attract even more FDI; however, we believe laws and incentives can only do so much to bolster the country’s competitiveness as an investor destination. Improved efficiencies in production and transportation are some that come to mind; an upgrade to skills is another. Cheaper power is another avenue that will figure into any investment decision,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message. 

Terry L. Ridon, a public investment analyst and convenor of think tank InfraWatch PH, said legislation like the Public Service Act has already addressed foreign ownership curbs.

“Our economic maladies had never been because of economic limitations in the 1987 Constitution. It has always been because of continuing governance issues at all levels of government,” he said in an e-mail.

Mr. Ridon said that specific economic policy should “not be enshrined in an amended constitution to allow succeeding governments to craft policies which fit changing economic conditions in the future.”

“Specific economic policy should be left to both the executive and legislature to determine whether as law or regulation, as this provides the government the agility to respond to economic shifts,” he said.

“General economic policy in an amended constitution should only define the state’s strategic economic objectives, such as sustainable development, poverty alleviation, job generation, national wealth creation, and ESG (environmental, social and governance) commitments, among others,” he added.

The central bank estimates that FDI fell 13.4% to $8.43 billion in the 11 months to November. — Luisa Maria Jacinta C. Jocson