Thinking Beyond Politics

For two straight quarters, the Philippine economy has not grown as projected by its economic managers. The 5.5% gross domestic product growth in the second quarter of the year is considered the lowest in the past 17 quarters. This should be a wake-up call for lawmakers and economic managers; we are in “challenging times,” as economic planning secretary Ernesto Pernia put it.

The combined effect of El Niño, the increasing protectionism in advanced economies, and the election ban on construction activities have been among the major factors that pulled growth rates down.

The last three years of this administration are crucial to set “clear rules of the game.” The business sector, including foreign investors, is looking for concrete actions from the government to swiftly implement economic reforms. Clarity, consistency, and transparency of policies are needed to encourage more local and foreign investors to infuse more capital into the economy.

The latest figures from the Bangko Sentral ng Pilipinas show foreign direct investments net inflows declined by 85.1% from $1.6 billion posted in May 2018 to only $242 million in May 2019.

The Organization for Economic Cooperation and Development (OECD) 2018 Foreign Direct Investment Regulatory Restrictiveness Index listed the Philippines as one of the most restrictive countries when it comes to FDI rules.

The start of the 18th Congress offers a fresh start and vast opportunities for this administration to push forward a reform agenda to ensure the growth momentum would not be derailed or reversed.

We urge our legislators to give priority to the passage of economic reform measures to reduce constraints affecting the country’s entrepreneurs and potential foreign investors, improve market competition, and simplify regulation for trade and investments.

However, we also hope policy makers would re-examine the implications of the removal of fiscal incentives for foreign and local businesses, including those registered under investment promotion agencies like the Philippine Economic Zone Authority. We cannot ignore the concerns of different foreign chambers that such a measure may have negative impacts on investments and job creation.

In President Rodrigo R. Duterte’s fourth State of the Nation Address, he mentioned a number of measures he wants the Senate and House of Representatives to focus on. He asked Congress to pass the remaining tax reform packages to help the government maintain its fiscal stability.

He reiterated some of his old proposals, including the reinstitution of the death penalty for drug offenders and plunderers, and the creation of a Department of Overseas Filipinos and a Department of Disaster Resilience.

Yet, the president did not include in his priorities economic measures certified urgent in the 17th Congress. These include amendments to the Public Services Act, the Foreign Investment Act of 1991, and the Trade Retail Liberalization Act.

Amendments to the Public Services Act are expected to pave the way for the liberalization of investments in utilities, as the current law prohibits majority ownership by foreign entities in public utilities. Amendments to the Retail Trade Liberalization Law seek to do away with barriers to foreign investments by easing the equity and capitalization requirements to create a more favorable investment climate in the country; they should improve investments in the manufacturing sector, including small- and medium-sized enterprises (SMEs). Meanwhile, the National Economic and Development Authority seeks to modify the Foreign Investment Act to reduce the threshold for businesses investing $100,000 in SMEs to 15 direct employees from the 50 employees currently mandated, and to exclude the “practice of professions” from the coverage of the law.

In addition, the legislative agenda will not be complete without the reinvigoration of the overall agriculture sector. Agricultural development has always been the foundation of sustainable and inclusive growth. The country cannot provide a safe and comfortable life to Filipinos if it cannot strengthen its agricultural sector and reduce its vulnerabilities especially in times of natural disasters and oil prices.

Economic reforms should be the center of the legislative agenda of the 18th Congress. Our thrust for the next three years should be to create a vibrant economic and investment climate that preserves business and consumer confidence, creates jobs, and promotes inclusive development.

Without a sound and clear legislative agenda anchored on strong economic reforms that aim to increase the country’s overall productivity, we cannot achieve our vision of becoming a prosperous society free of poverty by 2040.


Prof. Victor Andres “Dindo” C. Manhit is the founder and Managing Director, Stratbase Groupe And President of Stratbase ADR Institute.