The Philippines continues to be among the laggards in East Asia in attracting more foreign direct investments (FDI). Data from the UN Conference on Trade and Development (UNCTAD) World Investment Report (WIR) show that our FDI inward stock, an indicator of cumulative foreign investments, was still below $90 billion in 2018 and only about 55% of that in Vietnam and Malaysia, 37% of that in Thailand. The only neighbors that we can “beat” as having lower FDI stocks are Myanmar, Cambodia, Laos, and Brunei (see Table).
Japan is not a major destination of FDI mainly because it is a major source or exporter of investments. And an important reason for the Philippines’ low attractiveness to FDI is the Constitutional restrictions, if not prohibitions, for foreign equity in many sectors and sub-sectors of the economy.
On Jan. 29, the American Chamber of Commerce of the Philippines, Inc. (AmCham) launched the first of Legislation Discussion Series, focus on Public Sector Act (PSA) Amendment, held at its office in Makati City. The speakers were Congresswoman Sharon S. Garin (Party List — AAMBIS-OWA), author and principal sponsor of HB 78, Amending PSA; National Economic and Development Authority Assistant Secretary Carlos Bernardo O. Abad Santos, and FEF Fellow Dr. Joseph Emmanuel Angeles.
The Chairman of the AmCham Legislative Committee, John Forbes, provided a good overview on why this measure is important for the Philippine economy and why the existing law, the PSA — which was enacted in 1936 (it is 84 years old) — is a hurdle to more investment liberalization and job creation.
Ms. Garin’s bill intends to limit the term “public utilities” to only three sectors — electricity transmission, electricity distribution, and water distribution and sewerage system. Thus, two sectors — telecommunications and transportation (sea, land, air) — will be liberalized to allow more participation by foreign equity.
As a regular traveller to Negros Occidental (my home province) and Iloilo (my wife’s province) at least once a year, by plane or driving by land and RORO (roll on roll off boats), I am particularly interested to see more airline competition, at least more flights by each of the three existing airlines flying to these big islands and provinces. I am also interested to see more shipping competition among boats plying the Batangas-Mindoro or Batangas-Aklan, Manila-Iloilo routes. PSA liberalization is among the few good bills in Congress.
That same week, the Philippine Competition Commission (PCC) also organized a “Forum on Competition in Developing Countries” on Jan. 30-31 at Sofitel Philippine Plaza. I attended only Day 2 and there were two key speakers, Senator Sherwin Gatchalian, then Dr. Ioannis Kokkoris, Professor of Competition Law and Economics and Dean for International for the Faculty of Humanities and Social Sciences, Queen Mary University of London, UK.
I have discussed the speech of Mr. Gatchalian in my previous column (see https://www.bworldonline.com/power-security-and-competition/). Dr. Kokkoris’ lecture I found too general and a reiteration of what many people in the audience would probably understand and advocate. Like the advantages of a competitive market over a monopoly/oligopoly market structure.
There were five reactors to his talk and all were highly knowledgeable on competition issues: Department of Trade and Industry Undersecretary for Competitiveness and Innovation Group, Rafaelita Aldaba; World Bank Senior Economist Graciela Miralles Murciego; RCBC Executive Vice-President Lito Villanueva; Indonesia Competition Commission’s Mochammad Hendry Setyawan; and University of Hong Kong’s Professor Thomas Cheng. They all have contributed specific observations on the progress or limitations of competition in their respective areas and economies. Thanks to the PCC for organizing such a big international forum.
Of course the PCC is helpless in implementing competition in sectors where government itself is the creator of monopolies and oligopolies via Congressional franchise, agency franchise, or local government units (LGUs) franchise. For example, the National Grid Corporation of the Philippines (NGCP) is the only national monopoly in the country and it was created by a Congress franchise. Airline routes are given by Civil Aeronautics Board, shipping routes are given by the Maritime Industry Authority (better known as Marina), busline or jeepney routes are given by the Land Transportation Franchising and Regulatory Board, tricycle routes are given by local government units.
A weird thing in the country now is the insistence by the Department of Health (DoH) to impose another round of drug price controls. Price and brand competition is healthy for the companies, patients, hospitals, and physicians. People are given choices whether to buy more expensive but well-known and effective brands or cheaper but lesser well-known brands and generics.
Forcing price controls — removing the higher prices for certain brands — will narrow the choices and competition to medium- to lower-price ranges. Then better-known disease-killer brands will be discouraged from selling while those that are already selling cheap will be forced to sell even cheaper and face possible bankruptcy.
Competition is better done by sellers as they receive price signals from the public, not by government bureaucracies and politicians. What products or brands to patronize are better done by the consumers, patients and their healthcare providers, not by government bureaucracies.
Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers.