PHL: Foreign investment failure

By John Mangun / Outside The Box

THE discussions about foreign direct investment (FDI) to the Philippines are embarrassing.

The Bangko Sentral ng Pilipinas (BSP) reported that FDI inflows to the PHL between January and August 2012 were $1.025 billion. That is the amount of FDI that entered Thailand in January alone. One local newspaper wrote this headline: “Surging FDI” after the BSP noted $108 million FDI in July. Surging? Is that a joke? FDI amounting to $108 million is what Thailand brings in during three business days.

Maybe we should not compare PHL to Thailand since we are late to the FDI game. FDI to the Philippines is up an “impressive” 11 percent over 2011. Except Indonesia’s yearly FDI is up over 30 percent from 2011. Thailand’s increased 62 percent. And while PHL will book perhaps $2 billion this year, Indonesia is on track to bring in $25 billion FDI. And 20 percent of Indonesia’s $25 billion, generating 12 percent of the GDP, is in that evil, worthless industry that contributes nothing to the economy—mining.

Even Vietnam, which is experiencing an FDI downturn, off 28 percent in 2012, will still see foreign direct investment of over $8 billion before the year-end.

These numbers are a disgrace for the Filipino nation.

There are many reasons given for the PHL being the tail of the dog of foreign investment. Some will say that the problem is the presidential form of government and a parliamentary system is the answer. That might be correct. Thailand (but not Indonesia) has a parliament. I could possibly agree that a change to a parliament might be good for FDI but only if PHL also imports members of the Thai parliament and not just its form of government. It is not the system. It is the decision makers.

Some will say that the Philippines got off to a bad FDI start after the US gave up its colony and with the adoption of the Parity Rights that allowed Americans equal rights with Filipino citizens to develop and exploit natural resources and to operate public utilities.

Maybe, but Thailand has an agreement with the US called the Treaty of Amity and Economic Relations. The Amity Treaty allows Americans and American companies the right to wholly own a company in Thailand, and engage in business on the same basis as would a Thai national. These companies are also exempt from most of the restrictions on foreign investment imposed by the Foreign Business Act of 1999.

There has been a strong call from Thai nationalists to cancel the treaty. A legislative bill was presented in 2007 to do just that. You can almost hear the yearly discussions of the bill in the Thai parliament. “We really should cancel that treaty to protect Thailand’s sovereignty.” “Yeah, you’re right. But let the Americans invest another $10 billion or $20 billion before we do it.”

And it is not just the Americans. Under the free-trade agreement between Thailand and Australia, Thailand permits up to 60-percent foreign ownership in some normally completely restricted service sectors and up to 100 percent in others. Thailand permits 100-percent Australian ownership of companies providing certain construction services, 60 percent ownership of: major restaurants and hotels, mining operations, and even education institutions specializing in science and technology.

Foreign investors cannot own land in Thailand just like the Philippines. Thailand insures that critical, sensitive and industries that Thais cannot equally compete with foreigners are protected and excluded from foreigners just like in the Philippines. Thailand offers a variety of taxation and tariff incentives to foreign investors just like the Philippines. Thailand even has a 60/40 percent ownership law for normal foreign participation.

Except the Thai rules allows 60-percent foreign ownership and 40 percent for Thai nationals. And check this. Where there are reasonable grounds, the minister in charge of the Foreign Business Act may, with the approval of the cabinet, reduce the percentage of Thai national shareholding below 40 percent but not lower than 25 percent.

This is what the Thai Constitution says: “The State shall act in compliance with the economic policy as follows: [1] encouraging a free and fair economic system through market mechanism, ensuring the development of economics in sustainable fashion by repealing and refraining from the enactment of laws, rules and regulations controlling business which do not correspond with the economic necessity.” In other words, economic policy must be practical and smart and not ideologically and emotion driven.

Foreign investment is not treated as if the investors were wicked invaders coming to take over the country. Maybe that is one reason that the Philippines per capita gross domestic product is around $4,000 and Thailand’s is around $10,000.

E-mail to mangun@gmail.com, Web site is www.mangunonmarkets.com and Twitter@mangunonmarkets. PSE stock-market information and technical analysis tools provided by COL Financial Group Inc.