SparQbites by: Peter Burton
Changes are coming that will allow foreigners to invest in new industries as well as owning a greater share of their business. Current regulation on foreign investment in the Philippines was introduced in 1991 by the Foreign Investment Act (FIA), which stipulated economic areas where foreign equity was permitted and to what ownership extent. The act allowed foreign investors access to many sectors but when compared to its ASEAN peers, the Philippines remained relatively restrictive in its policy. Whilst these regulations have not been too big a hurdle for multinational corporations, it has limited the ability of foreign SMEs to enter the market and capitalise on potential opportunities.
Fast forward to 2017 and the FIA act has been revised multiple times to ease these restrictions. Some changes have been significant. The creation of special economic and export zones, which allow 100% foreign ownership of businesses, has been a key contributor to economic growth over the past two decades. However, under the last administration, the FIA had been largely left untouched and change is now long overdue.
The current president is aware of this and has given his cabinet the green light to make more drastic changes. Duterte initially planned to revisit the constitution to remove regulations on foreign investment. However, this approach would require significant time to move through the government. Instead, his economics managers have promised to make changes to the list which specifies the areas that foreigners cannot invest in. Removing items from this list can be done through an executive order and would be effective immediately.
The revised Foreign Investment Negative List is due to be released in the coming weeks and Duterte’s head of economic development has stated that one of the biggest changes will be allowing up to 70% foreign equity in public utilities; previously capped at 40%. The telecommunication sector, dominated by two local providers, has been eyed as the first industry to receive significant attention from foreign competition after this revision.
Other changes to the list have not yet been indicated but given the current administration’s statements and outward appearance of wanting to attract greater foreign investment, all signs point toward a more progressive list that encourages foreign investment. This is good news for foreign companies looking to leverage on the Philippine economy and its incredible growth. SMEs in particular will benefit from further changes to the list, as they are often find it more difficult to navigate the policy environment. Combining a more relaxed investment policy with increasing ease of doing business, the market will become much more accessible to smaller firms.