Day: November 13, 2017

Fake news: ‘PH has huge restrictions on foreign investments’

A FILIPINO blogger working in Singapore has been, whether wittingly or unwittingly, badmouthing the country to the world by spreading the lie in social media that our levels of foreign direct investments have been low because our Constitution is against foreign investments.

He has also in effect spread the canard that our legal framework restricts, or will restrict, to just 40 percent foreign ownership in any industry.

I would have ignored such blabber if not for the fact that I found out that some good-intentioned netizens believing in this blogger’s fake claims. This is not unexpected: nationalism has been dying in our country, with “globalism” — “I am a global citizen” — becoming chic to believe in.

In the first place, the Constitution is categorical in its Article XII Section 10 that this “60-40 rule” (60 percent Filipino, 40 percent foreign) applies only to public utilities, i.e., power, telecommunications, transport and in Section 1, to natural-resource extraction, i.e., mining mainly.

My book Colossal Deception: How Foreigners Control Our Telecoms Sector, and my many columns since 2013 in this newspaper have indisputably shown that because we have a weak state that is under the control of oligarchs, our telecoms industry—made up of the duopoly PLDT and Globe Telecom—have managed to violate this constitutional provision, with foreigners owning more than 70 percent of these firms. The two companies have not disputed my facts.

PLDT and Globe
The biggest stockholder of PLDT is the Indonesian magnate Anthoni Salim, while in Globe it is the Singtel, owned by the Singaporean state firm Temasek Holdings. Our mining laws have become so complicated, and again because of our weak state, many mining firms are controlled through dummies by foreigners—in recent years by firms from resource-hungry China.

After I pointed this out to this blogger—I decided to later “block” him as I thought it was useless to argue with somebody who grossly misreads the Constitution—he retreated to the argument that the Constitution’s Article XII’s Section 10 was a “Damocles sword” that discourages foreign investments.

This blogger’s imagination has gone wild.

This section specifies: “Congress shall, upon recommendation of the economic and planning agency,when the national interest dictates, reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of investments.” (emphasis mine.)

That blogger is the first person ever—not even the most rabid Western neoliberal apologist—to make such a preposterous claim that this provision discourages foreign investment. The statement is merely a reminder that the Philippines is a sovereign nation, and therefore if the national interest dictates, Congress must restrict foreign capital to only 40 percent of industries vital to our security. Even without that provision, the Congress can of course decide to reserve certain industries only to their own nations. Don’t sovereign nations have such a right?

Why the reminder? Because the framers of the Constitution were educated enough to know that the US in 1955 required us to allow 100 percent American ownership in any business as a condition for us receiving post-war US assistance of $800 million. They were also experienced enough to know that our state has always been so malleable for the oligarchs to use as they please.

If, for instance, by some miracle uranium is discovered in the country, and foreigners insist through the most expensive lawyers they can hire (as they have done in the case of PLDT and Globe) that they are legally entitled to mine this rare material, Congress has the constitutional backing to pass a law requiring at least 60 percent Philippine ownership of such industry.

Kind of laws
And what kind of laws have the Congress passed since 1987?

One was a law which made it so crystal-clear that we have restrictions on foreign capital on a very small set of industries. The Foreign Investment Law of 1991 made it so categorical that other than public utilities and natural-resource exploitation, the restrictions are only mainly on such very specialized sectors (those in the so-called “negative list”) such as media, arms-making, dangerous-drugs manufacture, and enterprises such as massage clinics and cockpits and that may pose risks to “public health and morals.”

Only if some communist nut like Korea’s Kim Jong-un or Cambodia’s Pol Pot becomes dictator in our country will industries like BPOs, chip assembly, and car assembly—where most foreign investors are—be included in such a negative list. That blogger of course believes that that will happen. “Everyone knows that the regular negative-list exercise means a possible chopping board for MNCs,” that blogger wrote. “Everyone”? This guy is living in his own world.

The Retail Trade Liberalization Law of 2000 passed under President Estrada even opened up retail trade – which had long been restricted – so much to foreigners that the now-ubiquitous 7-Eleven chain stores, owned by one of Asia’s biggest conglomerates President Chain Stores, has given Filipino stores such stiff competition many have collapsed or will collapse. It is even obviously skirting that law. The law specifies that a branch of such a foreign-controlled retail company should have at least $830,000 (P42 million) in investments, so it won’t compete with the smaller Filipino mini-groceries. I haven’t been into a single 7-Eleven store that’s worth that much. However that law did bring to us such stores as Uniqlo (my favorite), Muji, Marks & Spencer, Zarah’s, and hopefully soon Ikea.

Only if your intention is to scare foreign capital away from the Philippines, as seems to be that of that Singapore-based blogger, will you claim that that Article XII, Section 10, which is simply an assertion of Congress’ responsibilities, has scared foreign investments, and therefore should be deleted from the Constitution.

What got my goat is that this blogger grossly misrepresented my views, claiming that I hate foreign multinational corporation—and that those who don’t see the Constitution’s anti-foreign investment provision are just stupid.

Greenfield
Like most rational people, I believe foreign capital would be good for the country—less for their money (with their loans guaranteed by their mother companies, most foreign companies get their capital from the local banks) but more for their technology—as long as the industries they go into will help us develop the economy.

But an in-depth study of foreign capital by Dani Rodrik (an International Monetary Fund economist and Harvard professor whose warnings, the IMF said, about the downsides of globalization proved prescient) put it: “While capital inflows definitely boost consumption, their effect on investment and growth is indeterminate, and [may]even be negative.”

The consensus among economists now is that foreign capital should be in ”greenfield” investments—or those that are built from the ground up—rather than the type that merely buys out or into an existing company, as the Indonesian Salim did in the case of PLDT and Singaporean Singtel in Globe Telecom.

However, as is the policy of nearly all countries in the world, which was wisely enshrined in our constitution, public utilities must be controlled and majority-owned by nationals, even by state firms.

That principle is really a no-brainer: Why would a state allow a foreign company, whose primordial interest is to get as much profits as they can, to operate a public utility, which is an enterprise whose primordial function is to serve essential needs of the public, and which exploits a captive market as well as a natural resource (in telecoms, the radio spectrum)?

Singapore, Japan, South Korea and China all restricted their public utilities to their nationals. Hence, Singtel, NTT, SK Telecom, and China Telecoms have become the biggest telcos on the planet. Much publicized has been Vietnam’s opening up to foreign capital—except in their telecom and power industries, which are tightly controlled and completely owned by state firms. Only when their firms have become conglomerates have they allowed these to accept minority foreign investments (as a way of getting their technology) to give foreign capital telcos a minority market (to inject more competition in the sector.)

Weak state
It is such an indictment of our weak state that the industries in which there are clear restrictions on foreign capital—telecoms and power—are those which foreigners control who continue to siphon off the country billions of dollars in profits.

Perhaps the reason why this blogger has been spreading this 60-40 lie is just to lobby for this restriction to be lifted even for public utilities. Is he working for a foreign telco?

As most economic phenomena are, our low level of foreign investments is the result of a complex of political and economic factors, and certainly not of our “restrictive” Constitution.

If we focus on fictional restrictions, we miss the real blocks to foreign investments, among them: political instability, expensive and poor telecoms facilities and power, the lack of physical and technological infrastructure; a limited and run-down highway network; an inefficient port system, and most importantly, red tape and corruption.

I’ll discuss that on Wednesday.

A teaser of sorts on this. What fans of Singapore and other Asian countries with huge levels of foreign investment don’t mention is that this island state—as well as Japan, South Korea, and Malaysia—were one-party states, for periods longer than the Marcos regime, with the usually bothersome press mostly owned and controlled by the power-holders. It has been that kind of political stability that has been so attractive to foreign capital.

Filed under: Manila Times Columns