The Philippines eased restrictions Monday to allow 100% or full foreign ownership of airline, telecommunications, mass media, railways, and logistical or shipping operators, as it seeks to boost jobs and spur activity in the virus-hit economy.
The archipelago nation of 110 million has long struggled to attract foreign money, as red-tape, corruption and political uncertainty scared off investors who instead pumped billions of dollars into neighbouring nations.
The amendments to the 85-year-old Public Service Act are the latest effort to woo foreign investment and increase competition in sectors long dominated by a few local players.
“I believe that with this law, the easing of foreign equity restrictions will attract more global investors, modernize several sectors of public service and improve the delivery of essential services,” outgoing President Rodrigo Duterte said as he signed off on the changes.
Republic Act 11659 amended the 85-year old PSA and identified the following as public utilities, which are subject to a 40 percent foreign equity cap.
• Distribution of electricity
• Transmission of electricity
• Petroleum and petroleum products pipeline transmission systems
• Water pipeline distribution systems and wastewater pipeline systems, including sewage pipelines
• Seaports
• Public utility vehicles
• Any industry not included in the list will remain as public services and will be liberalized, the measure said.
Prior to the amendment, foreigners were restricted from full ownership of companies considered to be public utilities, which include telecommunications firms.
Analysts say this has stunted investment in telcos and resulted in a duopoly that is disadvantageous to consumers.
The new law reclassifies mass media, telecommunications, railways, airlines, and logistical facilities as public services from their previous classification as public utilities.
Under the 1987 Constitution, foreigners may only own up to 40 percent of public utilities.
“Indeed, the enactment of this amended law, as well as the amended Foreign Investments Act, will help stimulate the economy, especially for local businesses,” Duterte added.
“It is also expected to generate more jobs for Filipinos, improve basic services for Filipino consumers and allow for the exchange of skills and technology with the country’s foreign partners,” he said.
House Ways and Means panel chairperson Joey Salceda, the law’s principal author, said it was the closest that the country had been to overcoming the “growth overhang caused by the 1987 Constitution’s foreign equity restrictions.”
“It cures our self-inflicted FDI (Foreign Direct Investment) limits. No one told us public services are necessarily public utilities. We just assumed that they meant the same thing, so we imposed foreign equity restrictions on a broad swathe of services in need of capital,” Salceda said in a statement.
Trade Secretary Ramon Lopez said foreign equity restrictions would be “eased out” in several sectors, including telecommunications, shipping, airlines, railway, and subways.
The amendments do not apply to sectors classified as public utilities, such as water and electricity distribution, where foreign equity remains capped at 40 percent.
The President retains the power to block a proposed foreign takeover of a public service.
Experts welcomed the relaxation but cautioned more needed to be done to boost confidence in the country’s investment environment.
“Opening the door does not necessarily mean they will all enter, because it will depend on their review on the feasibility of coming in,” said Alvin Ang, an economics professor at Ateneo de Manila University.
“They might ask for something else, so that may require fixing or renovating … that could be ease of doing business, that could be governance, that could be regulatory capacity, that could be quality of support.”
A 2020 index published by the Organisation for Economic Cooperation and Development shows the Philippines has some of the most restrictive foreign direct investment rules in the world.
The Philippines ranked 95 out of 190 countries in the World Bank’s “Doing Business 2020” report.
“In itself, it’s good, but then you also have to consider other factors that will affect investment sentiment,” said Filomeno Sta. Ana, executive director of Action for Economic Reforms.
“The outcome of the 2022 elections will be very critical in shaping investments and the economy. If we can get a good leader, interventions like the Public Service Act will provide an additional boost to investor sentiment optimism.”
Filipinos are set to elect a new president on May 9.
In recent months, the Philippines has lowered barriers to foreign investment in other business sectors as the country tries to revive an economy devastated by the coronavirus pandemic.