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MANILA, Philippines — Is the 1987 Constitution really restrictive that it has prevented the economy from reaching its full potential? Yes, according to proponents of changing it.
“It is imperative that we adapt our constitutional framework to the evolving global economic landscape,” said Speaker Martin Romualdez.
Romualdez, stressing the need to “address the long-standing barriers that have, to some extent, hindered our nation’s progress,” said that the amendments proposed are necessary to foster a more competitive, inclusive, and robust economic environment, especially through foreign direct investments (FDIs), which create jobs.
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This, as Albay Rep. Joey Salceda said that changing some of the economic provisions of the almost 37-year-old Charter is critical in improving investors’ confidence, pointing out that lifting the “unnecessary restrictions” in the Constitution is needed so that investors can have certainty.
But for economist Sonny Africa, executive director of the think tank Ibon Foundation, “looking at overall foreign investment regimes, many of the economic proponents of Charter change (Cha-cha) are “misinformed” since the Philippines “already has one of the most open in the region.”
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This, especially with the passage of laws allowing the full entry of foreign banks through Republic Act (RA) No. 10641 and amending the Public Service Act, through RA No. 11659, and the Department of Energy (DOE) circular amending the Internal Rules and Regulations (IRR) of RA No. 9513, or the Renewable Energy Act.
As pointed out by Africa, it is not appropriate to say that the Philippines is economically restrictive by just looking at the Constitution, stressing that prevailing laws and practices should also be considered. “A restriction is a restriction for a prospective foreign investor whether it’s in the country’s Charter or just legislated,” he told INQUIRER.net.
Yes, the Philippines’ 1987 Constitution is so detailed that in Section 19 of Article II, it was stated that “the State shall develop a self-reliant and independent national economy effectively controlled by Filipinos.” As provided, no utility franchise may be granted except to Filipinos or to corporations that are 60 percent Filipino-owned.
But as Africa stressed, even with this, the Philippines has already become one of the least restrictive economies in the region, especially to investments by non-Filipinos, after the passage of these laws and regulations:
GRAPHIC Ed Lustan
Based on forecasts by the Asian Development Bank, the Philippines is expected to have a gross domestic product growth of 6.2 percent this year, among the fastest in Asia.
Back in 2021, the Department of Finance said that “the restrictive economic conditions of our Constitution explain why, over the past three decades, the Philippines has received vastly [fewer] FDIs than our Asean neighbors.”
It pointed out that from 2015 to 2019, based on data from the World Bank, the Philippines ranked seventh out of 10 countries in Asean in relation to average FDI inflows to GDP ratio.
GRAPHIC Ed Lustan
Based on the latest data from the United Nations Conference on Trade and Development (UNCTAD), the Philippines ranked sixth out of 11 in 2022 with $9.200 million in FDIs. As stressed by the Department of Trade and Industry last year, the government’s goal is for the Philippines to have the second-highest FDI in Southeast Asia in 2028, the end of the Ferdinand Marcos Jr. presidency.
READ: PH lags behind Asian peers in foreign investments
UNCTAD said Southeast Asia had $222.568 billion in FDIs, with Singapore having the highest at $141.211 billion. Next to Singapore were Indonesia ($21.968 billion), Vietnam ($17.900 billion), Malaysia ($16.940 billion), and Thailand ($10.034 billion).
Out of the 11 countries on the list, the Philippines only came ahead of Cambodia ($3.579 billion), Myanmar ($1.239 billion), Laos ($528 billion), Timor-Leste ($262 billion), and Brunei Darussalam ($292 billion).
But does this automatically mean that Singapore, Indonesia, Vietnam, Malaysia, and Thailand are less restrictive than the Philippines and the rest of Southeast Asia? While their constitutions might not be as detailed as the Philippines on investments by non-citizens, their laws and regulations indicate conditions and limitations to FDIs, too.
Based on Article 21 of Act No. 5 of 1960, which laid down Indonesia’s basic regulations on agrarian principles, only an Indonesian citizen may have rights of ownership of land, so as explained by the website letsmoveindonesia.com, while foreigners can own landed properties such as houses and villas, they are not permitted to own land directly.
As stated on the website mondaq.com, a non-Malaysian who intends to buy property is required to seek consent from the State Authority since Section 433B of the National Land Code of 1965 provided that “non-citizens and foreign companies may acquire, etc., land only with approval of State Authority.”
The law firm Respicio & Co. explained that the Constitution and Act No. 2874, or the Public Land Act, prohibit foreign individuals from owning land in the Philippines. It said that only Filipinos or corporations or partnerships wherein at least 60 percent of their capital stock is owned by Filipinos can acquire and own land.
Since 1973, Singapore has been imposing restrictions on foreign ownership of private residential properties, including vacant residential land, the Baker McKenzie’s Global Real Estate Practice Group said, explaining that foreigners may not acquire restricted residential properties without getting approval from the Minister of Law. There are no restrictions on any land, house, or building that is “zoned or permitted to be used for industrial or commercial purposes.”
As explained on the website thailandlawonline.com, only Thais are allowed to own land, and non-citizens may not own land unless there is a treaty or exemption, as stated in Sections 86 and 96 bis of the Land Code Act, respectively. It is provided in Section 96 bis that a qualified foreigner may own up to 1,600 square meters.
The Asean Briefing said that Indonesia’s Presidential Regulation (PR) No. 10 of 2021, as amended to PR No. 49 of 2021 “liberalizes many business sectors—over 200—for foreign investment. The said regulation, which is called the Positive Investment List, classifies businesses into four categories, with one completely open to foreign investment.
Some of the business fields that are 100 percent open to investment by non-citizens are oil and gas construction, electricity generation telecommunication, airport and support services, pharmaceuticals, hospitals, maritime cargo handling, construction and electricity installation, oil and gas well maintenance service, e-commerce, and ports. Most transportation activities, including domestic passenger liners and tramps, are limited to a maximum foreign capital ownership of 49 percent.
As stated in an article by Baker & McKenzie International, in 2009, Malaysia announced the liberalization of some restrictions on foreign investments, especially in the services industry.
Then in 2011, 17 service sub-sectors were liberalized, too, including private hospitals, medical and dental specialists, architectural, engineering, legal, accounting (including auditing) and taxation, courier services, telecommunications (except for the category of content application service provider license), education (including private universities, international schools, technical and vocational schools, and skills training centers), as well as departmental and specialty stores.
Since 2023, after the release of the IRR for the amendments to the Public Service Act, select sectors such as railways, airports, expressways, and telecommunications have been open to 100 percent foreign ownership, the Asean Briefing said. Previously, these sectors were limited to 40 percent foreign control, as stated in the Constitution.
Electricity distribution and transmission, seaports, water pipeline distribution and sewerage, and public utility vehicles are still covered by the 40 percent limit, with the Asean Briefing saying that “these systems are deemed vital and would have a debilitating impact on national security if they were incapacitated or destroyed.”
As explained by the website belaws.com, if foreigners own more than 49 percent of shares in a company, they must obtain a Foreign Business License so that they can be permitted to engage in restricted activities stated in Thailand’s Foreign Business Act: (1) businesses not permitted for foreigners to operate because of special reasons; (2) businesses related to national safety or security, or affecting arts and culture, traditional and folk handicraft, or natural resources and environment; and (3) businesses which Thai nationals are not yet ready to compete with foreigners.
It was stated, however, that companies eligible for a Board of Investment promotion can obtain a Foreign Business Certificate to engage in activities restricted by the Foreign Business Act as 100 percent foreign-owned companies. Registration through the Treaty of Amity can be a way, too, to own a business in Thailand.
It was pointed out in the Economic Freedom Index that the trade regime in Singapore is competitive. “The law treats foreign and domestic businesses equally, and almost all sectors of the economy are open to 100 percent foreign ownership, except for those critical for national security, such as telecommunications, broadcasting, domestic news media, financial services, legal and accounting services, ports, airports, and property ownership, where restrictions are implemented.
Print publications, based on the Positive Investment List, can have a maximum of 49 percent foreign capital ownership “for business development and expansion,” while private broadcasting agencies can only have up to 20 percent foreign capital ownership, the Asean Briefing said.
Section 11, Article XVI of the Constitution states that the ownership of mass media shall be limited to citizens of the Philippines or corporations, cooperatives, associations, and entities organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens, provided that its management shall be exclusive only to citizens of the Philippines.
As stated in Thailand’s Foreign Business Act, newspaper business and radio broadcasting station or radio/television business are part of List 1, or “businesses that foreigners are not permitted to engage in for special reasons.” It is stated in their constitution that “the owner of a newspaper or other mass media shall be a Thai national.”
Media is considered critical for national security in Singapore, as stated by the Asean Briefing, so it is part of the list of sectors where restrictions are set, especially on foreign ownership.
Africa stressed that the Constitution is not the binding constraint to progress: “The problem is that economic policy does not have a vision for national industrialization and is fettered by obsolete free market globalization dogma.”
GRAPHIC Ed Lustan
As one of the framers of the 1987 Constitution, Christian Monsod, lawyer and former chairman of the Commission on Elections, said, it is the investment climate, not the Constitution, that has to be changed.
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Based on data from Transparency International’s 2022 Corruption Perceptions Index, most countries “are failing to stop corruption,” with the Philippines ranking 116th out of 180 after scoring only 33 out of 100.
GRAPHIC Ed Lustan
The index listed 180 economies worldwide by their perceived levels of public sector corruption, scoring on a scale of 0 (highly corrupt) to 100 (very clean).
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All over Southeast Asia, meanwhile, the consumer data company Statista said that in 2020, Singapore got the highest score in ease of doing business with 86.2 percent, while the Philippines, out of 10 countries, was seventh with a score of 62.8 percent.
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