Lessons For The Philippines: FDI is Not “Foreign Domination” But a Win-Win Two-Way Street

In The Philippines, defenders of the 1987 Constitution’s anti-foreign direct investment (FDI) restrictions often invoke hyper-nationalism to indicate that the modernising of restrictions on FDI would lead to something akin to neo-colonialism against The Philippines. Such arguments not only misrepresent the neo-colonial nature of the class of domestic oligarchs shielded from modern market competition by regressive anti-FDI rules, but such arguments also totally misrepresent the true nature of FDI.

Last year, China became the world’s largest recipient of FDI. But China is also one of the world’s largest contributors of FDI abroad. This is true throughout the Belt and Road network of partner nations in Asia, Africa and beyond.

Major Chinese investments can be seen everywhere from Africa’s poorest nations to the United States itself. Likewise, companies from throughout the world are not only trading their goods in China more than during previous generations, but they also continue to invest in the Chinese economy in the form of FDI.

Whilst China used FDI to transform itself from a place where 88% of all its citizens lived in poverty (as of the late 1970s) to one that today is on the verge of totally eliminating the last vestiges of rural poverty, China is now wealthy enough to be a major foreign direct investor in both emerging markets and developed economies throughout the world. Likewise, the United States is also both a major recipient and provider of FDI.

One of the reasons that FDI works on a win-win basis is that it allows investors to do throughout the world what in a more limited sense, they have already done locally. Based on the global nature of modern commerce, it makes sense to have many production facilities for one’s goods located throughout the world, as opposed to merely operating a single giant factory in the birth nation of any given company’s CEO. This is why General Motors makes cars in both the US, EU and China (among other places) and it is also why German and Japanese car makers own factories in North America. This is why Apple makes many of its smartphones in China and it is why Chinese companies are major investors in the United States, ASEAN, Pakistan, the EU and throughout Africa. As such, Chinese FDI has been behind the redevelopment of many erstwhile decaying urban areas in North America, just as sure as North American foreign direct investors help China to expand its internal development.

FDI is a two way street because in generating prosperity for all partners, it allows each side to turn its revenue into future FDI. As this cycle continues, more and more prosperity is generated on all sides of any particular FDI partnership. Although Singapore had little to give in terms of FDI in the 1960s, by allowing the inflow of FDI to turn Singapore into one of the world’s most prosperous countries, Singapore is today a place where businessmen continue to come and inject FDI into the economy, whilst Singaporeans likewise are major foreign direct investors in countries throughout the world.

This phenomenon is not unique to major corporations funding megaprojects – the same thing happens among individual entrepreneurs who gradually expand their businesses over time. Take for example the success story of Tony Tan Caktiong. After building up the Jollibee brand in The Philippines, he became a foreign direct investor in countries throughout the world that now have multiple Jollibee locations. The revenue he made through expanding Jollibee into an international brand (including in countries that are far wealthier than The Philippines), allowed his FDI injected into the economies in which he opened foreign locations, to come back to the Philippines where in 2012, Tony Tan Caktiong co-founded DoubleDragon Properties.

The fact that Jollibee’s foreign locations increased Tony Tan Caktiong’s revenue stream, helped him to re-inject money into his home country of The Philippines. And yet, if Tony Tan Caktiong was born in China as opposed to being born in The Philippines to parents from Fujian – he would not have had much difficultly in opening up Jollibee locations in the US, Canada, Singapore, Malaysia, Vietnam or the EU – but he would have had a much harder time in setting up DoubleDragon in The Philippines.

FDI is simply investment coming from abroad – there is nothing particularly unique or exotic about it in this sense. What is unique is that in some countries with old fashioned economic models, FDI is restricted in way that domestic investment is not. The trouble with this is that even in rich countries, anti-FDI restrictions cut one off from reaching the maximum of one’s economic potential in an ever more inter-connected world. But if one is living in an under-developed country that requires dynamic economic growth in order to lift people out of poverty, anti-FDI provisions effectively place one’s nation in an economic prison of one’s own making.

This is currently what The Philippines is – a country in need to economic development that is being held back by formal restrictions on FDI. No matter how much someone like President Duterte correctly wants to attract more FDI, until the 1987 Constitution of the country is replaced by a pro-FDI document, his options are legally limited.

A Philippines open to FDI would not result in the country losing its national identity, but instead the opposite would happen. It would allow Filipino companies to gradually make a name for themselves abroad. To put it another way, there is more than one reason why Jollibee has locations in Hong Kong but not in North Korea – FDI is certainly one of them.

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