It is Now Clear That a Federal-Parliamentary Philippines Requires a “Ministry For FDI”

The recent water crisis in Metro Manila makes several things immediately clear.

1. Many existing domestic utility companies are not fit for purpose.

2. Constitutional prohibitions on substantial foreign ownership of utilities has held back infrastructural progress in The Philippines.

3. A lack of regional development outside of Metro Manila has caused an overpopulated capital area to put unnatural pressure on existing resources (irrespective of their initial quality) – hence the need for federalism.

4. The country needs systematic reform which would include the creation of a Ministry For Foreign Direct Investment (FDI).

This last point is in many respects, the most important:

In most countries, a finance ministry or trade ministry will be responsible for handling issues concerning FDI. In time, the same could happen in The Philippines, but recent discussions over foreign loans regarding the Kaliwa Dam make it clear that both governmental departments and those scrutinising various foreign loan agreements are not sufficiently versed in the underlying concepts of FDI and foreign loan agreements to have a properly circumscribed view of the situation. Key points are missing from the debate.

First of all, if 100% or near 100% foreign ownership was allowed in major infrastructure or utility projects, the country wouldn’t necessarily be discussing loans but would be discussing investment. Why should The Philippines take out a loan for further projects that may not even be able to be managed properly at a local level, when instead, The Philippines could tender investment bids for companies looking to make long term profits in The Philippines, all the while paying taxes locally.

Beyond this, further steps must be taken in order to stabilise how The Philippines deals with foreign investment.

Even in instances where loans are necessary, rather than worry about additional “consultancy fees”, the country ought to have a government Ministry For FDI. This Ministry would be comprised of an FDI Minister drawn from the (hypothetical) parliament whose Ministry will include both domestic expert appointees as well as full and part time foreign consultants who are experts on foreign direct investment.

Finally, The Ministry For FDI would effectively run internal due diligence (the proper word for consultancy in this instance) on all prospective loans as ultimately, only the recipient of a loan knows how realistic the terms of a loan will ultimately be. Here, foreign experts can help pour realism on occasionally over excited domestic heads.

If governmental bodies responsible for the nation’s taxation system, bilateral trade deals and fiscal policies already have their hands full, it is unrealistic to think that these same people can adequately address matters to do with FDI – matters that under a reformed constitution, will be of great concern both to the Filipino people and to foreign businesses.

As such, not only would a Ministry For FDI explore, promote and scrutinise all foreign investment and also loan deals, but the Ministry would also provide 24/7 lines of communication open to foreign investors who are interested in doing business in The Philippines, interested in expanding an existing business in The Philippines or have questions regarding domestic tax laws or matters involving visas for foreign workers on specific projects. Furthermore, the Minister would report weekly to parliament for a question and answer session about the latest issues concerning FDI in The Philippines.

This is clearly the way forward. Of course, all of this is contingent on constitutional reforms which will remove existing and convoluted FDI laws which chase out good FDI for bad. Additionally, all of these suggestions are likewise predicated on the existence of a federal-parliamentary system that can handle the creation of a new transparent and democratically accountable ministry, as opposed to an unaccountable and un-elected department in the bloated presidential system.

If these baseline reforms do not happen, there is no point in even considering further reforms. This should not be read pessimistically but should be understood as an example of why major reforms are needed and needed immediately.

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