One of the benefits of amending the economic provisions of the Constitution, as contained in Resolution of Both Houses (RBH) No. 2, now under deliberations in Congress, is that it will “attract more foreign investments and create jobs here in the Philippines, instead of sending our labor force abroad.”
House Ways and Means Committee chair, Albay Rep. Joey Sarte Salceda pointed this out, stressing that the deliberations on the proposed economic Charter Change (Cha-cha) underway now in Congress “is always the right time to do the right thing.” The measure is being pushed and supported by majority of the members of Congress.
“We have lost hundreds of billions of pesos in foregone revenue for tax incentives, when we have not tried a simpler and cheaper solution: opening industries in need of foreign capital to foreign investment through legislative action,” Salceda said in a recent hearing of the House constitutional amendments panel on RBH No. 2.
He said the amendments will lift the economic restrictions that have limited the inflow of foreign investments into the country. If approved this year, the country is projected to immediately take in foreign direct investments (FDI) amounting to P211.21 billion, a 0.55% increase in the country’s gross domestic product (GDP), and generate more or less 422,470 jobs by 2022.
“The Philippines is among the world’s most restrictive countries to FDI, according to the 2018 Organization for Economic Co-operation and Development (OECD) FDI’s stimulus index,” Salceda noted, adding that in 2018, it had an FDI Index (OECD FDI Regulatory Restrictiveness Index) of 0.374, the most restrictive of all the countries measured that year.
With the current economic provisions of the Constitution in place, he said the country “has locked itself out of significant foreign investments, and therefore job creation,” he added. Among the ASEAN countries, the Philippines emerged as the most restrictive economy in the 2018 FDI Index. Singapore was the least restrictive, with a total FDI Index score of 0.048, followed by Cambodia (0.054), Myanmar (0.117), Vietnam (0.130), Brunei (0.146), Laos (0.190), Malaysia (0.252), Thailand (0.268), and Indonesia (0.345). The FDI Index measures statutory restrictions on foreign direct investment across 22 economic sectors.
The OECD FDI Index gauges the restrictiveness of a country’s FDI rules by examining four principal types of FDI restrictions: 1) Foreign equity limitations; 2) Discriminatory screening/approval mechanisms; 3) Restrictions on employment of foreigners as key personnel; and 4) Other operational restrictions, e.g. restrictions on branching and on capital repatriation or on land ownership by foreign-owned enterprises.
The restrictions are evaluated on a 0 (open) to 1 (closed) scale. The overall indesx of restrictiveness is the average of sectoral scores. Salceda –– a respected economist voted by foreign fund managers in Asiamoney’s annual survey as Best Analyst in 1995 and Best Economist for four consecutive years from 1993 to 1996 –– pointed out that RBH 2 “will have a more positive impact on the economy than the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act,” which he himself authored.
He has quantified the impact of lifting the Charter’ economic restrictions using a dynamic “stochastic general equilibrium (DSGE) model” – a method in macro-economics that attempts to explain economic phenomena, such as economic growth and business cycles, and the effects of economic policy through econometric models based on applied general equilibrium theory and microeconomic principles.
If RBH No. 2 is passed in 2021, Salceda projects that by 2022. an increase in FDI of P211.21 billion, a 0.55% increase in the country’s gross domestic product, and the potential generation of 422,470 jobs. Over a 10-year period, from 2021 to 2031, he expects an annual average increase of P330.45 billion in FDI, 1.86% increase in GDP increase, and 660,897 new jobs.