SPONSORSHIP SPEECH
Senate Bill No. 2227 under Committee Report No. 669

AN ACT AMENDING REPUBLIC ACT NO. 7042, OTHERWISE KNOWN AS THE FOREIGN INVESTMENTS ACT OF 1991, AS AMENDED BY REPUBLIC ACT NO. 8179, AND FOR OTHER PURPOSES

May 22, 2019 at 3 o'clock in the afternoon Session Hall, Senate of the Philippines

Delivered by HON. WIN GATCHALIAN, Senator of the Republic

Mr. President, my honorable peers in the Senate, good afternoon.

When Republic Act No. 7042, otherwise known as the Foreign Investments Act, was enacted in 1991, its aim was to invigorate the Philippine economy by substantially liberalizing foreign investment laws and policies. Foreign direct investments, or FDIs, are important to us, as they are to any developing country, because they provide tangible economic benefits in the form of technical expertise, technological transfer, foreign exchange from exports, and higher tax revenues, among others.

One the greatest benefits of FDIs to economies like the Philippines is increased employment. Various studies point to an inverse correlation between FDIs and unemployment - in other words, the higher the number of FDIs flowing into a country, the lower its unemployment rate. While FDIs have slightly different effects on skilled and unskilled labor, the consensus is generally the same. In developing economies all over the world, especially those where unskilled labor forms a large chunk of the labor market, more inward FDIs mean more jobs.

At the time of the passage of the 1991 Foreign Investments Act, the law did a fair job in accomplishing its mandate to increase foreign investor access into the country. According to the Joint Foreign Chambers in its 2010 policy document, Arangkada Philippines, FDI accumulation in the Philippines grew from US$4.711 billion between 1990 and 1994, to US$11.183 billion between 2005 and 2009, representing a 237% increase over a 20-year period.

While that seems like a noteworthy improvement, the fact is we still lagged behind some of our ASEAN neighbors. The same study shows Singapore's FDI accumulation rose from US$25.903 billion between 1990 and 1994 to US$108.013 billion from 2005 to 2009, which is a 317% increase. Meanwhile, Thailand's FDI accumulation during the same period grew from US$9.951 billion to US$43.341 billion, equivalent to a 336% growth, and Vietnam recorded an increase from US$3.9 billion to US$23.710 billion, which is a staggering 508% increase. It wasn't until the boom experienced by the Business Process Outsourcing (or BPO) sector in the early 2010s that our FDI net inflows improved drastically. Between 2010 and 2014, FDI net inflows to the Philippines grew five-fold, thanks in large part to the liberal regulations governing the BPO industry, according to World Bank data.

Other statistics paint a similarly bleak and uncompetitive picture. In fact, we have the second lowest FDI accumulation figures among the ASEAN 6 from 2015-2017, according to the World Bank. Our FDI accumulation for that period stood at US$23.98 billion. Meanwhile, Singapore's FDI accumulation for the same period stood at US$208.48 billion; Indonesia had US$45.79 billion; Vietnam had US$35.5 billion; and Malaysia had US$32.84 billion. Only Thailand recorded a lower FDI accumulation, at US$19.78 billion.

We also have the highest unemployment rate among the six large ASEAN markets, according to the International Monetary Fund's 2018 World Economic Outlook, at 5.3%. In contrast, Thailand's unemployment rate stands at 0.7%, Singapore at 2.0%, Vietnam at 2.2%, Malaysia at 3.2%, and Indonesia at 5.2%.

The Organization for Economic Cooperation and Development or OECD's FDI Regulatory Restrictiveness Index for 2018 also lists the Philippines as one of the most restrictive countries in the world when it comes to FDI rules. Of the 68 economies covered by the index, the Philippines ranked among the most restrictive in terms of FDI rules in the business services, telecommunications, media, electricity, and transport industries, with a restrictiveness score way above the OECD average. We fared a little better in the financial services industry, although we still scored above the OECD average. All in all, the OECD found the Philippines to have the most restrictive FDI rules among the 68 economies included in the study, with an overall restrictiveness score almost six times higher than the OECD average.

My esteemed colleagues, around 28 years from the enactment of the Foreign Investments Act, our current foreign investment laws and policies are still relatively restrictive, standing in the way of economic attractiveness and employment opportunities. We remain a relatively unattractive investment destination, because our investment laws are less open and generally more inhibitory compared to those of our neighbors in the ASEAN. Given the current global and regional economic climate, there is a need to take a look at the Foreign Investments Act in its current form and face the fact that it may not be living up to its potential as a vital piece of legislation.

The measure I am sponsoring today proposes to amend several provisions of the Foreign Investments Act, which will help us take advantage of global and regional economic dynamics. If passed into law, this bill could help make the Philippines more attractive as an investment destination, which, in turn, could open up more employment opportunities for the Filipino people.

First, the updated policy declaration puts a premium on the major role played by technological advancements as well as global and regional economic realities on the Philippine economy.

Second, the removal of "the practice of all professions" from the coverage of the law means that the law now applies only to foreign investments, and not to the practice of professions in the Philippines by foreigners. It leaves the practice of professions under the ambit of the specific laws that govern and regulate them. This seeks to encourage foreign professionals to come to the country to share their knowledge, expertise, skills and technical know-how to us Filipinos. This transfer of knowledge and technology will, in turn, help the country attract more businesses that require high-skilled and knowledge workers.

Third, the requirement of an annual review of the Foreign Investment Negative List ensures that our economic policies with regard to foreign investments are constantly in line and up to date with rapidly changing global and regional economic realities. This allows us to maintain a more competitive position vis-à-vis our ASEAN neighbors in terms of attracting businesses that may be wary of restrictive policies and regulations.

Finally, the establishment of a web portal to serve as a central database to be maintained by the Board of Investments, in coordination with other relevant agencies, will certainly make it easier for investors to learn about the country's pertinent laws, rules and regulations, and policies, including restrictions, on foreign investments. This will provide potential foreign investors access to what legal and practical issues they might need to face - sending a clear message that transparency and ease of doing business are as important to the State as it is to businesses and investors.

In relation to the concern that foreign investors could use the liberalized investment environment to deprive Filipinos of the opportunity to work within our own country, I filed a bill last week amending the Official Development Assistance (ODA) Act. It seeks to protect the interests of Filipino workers by prioritizing them for employment in development projects financed through ODA funds.

Taken together, these amendments will result in a foreign investment regime that is more fine-tuned to the changing economic climate and its accompanying demands. Our receptiveness to these changes may very well determine whether we can live up to our true economic potential or remain in the doldrums compared to our next-door neighbors.

Mr. President, it is high time for our country to start enjoying the economic benefits that our neighbors have reaped from foreign investments for the longest time. It is in this spirit that I ask my colleagues in this august chamber to work with me for the immediate passage of this measure.

Thank you, Mr. President.