Philippines allows full foreign ownership in telecom, railway services

Manila Light Rail Transit System Line 1 in which Japan’s Sumitomo indirectly holds a 19.2-per cent stake

The Philippine Congress approved a bill allowing full foreign ownership of telecommunication and railway services in a move to make rules less restrictive for potential investors.

The House of Representatives and the Senate on February 2 ratified a bill amending the 86-year-old Public Service Act from 1936 that caps foreign ownership of public utilities to 40 per cent. In a last step, the bill has to be signed into law by President Rodrigo Duterte.

The move is widely seen as a reaction on reports by investment promotion agencies in the Philippines that changes to the legislation were urgently necessary as foreign ownership limits, together with the Covid-19 pandemic and the high cost of doing business, would prevent foreign companies from relocating to and invest in the Philippines.

Foreign direct investment in free fall in the past two years

Based on data from the Philippine Statistics Authority, registered foreign investments in the country fell by more than 71 per cent to 112.12 billion pesos ($2.2 billion) in 2020 compared with 390.11 billion pesos in 2019. Last year, confidence of foreign investors still had not recovered, with capital inflows dropping by over a fifth to 58.87 billion pesos as of the third quarter from 75.64 billion pesos in the same period a year ago.

Senator Grace Poe from the conservative Nationalist People’s Coalition, the bill’s sponsor who has a foreign investment-friendly stance, said that all industries would be liberalised except electricity distribution, petroleum pipeline transmission, water distribution, seaports and public utility vehicles. Lawmakers earlier agreed in their versions of the bill that telecommunications, shipping and railways should be further opened to foreign investors.

Ban on public utility ownership by foreigners remains intact

However, foreigners will remain barred from owning public utilities and or critical infrastructure as mandated by the Constitution. To allow them operating in the sector, lawmakers narrowed the coverage of public utilities in the amendment of the Public Service Act, excluding the telecom and railway industries.

The Philippines is among the world’s most restrictive economies to foreign direct investment, according to the Organisation for Economic Cooperation and Development, or OECD. It tops the OECD’s foreign direct investment regulatory restrictiveness index in Asia-Pacific, ahead of Indonesia and Thailand.

Local conglomerates benefit from foreign investment restrictions

The restrictions in place are meant to “protect the domestic industry” with the result that local conglomerates, many owned by billionaire families, have grown to span over many industries including real estate, hospitality, finance, retail, manufacturing, utilities, power and telecommunications with little domestic competition.

While full foreign ownership is meanwhile permitted in retail, heavy restrictions remain imposed on paid-in capital and investment per store, discouraging potential foreign investors in the sector. In other industries, foreign businesses usually enter the Philippine market through joint ventures with local partners or franchise chains, but many have expressed frustration over their lack of management control and the protection that local rivals enjoy.



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[caption id="attachment_38188" align="alignleft" width="300"] Manila Light Rail Transit System Line 1 in which Japan's Sumitomo indirectly holds a 19.2-per cent stake[/caption] The Philippine Congress approved a bill allowing full foreign ownership of telecommunication and railway services in a move to make rules less restrictive for potential investors. The House of Representatives and the Senate on February 2 ratified a bill amending the 86-year-old Public Service Act from 1936 that caps foreign ownership of public utilities to 40 per cent. In a last step, the bill has to be signed into law by President Rodrigo Duterte. The move is widely seen...

Manila Light Rail Transit System Line 1 in which Japan’s Sumitomo indirectly holds a 19.2-per cent stake

The Philippine Congress approved a bill allowing full foreign ownership of telecommunication and railway services in a move to make rules less restrictive for potential investors.

The House of Representatives and the Senate on February 2 ratified a bill amending the 86-year-old Public Service Act from 1936 that caps foreign ownership of public utilities to 40 per cent. In a last step, the bill has to be signed into law by President Rodrigo Duterte.

The move is widely seen as a reaction on reports by investment promotion agencies in the Philippines that changes to the legislation were urgently necessary as foreign ownership limits, together with the Covid-19 pandemic and the high cost of doing business, would prevent foreign companies from relocating to and invest in the Philippines.

Foreign direct investment in free fall in the past two years

Based on data from the Philippine Statistics Authority, registered foreign investments in the country fell by more than 71 per cent to 112.12 billion pesos ($2.2 billion) in 2020 compared with 390.11 billion pesos in 2019. Last year, confidence of foreign investors still had not recovered, with capital inflows dropping by over a fifth to 58.87 billion pesos as of the third quarter from 75.64 billion pesos in the same period a year ago.

Senator Grace Poe from the conservative Nationalist People’s Coalition, the bill’s sponsor who has a foreign investment-friendly stance, said that all industries would be liberalised except electricity distribution, petroleum pipeline transmission, water distribution, seaports and public utility vehicles. Lawmakers earlier agreed in their versions of the bill that telecommunications, shipping and railways should be further opened to foreign investors.

Ban on public utility ownership by foreigners remains intact

However, foreigners will remain barred from owning public utilities and or critical infrastructure as mandated by the Constitution. To allow them operating in the sector, lawmakers narrowed the coverage of public utilities in the amendment of the Public Service Act, excluding the telecom and railway industries.

The Philippines is among the world’s most restrictive economies to foreign direct investment, according to the Organisation for Economic Cooperation and Development, or OECD. It tops the OECD’s foreign direct investment regulatory restrictiveness index in Asia-Pacific, ahead of Indonesia and Thailand.

Local conglomerates benefit from foreign investment restrictions

The restrictions in place are meant to “protect the domestic industry” with the result that local conglomerates, many owned by billionaire families, have grown to span over many industries including real estate, hospitality, finance, retail, manufacturing, utilities, power and telecommunications with little domestic competition.

While full foreign ownership is meanwhile permitted in retail, heavy restrictions remain imposed on paid-in capital and investment per store, discouraging potential foreign investors in the sector. In other industries, foreign businesses usually enter the Philippine market through joint ventures with local partners or franchise chains, but many have expressed frustration over their lack of management control and the protection that local rivals enjoy.



Support ASEAN news

Investvine has been a consistent voice in ASEAN news for more than a decade. From breaking news to exclusive interviews with key ASEAN leaders, we have brought you factual and engaging reports – the stories that matter, free of charge.

Like many news organisations, we are striving to survive in an age of reduced advertising and biased journalism. Our mission is to rise above today’s challenges and chart tomorrow’s world with clear, dependable reporting.

Support us now with a donation of your choosing. Your contribution will help us shine a light on important ASEAN stories, reach more people and lift the manifold voices of this dynamic, influential region.

 

 

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