Japanese business lobby in Philippines says more FDI deregulation needed

22, May. 2019

MANILA, NNA - The Japanese business lobby in the Philippines says the government’s recent move to ease regulations on foreign direct investment in infrastructure projects doesn’t go far enough.

The Philippine government announced Friday that its Government Procurement Policy Board (GPPB) had enacted an executive order raising the share of foreign equity permitted in infrastructure projects to 40 percent from 25 percent, in a bid to spur direct investment from overseas.

Previously, it required that partnerships, corporations or joint ventures engaged in infrastructure projects have at least a 75-percent domestic interest, outstanding capital stock, or ownership.

“This is not likely to encourage Japanese firms to participate in infrastructure projects that are not backed by the official development assistance program of the government of Japan,” Nobuo Fujii, vice-president and executive director of the Japanese Chamber of Commerce and Industry of the Philippines, told NNA on Monday.

He said Japanese firms are wary of projects not backed by Japan’s official aid because of the risk of payment delays and the disadvantage in cost competitiveness against Chinese and South Korean firms.

Fujii also noted that the bidding procedure is complicated, saying the Philippine Contractors Accreditation Board makes it difficult for foreign firms to join infrastructure projects.

President Rodrigo Duterte issued an order in October identifying industries reserved for Philippine-owned companies and those open to foreign entities, stipulated in the 11th Foreign Investment Negative List.

The Philippines ranked the highest on the FDI Regulatory Restrictiveness Index of the Organisation for Economic Co-operation and Development, at 0.374, followed by Saudi Arabia at 0.372.

The FDI index measures statutory restrictions on foreign direct investment in 68 countries, including all OECD members and the Group of 20 advanced and emerging economies, covering 22 sectors.

The FDI index for the construction sector in the Philippines is at 0.440, the highest in Southeast Asia.

Fujii said that in order to fully open infrastructure projects to foreign firms, “a constitutional revision is a must,” but he said that would be a big challenge for the government.

The 79-year-old Commonwealth Act No. 541 stipulates that infrastructure contracts be awarded to domestic entities.