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How I Believe the Public Service Act of 2022 Will Benefit the Philippine Business and Economic Environment

One of the greatest news for the Philippines is the Public Service Act of 2022. The following can be read from the Philippine News Agency regarding President Rodrigo R. Duterte's signing of the new law into action:

President Rodrigo Roa Duterte on Monday signed into law a measure amending the Public Service Act (PSA), allowing up to 100 percent foreign ownership of public services in the country.

Republic Act (RA) No. 11659 or "An Act Amending Commonwealth Act No. 146 otherwise known as the Public Service Act” as amended was signed by Duterte in a ceremony at the Rizal Hall, Malacañan Palace in the presence of lawmakers and other officials.

Under the amended PSA, the telecommunications, railways, expressways, airports, and shipping industries will be considered public services, allowing up to 100 percent foreign ownership in these sectors.

Duterte also led the ceremonial presentation of newly enacted laws namely RA 11647 which amends the Foreign Investments Act; RA 11650, which ensures inclusive education for learners with disabilities; and RA 11648, which increases the age for determining statutory rape from 12 to 16-years-old.

I would like to stress that foreign ownership and land ownership are two different things. It's all about shares and not land ownership. The landowner doesn't have a share in the company's shares as a landowner unless he or she manages to legitimately get a share via agreement. The landowner collects rentals which is part of the expenses--not profits. A tenant will pay rent whether one is at a profit or at a loss. Failure to pay rent means eviction. In the case of taxes, failure to pay taxes can have hefty consequences too.  So, what's approved here is foreigners can have up to 100 percent shares ownership but not land ownership. The foreign investor can keep all their net profits--profits that come after all expenses such as rent (to Filipino landowners) and taxes (to the Filipino government) are kept. I mean, there's the term net income after taxes, right? They keep their profits but only net profits after taxes.

Besides, the late Benigno "Noynoy" Simeon C. Aquino also had these contributions before this administration showing the power of foreign investment:

By all accounts, the Aquino administration has had a strong economic record. The Philippines is an emerging economy, which has steadily grown under Mr. Aquino due to the inflow of foreign direct investment (FDI).

FDI has been rising steadily in recent years, and between January and November 2014, FDI flows reached USD 5.7 billion, which represents a more than 60% increase compared to 2013. Most of these investments went into manufacturing gas, steam, and air-conditioning supply, finance and insurance, transportation and storage, and professional, scientific and technical activities.

It's because of the filling of the supply and demand gap. The services that have been covered by the recent amendment are telecommunications, railways, expressways, airports, and shipping industries. This reminds me of what the late Lee Kuan Yew said in his book From Third World to First on page 315. 

We discussed their loss-incurring state-owned enterprises (SOEs). They wanted to privatize them or sell them off to the workers and others. I explained that this method would not provide them with what was critical efficient management. Singapore Airlines was 100 percent government owned, but it was efficient and profitable because it had to compete against international airlines. We did not subsidize it; if it was not profitable, it would have to close down. I recommended that they privatize their SOEs by bringing in foreign corporations to get an injection of management expertise and foreign capital for new technology. A change in the management system was essential. They needed to work with foreigners to learn on the job. Privatizing within the country by selling to their own people could not bring about this result.

Lee, after all, was the man who had established Singapore from a third-world country to a first-world country. This would change the business culture of the Philippines. It would mean filling in the supply and demand gap. Singapore Airlines has been one of my best experiences since the late 1990s. Until now, it remains to be competent. I believe the real reason why the Philippines' airlines have that problem is a lack of competition. Competition would force people to innovate. An investor's business lives or dies by how they run it. A foreign investor who does poorly will flunk as much as a local investor who does poorly. A local investor who does well will survive in competition as much as a foreign investor who does well. It's all about the survival of the fittest in the Philippine business environment.

What can be expected with more competition are as follows:

  1. Having more telecommunication companies means filling the Internet supply and demand gap. Filipinos will be able to enjoy cheaper and better Internet. The reason why Internet is expensive is slow is due to too much demand and too little supply.
  2. The transportation system will be better. I think one of the reasons why the MRT kept breaking down was because of the bottleneck. Railways, expressways, and shipping are in demand but there are too few of them to fill that gap. If there were more investors--the demand from Filipinos can be filled in slowly. Lee's statement on Singapore Airlines should be put to heart that it will force local railways, expressways, and shipping to change their game if they have to have competition.
  3. Lower prices of electricity. If there will be more electrical companies then the supply and demand will be filled. In turn, there will be more foreign investors who will be able to take advantage of lower costs of electricity. 
As Deng Xiaoping, the founder of Modern China, said, "It doesn't matter if the cat is black or white. What matters is that it catches mice." In other words, it doesn't matter if the business is locally owned or owned by foreigners. What matters is that the business delivers good results, income taxes, and produces jobs in the country where it's operating. 

References

Books

"From Third World to First--The Singapore Story: 1965-2000) by Lee Kuan Yew
Harpers Collins Publishers

Websites

"Duterte signs law amending Public Service Act" by Azer Parrocha (March 21, 2022)

"The legacy of Philippines President Benigno Aquino" by Laura Southgate (August 25, 2015)

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