60-40 Foreign Direct Investment Ownership is Nothing More Than OVERPRICED Rent

-


I'm amazed that there are some people who still insist that the Philippines should retain the 60-40 investment scheme or even lesser shares ownership for foreign investments. The argument always goes such as (1) Filipinos must be the majority shareholder because it's their country, (2) only foreign investors will get rich if you let them invest in here 100%, and (3) you're basically selling land. This is the problem when people can't tell the difference between shares ownership and land ownership. Shares ownership means owning a percentage of the company. Land ownership is where the land is leased upon. This is where I would like to argue why easing certain foreign investment restrictions is necessary.

An illustration that will help see why 60-40 is nothing more than overpriced rent

I would like to give this picture. Let's imagine you're a businessman and you're looking for a space to rent. Not everyone is willing to sell their commercial space but there are those more than willing to rent it. Some just refuse to sell their commercial space because selling is a one-shot deal. Now, you found a good space. It's a very nice neighborhood, with clean fresh air, good peace and order, and then here comes the property holder. You're so excited to look at the place. The property holder gives you a tour around the commercial building. It's in a very nice location. You really feel you get a good place. 

It's now time to sign the contract. You feel you found the best place you could start a business. You decide to ask for the rental fee. You know you can't buy the place but you can rent it, right? The property holder then presents the contract of lease. You start reading the provisions. However, one provision starts to tick you off. What's this provision you may ask? It might go something like this, "The tenant, therefore, shall agree to pay 60% of his/her net income to the property holder on a monthly basis." That would definitely be a tick-off now, wouldn't it? The property owner is demanding all who lease the commercial property should give him at least 60% shares of ownership for that branch. Who in the right mind would ever want to rent that kind of space? 

For one, I definitely would refuse such a landlord. I would have probably said, "No thanks! The fees are too high!" I couldn't imagine how the business will be if I had to give up 60% of my net profits to the property holder. The whole thing is just unjust. Yet, that's what the Philippines has been doing for some time--giving overpriced rent to multinational corporations (MNCs). What happens during the 60-40 shares arrangement is this--foreign investors only get to keep 40% of their net income. Who in the right mind would want to invest if you can't keep 100% of your net profits after taxes?

Why removing the 60-40 arrangement in regards to net profits will be more profitable

Now, let's move to another scenario. You're so sick and tired of that property owner you met. However, another landlord in that area showed up and said, "Why don't you take a look at my space?" You get a tour around the next commercial area. It may not look as good as the previous one but it's still in good condition. This property owner then says, "You're looking for a space, right? I did some computations and maybe you might need to pay me at least PHP 20,000.00 for the first few years. We can negotiate the increase later if ever it's needed." 

This would be a completely different scenario. The property owner says, "You can continue to do business here but you have to pay me at least PHP 20,000.00 per month. Failure to pay in two consecutive months means you're out." This is really much better. It doesn't matter how much net profit you make--all the owner asks is the rightful amount of rent. The property owner reserves one's right ot kick the tenant out only if violations were committed. The tenant can keep 100% of his net profit after taxes. However, this net profit only comes after the payment of rentals, government fees (which include taxes), and compliance with law and order. This becomes the better arrangement.

This is what the 100% shares ownership would do. MNCs wouldn't need a Filipino partner to do business. However, land ownership is more or less out of the question to control the supply and demand. After all, MNCs are there to rent and the country they're renting in is like the shopping mall. No mall owner will ever sell their space. The MNC can do business all it wants in the Philippines without a Filipino partner. However, the restrictions imposed on them are (1) they can't buy land, (2) they have to pay rentals to the property holders, (3) they need to pay government fees which include taxes, and (4) following the laws of the Philippine government. If they won't pay rent then they're out. If they don't pay government fees then consider the possibility of imprisonment and deportation. If you commit a crime then you do the time. Follow all of them and you can continue getting rich but only from net income after taxes.

It's true that the money won't come so easily. However, because of the ease of doing business (with reasonable restrictions) then more money will come in. What happens next is that when there will be more MNCs--there will be more income eventually. I may not get rich fast without not having a 60-40 arrangement with tenants. However, having just rental fees will be one of the reasons why more tenants will move into my commercial space. It wouldn't flow in big (at first) but having the right price to earn a profit (not too high nor too low) will encourage more people to do business. It wouldn't be so fast but it will be more sustainable in the long run. After all, sacrifices need to be made to make a sustainable flow of money such as investing in environmentally friendly business practices, ethical treatment of workers, having a good supply chain, and the like. It might cost more money (now) but the returns will be much higher in the future. 

Besides, the more competition there will be, the better the Philippine business environment becomes. Filipino businessmen will have to get creative on how to face threats and opportunities. They will have a lot of competition to deal with. However, their customers' new competitors and their service providers' competitors are opportunities for growth. Sugar farmers in Negros Occidental may think of selling raw sugar to Taiwanese milk tea owners looking for fresh sugar. Local Filipino businessmen may want to avail themselves of better transportation services. Banks may want to make way for more clients. Meanwhile, local businessmen may consider investing in one local bank and another foreign bank. Local banks would still benefit from foreign investors who'd approach them first because they're the most readily available. In the end, it's all about delivering quality services regardless if the investor is local or foreign. 

References

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

"Glocalization" by Adam Hayes, reviewed by Gordon Scott (Updated: March 26, 2020)

"SINK OR SWIM: CHANGING THE 60-40 RULE ON FOREIGN OWNERSHIP AS KEY TO SURVIVING GLOBALIZATION" by Glenndale Cornelio

"The Philippines Readies Public Services for 100 Percent Foreign Ownership" by James Guild (December 29, 2021)
https://thediplomat.com/2021/12/the-philippines-readies-public-services-for-100-percent-foreign-ownership/

Popular posts from this blog

The "Kahit Konting Awa" Attitude Wouldn't Help Alleviate Anyone from Poverty

-
Image
  As the countdown to Christmas continues--it's easy to expect the toxic Filipino trait that I'll dub as "Kahit Konting Awa". The literal meaning is "Just a Little Pity". I named it after that song by Nora Aunor, the theme song of The Flor Contemplacion Story . I wasn't a bit surprised when the hit movie was uploaded on VIVA Films' YouTube page last 2013 (read here ). Back on the topic, I noticed it's easy for people to desire to reconcile because it's the Christmas season. The Philippines has the longest Christmas season. However, people love to do last-minute Christmas shopping presumably due to their poor budgetary habits. Ever heard of the one-day paycheck pandemic in the Philippines? It's a common abusive trait in the Philippines to have that "Kahit Konting Awa" attitude. There's the problem of "Utang (debt) is life." It's no surprise that financial literacy is that low in the Philippines. A not fun fact a
Read more

The Philippines 60-40 Equity Scheme Doesn't Prohibit FDIs But It's Still VERY DISCOURAGING for International Business

-
Image
First and foremost, I'd like to tell people that I don't believe that the Marcos Years were the "golden years". I still agree with economist Cielo Magno that land ownership isn't a factor, since some countries without equity restrictions, don't allow foreigners to buy land. In contrast, inflation and the like were rampant during that time. However, we need to realize that any gains after EDSA 1986 weren't realized. As I was looking at Facebook, a page called Punch the Lies by Atty. Mike Navallo stated this:  FACT: The 1987 Constitution does not prohibit entry of global investors into PH. What it regulates is foreign investment in areas deemed critical such as public utilities; exploration, devt and use of natural resources; and certain investments as determined by Congress. (Art XII)   Public utilities (water, electricity, petroleum distribution, seaports, PUVs) are considered vital to socio-economic devt that's why they're subject to foreign owner
Read more

The Irony the Philippines Starts the Christmas Season in September BUT Many Filipinos Love Last-Minute Christmas Shopping

-
Image
  Uproxx As Christmas is just around the corner--I feel more stress coming in! It doesn't help when people try to use the late Andy Williams' "It's the Most Wonderful Time of the Year" to try and skip the problem. It's already known that most Filipinos love to start Christmas in September . However, the irony is that Filipinos start Christmas early but do their Christmas shopping late. If they began the Christmas Season early, shouldn't they think about what to do before December strikes?  Two years ago, I wrote a post discussing last-minute Christmas shopping . Many Filipinos tend to do last-minute Christmas shopping. They had all of November (when the Christmas sale usually begins) but why do the Christmas shopping in December ? One of the things I blame is the one-day paycheck lifestyle (see here ). It can be observed that many Filipinos never learn to prioritize more important things . One can get their stars when they see their paychecks. However, the
Read more

If You Want to Make the Philippines Better, Study... HARDER?

-
Image
I grew up complaining and complaining about stuff. I always looked at the Philippines as a hopeless case. I hated studying the Tagalog subject--which was mandatory by the DepEd. I was told, "Look lazy bum! If you want to make the Philippines a better place--study harder!" In college, I began to apply myself more seriously even if I didn't graduate summa cum laude. I felt a sense of achievement when I won a commerce award for making an outstanding difference. What I never thought was that during the practicum--it was working smart and not working hard. Sure, hard work is there but smart work allows more hard work to be done at a better pace. Not long after, I took my MBA course but it was also at that time, I was scammed . I discovered I wasn't alone in being scammed--many MBA students were scammed during the same time I was scammed! However, what I discovered was the problem of saying, "Your grades will determine your future!" It was typical in Philippine sc
Read more

Hussam Middle Eastern Restaurant: A Trip Into Authentic Syrian Cuisine At Ayala Center Cebu

-
Image
  The last time I ate at a Hussam Middle Eastern Restaurant branch last year, I couldn't give a good assessment. I haven't been to Hussam's main branch at Il Corso, so I didn't formally meet its owner, Hussam Alfakeh Alkourdi. The branch I ate was in Ayala Center Cebu instead. This is the interior of the restaurant. Ayala Center Cebu has Persian Palate on the third floor, above Timezone. Hussam is near one of the entrances of Ayala Center Cebu--near a Chinese restaurant. Persian Palate was my entry point to Middle Eastern cuisine.  Hussam serves authentic Syrian food. There are dishes similar to those from the Persian Palate. They serve Syrian bread, different from my favorite Pita bread served at Shawarma Gourmet (read my review here ), a Lebanese restaurant. So far, I tried their mixed meat platter with Syrian bread. My second dish there was actually baked Arabic rice with grilled beef kebab. I love their tomato sauce (which I mistook for ginger sauce) and garlic sauc
Read more

The Philippines will NEVER Get Richer by Blaming Its Richer Asian Neighbors

-
Image
iStock It would be nice to talk about the typical blame game in the Philippines. I could rememeber that, as a child and a teenager, I had this habit of blaming people I dislike that I failed an exam. The reasons are mostly imagined. What I remembered in my later college years was when I met a couple of super irresponsible students. They had this attitude to say something like, "My parents don't care if it'll take me 20 years to finish my bachelor's degree." Some people even say something like, "It's the fault of the rich that we are poor." It was a backfire when I told such people, "Isn't it any wonder why your finances are down? It's because your parents don't even value the money when they don't care if it'll take up to 20 years to finish college!"  Understanding the blame game and why it feels so good Psychology Today presents this on why some people will always blame others . These findings can help understand the st
Read more

Can Diehard 1987 Constitution Defenders Prove Their Claims to the Lee Kuan Yew School of Public Policy?

-
Image
It's not enough to say something. The question is, "Where's the substance or the empirical evidence?" When I start quoting from the late Lee Kuan Yew, these diehard 1987 Constitution of the Philippines defenders start diverting the topic by pointing out my errors to spite me than to correct me. They would ask if I know the Deming Theory of Management which talks about quality management in the company culture. Okay, that was something worth asking but as said, can these people really understand the problem of the Philippines has been more systemic (that is, within the system ) than just the people running the system? What allowed the legislative to be filled with people who know-nothing anyway? That's why I didn't want to vote for Senator Robin Padilla (who ironically understands the need for reforms, read here ). Unfortunately, so many Ad Hominem attacks have been done.  A past article I wrote was Should you  listen to either Davide Jr. or Kishore Mahbubani
Read more

My Experience With Delicious ITealicious' Filling in the Milk Tea Demand in Cebu City

-
Image
It's been some time since I did a food review, right? Back then, I remembered how my first love with Taiwanese milk tea was Chatime. Though. when I went to Chatime--I usually ordered fruit tea since I was trying to lose weight. I ended up trying Tiger Sugar which ordering something without sugar doesn't make sense. So, another milk tea I decided to try (via delivery, haven't gone to the branches yet since the pandemic) is ITealicious. ITealicious is founded by Taiwan-born Yuwen Chiu (who's also a Chinese teacher in Cebu Eastern College). It was founded in 2018--the time when I was so devoted to weight loss that I didn't try it until I lost some pounds. In trying to renew my driver's license--I discovered I went from 85 pounds to 79 pounds since I've been doing a lot of cardiovascular exercises during the pandemic. I decided to give ITealicious a shot after I had tasted the food at Jolly Bubble. Jolly Bubble is pretty much the ideal place to get a delicious m
Read more

It'd Be Stupid to Continue Using Obsolete Chinese Language Textbooks to Teach Mandarin Chinese

-
Image
I remember writing about how to make Mandarin Chinese more accessible in the Philippines . I remembered the day when I ended up not liking school not because I didn't want to learn. I was eager to learn. Science and history are interesting subjects. However, mathematics is taught in such a way that it's almost irrelevant. "You just need to study it, it's required by the DepEd and you can't graduate without it!" was the only reason. You're not allowed to think, just be a robot, and then parents get mad about why their children have almost no initiative and need to be programmed like robots. It's because the school system kills initiative and nobody does a robot's job better than a robot .  Bahay Tsinoy, museum of Chinese life in the Philippines I just found this photo shared on Facebook. It was the picture of childhood trauma that I'd like to talk about. The standard Chinese textbook. At first, I was excited to learn Chinese but that excitement
Read more

Red Lizard: Wrestling With Your Taste Buds With Delicious Mexican Food

-
Image
During the late 2010s, I remember one of the greatest things I got into was Mexican food. I remembered a delicious Mexican restaurant opened in I.T. Park Cebu but it was later closed down. From what I heard, the owner closed it down out of grief and I don't blame the person for it. Years later, there was El Taquito at SSY which I also enjoyed. However, El Taquito is now located on Governor M. Roa Avenue in Cebu City. I would like to talk about the Red Lizard--Taqueria which has branches in SM Cyberzone, IT Park (where I usually get my deliveries), and Ayala Center Cebu.  I had quite a wild imagination thinking the restaurant was founded by a retired wrestler. I thought Red Lizard was a real luchador or Mexican wrestler. On the contrary, the character of Red Lizard is as fictitious as Jollibee's mascot, an anthropomorphic bee named Jollibee. Further research showed that Red Lizard belongs to the Abaca Group of Companies founded by Jason Hyatt and his Chinese wife Anna (whom he m
Read more