Vietnam's FDI Restrictions vs. Philippines' FDI Restrictions
It's very easy for the Philippines to brag about being a democratic country. Vietnam still considers itself a Communist country, evidenced by the hammer and sickle, and the existence of the Communist Party of Vietnam. I watched the video above this paragraph to see where Vietnam and the Philippines have their individual strengths and weaknesses. The video admits that Vietnam is export-oriented while the Philippines still strongly relies on OFWs. This reminds me of what Filipino economist Andrew J. Masigan cited back in 2021 in Business World:
As usual, the dollar inflows from OFW remittances and service exports (IT-BPO industry) save us from financial ruin. Between 2016 and 2020, OFW remittances pumped-in an average of $32 billion a year while our service exports contributed an average of $36.5 billion a year.
Have OFW remittances and service exports been enough to cover our deficits? No. There is a still a gap and it is funded by debt.
The negative list of Vietnam is rather tame compared to the Philippines
Vietnam, in some way, is a free-market socialist country. Conversely, the Philippines is still using the late Carlos P. Garcia's Filipino First Policy. I decided to Google Vietnam's 100 percent foreign ownership (in terms of shares, that is) and found this on Vietnam Briefing:
Investors from ASEAN, the United States and Europeand countries are increasingly moving capital into projects in Vietnam, because of its highly attractive environment, and strategic business location.
Vietnam allows 100% foreign ownership in most of its sectors, including trading, manufacturing, IT, education sectors and more. For this reason, the country is viewed as being relatively wide open for foreign investors to enter the market and setup an LLC or other type of business entity.
However, a small number of business fields are limited for foreign-investment, and require that a foreign investor form a joint-venture with a local partner. These include:
- Advertising services;
- Agriculture, hunting, and forestry related services;
- Telecommunication services;
- Travel agencies; Tour operator services; Entertainment services;
- Electronic gaming businesses;
- Container handling; Customs clearance services; Auxiliary transport services;
- Internal waterways transport, rail and road transport services.
I decided to read through Vietnam's law on foreign investment to get to the bottom of the rules of it. So far, the restrictions with these provisions:
Article 8
Capital contribution of a foreign party or foreign parties to the legal capital of a joint venture enterprise shall be agreed by the parties and shall not be limited provided that the contribution is not less than thirty (30) per cent of the legal capital, except in cases stipulated by the Government.
In the case of a multi-party joint venture enterprise, the minimum capital contribution to be made by each Vietnamese party shall be determined by the Government.
With respect to important economic establishments as determined by the Government, the parties shall agree to increase gradually the proportion of the Vietnamese party's contribution to the legal capital of the joint venture enterprise.
Article 16
The legal capital of an enterprise with foreign owned capital must be at least thirty (30) per cent of its invested capital. In special cases and subject to approval of the body in charge of State management of foreign investment, this proportion may be lower than thirty (30) per cent.
During the course of its operation, an enterprise with foreign owned capital must not reduce its legal capital.
Let's take a look at the Philippine negative list which is rather long compared to Vietnam
List A: Foreign Ownership is Limited By Mandate of the Constitution and Specific Laws
No Foreign Equity
- Mass media, except recording and internet business
- Practice of professions, except in cases specifically allowed by the law following the prescribed conditions therein
- Professions where foreigners are not allowed to practice in the Philippines, except if the subject to reciprocity as provided in pertinent laws.
- Corporate practice of professions with foreign equity restrictions under pertinent laws.
- Retail trade enterprises with paid-up capital of less than ₱25,000,000.00
- Cooperatives, except investments of former natural-born citizens of the Philippines
- Organization and operation of private detective, watchmen or security guards agencies
- Small-scale mining
- Utilization of marine resources in archipelagic waters, territorial sea, and exclusive economic zone as well as small-scale utilization of natural resources in rivers, lakes, bays, and lagoons
- Ownership, operation, and management of cockpits
- Manufacture, repair, stockpiling, and/or distribution of nuclear weapons
- Manufacture, repair, stockpiling, and/or distribution of biological, chemical, and radiological weapons and anti-personnel mines
- Manufacture of firecrackers and other pyrotechnic devices
Up to 25% Foreign Equity
- Private recruitment, whether for local or overseas employment
- Contracts for the construction of defense-related structures
Up to 30% Foreign Equity
- Advertising
Up to 40% Foreign Equity
- Procurement of infrastructure projects in accordance with Section 23.4.2.1(b), (c), and (e) of the Implementing Rules and Regulations (IRR) of RA. 9184
- Exploration, development, and utilization of natural resources
- Ownership of private lands, except for a natural-born citizen who has lost his Philippine citizenship and has the legal capacity to enter into a contract under Philippine laws.
- Operation of public utilities
- Educational institutions other than those established by religious groups and mission boards, for foreign diplomatic personnel and their dependents and other foreign temporary residents, or for short-term high-level skills development that do not form part of the formal education system as defined in Section 20 of Batas Pambansa (BP) No. 232 (1982)
- Culture, production, milling, processing, trading except retailing, of rice and corn and acquiring, by barter, purchase or otherwise, rice and corn and the by-products thereof, subject to a period of divestment.
- Contracts for the supply of materials, goods, and commodities to Government-Owned and Controlled Corporation (GOCC), company, agency or municipal corporation
- Operation of deep-sea commercial fishing vessels
- Ownership of condominium units
- Private radio communications network
List B: Foreign Ownership is Limited for Reason of Security, Defense, Risk to Health and Morals, and Protection of Small and Medium Scale Enterprises
Up to 40% Foreign Equity
- Manufacture, repair, storage, and/or distribution of products and/or ingredients requiring Philippine National Police (PNP) clearance:
- Firearms (handguns to shotguns), parts of firearms and ammunition therefor, instruments or implements used or intended to be used in the manufacture of firearms;
- Gunpowder;
- Dynamite;
- Blasting supplies;
- Ingredients used in making explosives:
- Chlorates of potassium and sodium;
- Nitrates of ammonium, potassium, sodium barium, copper (11), lead (11), calcium, and cuprite;
- Nitric acid;
- Nitrocellulose;
- Perchlorates of ammonium, potassium, and sodium;
- Dinitrocellulose;
- Glycerol;
- Amorphous phosphorus;
- Hydrogen peroxide;
- Strontium nitrate powder;
- Toluene; and
- Telescopic sights, sniper scope, and other similar devices.
However, the manufacture or repair of these items may be authorized by the Chief of the PNP to non-Philippine nationals; provided that a substantial percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership allowed shall be specified in the said authority/clearance (RA No. 7042 as amended by RA No. 8179).
- Manufacture and distribution of dangerous drugs
- Sauna and steam bathhouses, massage clinics, and other like activities regulated by law because of risks posed to public health and morals, except wellness centers
- All forms of gambling, except those covered by investment agreements with Philippine Amusement and Gaming Corporation (PAGCOR)
- Domestic market enterprises with paid-in equity capital of less than the equivalent of US$200,000
- Micro and small domestic markets that involves the following:
- Advance technology as determined by Department of Science and Technology (DOST)
- Endorsed as a start-up or start-up enablers by Department of Trade Industry, or DOST
- Employ at least fifty (50) direct employees with paid-in equity capital of less than the equivalent of US$100,000
Getting down to the point for this post
Sure, apologists of the 1987 Constitution of the Philippines' apologists may say Vietnam has restrictions. But one needs to think of the reasonability of the restrictions. Unlike Vietnam, the Philippines has a very long list of negatives. Vietnam's negative list says that certain industries will require a local partner but doesn't impose ridiculous impositions such as absolutely no foreign equity or the very long list where only up to 35% up to 40% is allowed to be owned. I find the list rather ridiculous in contrast to Vietnam. Think about it Vietnam's supposedly a Communist country.
Some Filipinos online tend to blame the following for the Philippines' lack of investments without looking at the ridiculous restrictions put on them. Here are some really laughably stupid reasons:
- A devalued Philippine peso, never mind that the Vietnamese Dong is actually much lower. (You may want to read my explanation here)
- They blame corruption never mind corruption in Vietnam isn't so low either.
- They blame political families like the Aquinos, the Dutertes, the Marcoses, and you can name even more if necessary. I would often raise that Vietnam is a Communist country to raise a point on that. Investing in a Communist country sounds scarier to me!
- Some may even blame Philippine President Ferdinand R. Marcos Jr. or just about any president. If Marcos Jr. refuses to usher in a massive overhaul of the negative list--the blame is proper. However, if they blame Marcos Jr. for simply being a Marcos, then that's plain stupid! Also, former Philippine president Rodrigo R. Duterte signed the Public Services Act of 2022 (read why it can help us here), which groups like the League of Filipino Students, denounced as "imperialism".
In the Philippines, I might as well treat it like overpriced rent (read why here). The 60-40 arrangement or any of those ridiculous arrangements would kill my profits. Can I even imagine if I had to remit 60% or up to 75% of my profits to my lessor who'd demand it. Imagine if I were in a certain industry and my lessor would demand that I give most of my net profits to him or her. I would totally leave the space. That's exactly what the negative list of the Philippines does. It demands net profits after taxes as rental payments. If we use common sense, who'd want ot rent in an overpriced place?
