Skip to main content

Is Vietnam Getting More FDI Inflows than the Philippines, Because of Its Supposedly Better Fight Against Corruption?


Discussing international marketing or world economics with boomer Filipinos can be painful. Some people still believe in the Filipino First Policy. I cite Vietnam as an example of why economic charter change (called econ cha cha) should be done. Some people cite that Vietnam's increase in FDI is because of the fight against corruption. I don't deny Vietnam has a crackdown on corruption. I don't deny that fighting against corruption helps the economy. However, fighting corruption without the proper tools and not having economic development, is useless. Fighting corruption isn't a panacea or cure-all either.  Spanking is part of child discipline, not the whole of child discipline. People who only spank but never teach right and wrong, render spanking ineffective.

Instead, look at Vietnam's economic policy vs. the Philippines' economic policy. Some people blame the following for the Philippines' lack of foreign investments, some things Vietnam also suffers from:
  1. Some people blame the PHP's devaluation. True, the USD to PHP exchange rate today is almost PHP 60.00. However, the recent USD to VND exchange rate is VND 25,424.98. One VND is PHP 436.80. 
  2. Some people blame corruption for the lack of investments. However, General Secretary To Lam's golden steak scandal (read here). To Lam was the security minister at that time (and he also shook hands with the late Benigno Simeon C. Aquino III, while the latter was president of the Philippines). To Lam's golden steak scandal was even done after he and his peers offered flowers at Karl Marx's grave in London. It was often joked about how Vietnam jumps in between Communism and capitalism really quick! 
I wrote an article discussing FDI restrictions between Vietnam and the Philippines. The big difference between Vietnam and the Philippines is how FDI restrictions carry on. There's always a need for restrictions. The Vietnam Briefing gives this briefing on its FDI policy:

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.

There are some economic restrictions that Vietnam needs to revise. For example. the Vietnamese banking laws only allow 30% ownership for banks. Banks belong to the minority of sectors that still require a local partner, despite most sectors in Vietnam allowing 100% foreign ownership. 

A government-imposed 30% cap on foreign ownership of Vietnamese banks is holding back investments in the banking sector of the fast-growing Southeast Asian nation.

Vietnamese lenders have attracted investments from financial companies in Japan and South Korea, but the nation's six largest publicly listed banks have limited headroom to increase their foreign ownership. Five banks already have foreign ownership above 20%, according to data from S&P Global Market Intelligence.

"We believe that foreign ownership of Vietnam financial institutions will continue to be limited to minority stakes, with the possible exception of distressed financial institutions where the government might consider lifting foreign ownership limits. Overall, we believe M&A will continue to be muted if these limits remain in place," Ivan Tan, an analyst at S&P Global Ratings, told Market Intelligence in an email.

The difference is Vietnam's caps are under legislation instead of the constitution. However, the Philippines' economic restrictions are still so hard-coded into the constitution, it's actually difficult to change them. If Vietnam should one day want to get rid of the foolish 30% cap, it will be easier compared to the Philippines. My assumption is because Vietnam still practices socialism, the idea where the means of production are under collective ownership, as well as central planning, that certain sectors are still under such ridiculously low limits for foreign ownership. However, most sectors are free up to 100% ownership. Doesn't this sound like Vladimir Lenin's New Economic Policy (NEP)?

Meanwhile, the Philippines, while a democratic country, isn't losing the fight because it lacks teeth in fighting corruption. Some attribute Noynoy's economic success to the fight against corruption. However, Per Se of the UP School of Economics also points out Noynoy's weaknesses:

Benigno Aquino III: president, 2010 (July) to present. The FDI flows during Noynoy’s term have been relatively higher. He has brought in so far $4,300.2 billion of FDI flows, the equivalent of $2,150.1 billion average per year. (Note: The dollar weakness also affects the amount of the FDI flows.)

FDI flows are likely to be higher going forward in the Noynoy Aquino presidency. With investment grade rating and continued sound macro fundamentals, the Philippine economic record is likely to be much better.

However, that potential will be capped unless he improves the FDI climate in the country through direct reforms dealing with FDI policies. He appears to be under an illusion that the move to change the restrictive provisions to foreign investments in the Constitution would not make a big difference. Unless his mindset changes on this point, Aquino’s future performance on this account will not be spectacularly much better.

Noynoy had his success but it's important to look at where he also failed. Sure, there are good economic policies under Noynoy. However, we need to think that the Philippines' problem isn't soley corruption. The problem of the slogan, "Kung walang corrupt ay walang mahirap." is but a half-truth. True, corrupt officials are a problem and they can destroy economic gain. Corrupt officials may soon pass protectionist laws for their own benefit. However, the real problem behind the lack of investments isn't government corruption but the overwhelming FDI restrictions, hardcoded into the "beloved" 1987 Constitution of the Philippines.

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

 If these restrictions were more into legislation than the constitution, one wouldn't need to have the 2/3 vote as stated in Article XVII in the 1987 Constitution of the Philippines. If these were mostly legislation rather than hardcoding them, the Philippines, like Vietnam, could've taken better advantage of companies fleeing China. Vietnam has adjusted a huge amount of excessive restrictions by legislation over the more tiresome constitutional amendments which would require this:

AMENDMENTS OR REVISIONS

Section 1. Any amendment to, or revision of, this Constitution may be proposed by:

The Congress, upon a vote of three-fourths of all its Members; or

A constitutional convention.

Section 2. Amendments to this Constitution may likewise be directly proposed by the people through initiative upon a petition of at least twelve per centum of the total number of registered voters, of which every legislative district must be represented by at least three per centum of the registered voters therein. No amendment under this section shall be authorized within five years following the ratification of this Constitution nor oftener than once every five years thereafter.

The Congress shall provide for the implementation of the exercise of this right.

Section 3. The Congress may, by a vote of two-thirds of all its Members, call a constitutional convention, or by a majority vote of all its Members, submit to the electorate the question of calling such a convention.

Section 4.Any amendment to, or revision of, this Constitution under Section 1 hereof shall be valid when ratified by a majority of the votes cast in a plebiscite which shall be held not earlier than sixty days nor later than ninety days after the approval of such amendment or revision.

Any amendment under Section 2 hereof shall be valid when ratified by a majority of the votes cast in a plebiscite which shall be held not earlier than sixty days nor later than ninety days after the certification by the Commission on Elections of the sufficiency of the petition. 

This is where the Philippines has its big weaknesses. That's why economic charter change is needed. It doesn't matter even if all the corrupt politicians are shot the next day--the economic policies still need to change. No amount of fighting corruption will increase FDI if economic restrictions are still ridiculous! 

Labels:

Popular posts from this blog

Get Stuck with EDSA, End Up Like Nokia

  Yes, we should never forget what history teaches us. A classmate of mine, back in high school, wrote a simple and blunt essay called "History: A Teacher". I doubt he still has a soft copy, given it was already more than 20 years ago. I'd like to quote Duterte critic Andrew James Masigan wrote this in  Philippine Star --something that should remain relevant: I would never undervalue the 1987 Constitution. It dismantled the legal framework of a repressive regime and established the democratic institutions we enjoy today. For this, I am grateful. The 1987 Constitution was crafted with the best of intentions. It sought to put the Filipino first in all aspects of governance and to level the playing field amongst sectors and peoples.  But it is far from perfect. It failed to consider the importance of foreign capital and technologies and the stiff competition we would have to face to obtain them. In short, its economic provisions were short-sighted . So despite the Constitut...
Read more

#SahodItaasPresyoIbaba Economics' Bad Accounting

I would like to apologize in advance to my readers. The picture I'm presenting is in Tagalog, and not all my readers speak Tagalog. I would translate the picture's text into English for convenience. It says:   "Ano ang bumubuo sa mga presyo?" means "What comprises the price?" "Gastos ng materyales" means materials expense "Gastos sa kasangkapan" means depreciation expense ""Gastos sa pasahod" means salary expense "Kapitalista" means capitalist Renta is well, rent "Kayang pababain ang presyo" means "Prices can be lowered". It says that capitalists (industrialists, landlords, bankers) and elitist governments are part in the gross profit. Get rid of excise taxes (either permanently or temporarily) for the prices of goods and services. In the times of crisis, in the burden of sacrifices, we need to be watchful for capacity. Whatever savings for times of difficulty by the workers and countrymen, the...
Read more

Past Chinese School Education in the Philippines was Based on "Sǐ Jì Yìng Bèi"

  Chinoys of my age (and older) may remember these textbooks. I called them as the "symbol of trauma". It was memorizing something without understanding it . One would just memorize (without understanding it) because it was typical. Not being able to memorize what was assigned? Get a bad grade? One can expect physical punishment like hitting the hand with a ruler or chili in the mouth. Chinese language teachers are stereotypically strict . The language textbooks (above) are what were used during the 1990s to the early 2000s. As I wrote it, the Sinjiang textbooks aren't effective in teaching Mandarin , in a world where Mandarin has over a billion speakers!  There's a Chinese proverb that says, "死記硬背 sǐ jì yìng bèi" or "Memorize to the point of death". That's exactly what those textbooks are. Memorize to the point of death! Okay, it may sound exaggerated. However, that's how Chinese language teachers in the Philippines were made to teach the ...
Read more

Migrante International's Really Bad Economic Literacy

March 17 (which is tomorrow) seems to be an unofficial holiday for some people, right? I'm sickened that the late Flor Contemplacion has been treated like she's some national heroine (and thankfully, tomorrow isn't a  holiday) even after Singapore had proven her guilt. A movie was made by Joel Lamangan called The Flor Contemplacion Story . The call for Migrante (Migrant) International has been to remember Flor even after several years. What's not too surprising was to learn that Flor's sons were all arrested for drug-related charges. Even her eldest son died while in prison. You have Migrante International wanting to end the labor export policy. However, a post by Migrante really shows how this group fails basic economics. I will not post the whole press statement but one part that made my eyes roll. >> Further opening the country’s economy to foreign ownership and control will worsen the exploitation of our people and the environment without creating a susta...
Read more

"Filipino First Policy" Has NO PLACE in the Rising Asian 21st Century

I guess nobody saw the Asian 21st Century coming, right? China was once a poor nation but look at it now. Vietnam was once a poor nation but look at it now. Singapore was once a poor nation but look at it now. The late great Lee Kuan Yew wrote his book From Third World to First . I'm afraid some people have been using it to go against the presidency of Ferdinand R. Marcos Jr. while ignoring what else Lee Kuan Yew had to say. Lee Kuan Yew described the Filipino press to be rambunctious on pages 304-305 which I agree. I'm afraid that the Filipino press may have had a hand in getting rid of any economic or political reforms that could help the Philippines. Yet, one policy has been holding back the Philippines for decades and yes, it's the Filipino First Policy .  Reviewing the Filipino First Policy and why it has no place in the rising Asian 21st century I remembered how the values education subject taught Carlos P. Garcia's stupid Filipino First Policy as a Filipino value...
Read more

Has Passing Down Hatred for Singapore (Because of Flor Contemplacion) Economically Helped the Philippines?

PEH.ph It was on March 17, 1995, when Flor Contemplacion was executed in Singapore. I've noticed that I've been addressing her as the late many times, even if the late is a statement that may be ony appropriate if the person has been recently deceased within 10 years. It's about to become 30 years since Flor was hanged in Singapore. However, generational hatred would've been passed down from 1995 up to 2025. Some people are still tagging #JusticeFor Flor. These traits may be passed down from the Batang 1990s to their children in this generation. It may also be passed down from parent to child, even if the child was born in the 2000s to 2010s. Somebody born in 2000s and beyond might even say, "Papa and mama told me about Flor Contemplacion! That's why I hate Singapore!" Talk about a child born in 2004 who's probably angry with Singapore, because his parents kept telling him about how Flor was supposedly "unjustly treated" over there.  Some tim...
Read more

My First Taste of Sichuan at Yang Hero IT Park

I was doing some random historical study. One of the many things I recalled from Asian history class was the Chinese Communist Party in Sichuan. It's an interesting piece of historical detail that Mao Zedong (and other Chinese communists) were avid lovers of spicy food . Yang Hero had its first branch in Gaisano Tabunok. It opened a branch in IT Park last May 25, 2023 . The menus had Chinese translations. The establishment has made me realize  the importance of learning Mandarin . True, I could order their food without speaking Mandarin. However, I still feel that the increasing number of Chinese businesses left and right would mean, "You may need to learn some Mandarin now to connect with more people in the world." For a bit of background, here's what I gathered from Sun Star Cebu: Evanmarie Mendoza, social media specialist at Yang Hero, said: “The Chinese barbecue is also a must-try for foodies as it differs from the regular ones that we typically have here in the P...
Read more

Tealive's Aren Caramel (Kaong Sugar Caramel) Series

I usually tend to associate sugar with cane sugar. In this case, Tealive (read my review here ) uses a sugar known as gula aren. I did some research and found out that Gula Aren is made from the sap of the sugar palm tree. The fruit is also known as kaong in the Filipino language. Granted, the Filipino language also derives from the Malaysian and Indonesian languages--it may be derived from the Indonesian word kolang kaling . The Philippines may also be producing its own gula aren or palm sugar. Sugar palm or kaong is pretty much grown as a staple in Filipino cooking too. Here's a video from an Indonesian woman. Watching this, it's safe to assume that kaong farmers in the Philippines follow more or less the same routine. Maybe, some people may call it latik though latik is made from coconut milk and not coconut sap. Though, some Filipinos may still call palm sugar as latik. The video above also shows an Indonesian binignit with some kaong. I was shocked to learn kaong is also u...
Read more

Getting Stingy at the Cost of Fire Safety?

March is fire prevention month, right? If there are people who are too extravagant then I'd like to talk again about stingy people (read the article here ). I've tried growing up with the stingy vs. extravagant extremes. Some people become stingy even with the necessities. It's one thing to deny a child a children's party since it's a want . It's another thing to deny a child stuff they need all in the name of saving money . Even worse, some people may be more than stingy enough to ignore fire safety. A stingy person just wants to save. It's almost like the story of the Miser and His Gold or The Rich Miser . I really find these stories entertaining at the same time, irritating. The first story has the miser who hid his gold under the ground. Some people today are too distrustful of banks and investments. The second story has a rich man who even dresses in rags, denies his son's shoes, had his wife cook some cake only for him, and was so greedy he had it ...
Read more

Started to Invest in the ATRAM Global Equity Opportunity Feeder Fund

It's time to begin a new road into investing. I went from a moderate risk taker to a moderately aggressive risk taker. Of course, I need to be careful with how much money I invest or I don't invest the money that I need. I believe that one could start by investing 15% to 20% of one's income. Basically, it's money that's not needed now. Fortune Recommends gives this ideal sweet spot: Many of the experts we spoke with suggested, as a general rule, to invest a set percentage of your after-tax income. Although that percentage can vary depending on your income, savings, and debts. “ Ideally, you’ll invest somewhere around 15%–25% of your post-tax income, ” says Mark Henry, founder and CEO at Alloy Wealth Management. “If you need to start smaller and work your way up to that goal, that’s fine. The important part is that you actually start.”  Some budgeting strategies account for this, such as the 50/30/20 budgeting strategy, which breaks your monthly budget into three ca...
Read more