Why FDIs are Choosing COMMUNIST Vietnam Over DEMOCRATIC Philippines
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| China Daily HK |
As Miss Clueless blamed former president Rodrigo R. Duterte, the person still believes that people must change first before systems. I asked her, "Why are people choosing Communist Vietnam over the Philippines." The reason I heard from Miss Clueless was something like, "Well, it's because there are no Dutertes and Marcoses in Vietnam." The answer is still downright wrong. Vietnam is still a totalitarian state, a one-party state ruled by the Communist Party of Vietnam (CPV). The Human Rights Watch (HRW) organization doesn't have a positive review of Vietnam either. Some people have cited HRW findings on Duterte's regime to say, "Well that's why we don't have more FDI. They're too afraid." Did they bother to compare the data between 2010-2016 between Duterte's regime and Vietnam at that time?! Also, Miss Clueless may be saying, "Well, it's because Bongbong Marcos said that FDIs refuse to come here." However, Miss Clueless has been rather quiet if you ask me!
The Philippines has restored freedom since the EDSA Revolution of 1986, but did it increase FDI inflows?
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 Constitution’s patriotic bravado, reserving certain industries exclusively for Filipinos (or a Filipino majority) worked to our peril. It deprived the nation of valuable foreign investments, technology transfers, tax revenues, export earnings and jobs.
The Constitution’s restrictive economic provisions stunted our development for 36 years. From 1987 to the close of the century, Singapore, Malaysia and Thailand leapfrogged in development on the back of a deluge of foreign direct investments (FDIs). During that period, the Philippines’ share of regional FDIs lagged at a pitiful 3 percent in good years and 2 percent in normal years.
From the year 2000 up to the present, Vietnam and Indonesia took their fair share of FDIs, leaving the Philippines further behind. The country’s intake of foreign investments is less than half of what Vietnam and Indonesia realize. No surprise, our exports have also been the lowest among our peers. The lack of investments in manufacturing capacities have left us no choice but to export our own people.
Imbedded in the Constitution are industries in which foreigners are precluded. These include agriculture, public utilities, transportation, retail, construction, media, education, among others. Further, the Constitution limits foreigners from owning more than 40 percent equity in corporations. Foreigners are barred from owning land too. These provisions caused us to lose out on many investments which would have generated jobs, exports and taxes. Not too long ago, we lost a multibillion-dollar investment from an American auto manufacturing company that chose to invest in Thailand instead. We lost a multi-billion smartphone plant by Samsung, who located in Vietnam.
Sure, the Public Service, Foreign Investment and Trade Liberalization Acts were recently amended, allowing foreigners to participate in a wider berth of industries with less rigid conditions. But it is still not enough. The Philippines remains the least preferred investment destination among our peers.
Our flawed economic laws are the reason why our agricultural sector has not industrialized and why food security eludes us. It is also why our manufacturing sector has not fully developed. It is why we lost the opportunity to be Asia’s entertainment capital despite our Americanized culture (Netflix located its Asian headquarters in Singapore, Disney in Malaysia, MTV in Hong Kong and Paramount Studios in Taiwan). It is why our education standards are among the lowest in the world. It is why many industries are oligopolies owned by only a handful of families.
As for the form of government, I am willing to give the federal system a chance. Let’s face it, the current presidential system fails to provide the checks and balances for which it was intended. Senators and congressmen still vote according to party lines, albeit in a much slower legislative process. So yes, I am willing to try a new form of government because 36 years of insisting on a flawed system is insanity.
The world has changed since 1987. Our Constitution must keep up with these changes if we are to be competitive. This is why I support Charter change, except in the extension of term limits of public officials.
The problem is within the Constitution. Economic protectionism should never be put in the constitution but only in legislation. If we take a look at the problem, amending the constitution requres a two-thirds vote. If people want to blame corruption for a lack of FDIs, here's what they missed. Corrupt officials are most likely involved as to why the Philippines as so many ridiculous economic restrictions, enshrined in the 1987 Constitution. That means executing Article XVII of the 1987 Constitution, can be easily manipulated with votes. As long as the votes don't go by two-thirds, these amendments that could've improved the Philippines would never happen.
For those seeking to use Israel as an excuse, no, Israel doesn't have the lousy economic restrictions within the constitution. Protectionism seldom goes on a rise when economies are overheating. Legislation can be submitted as a temporary measure, before returning to free trade practices. In short, Grandfather Toga's arguments on Facebook of Israel's restrictive economy are misguided. Instead, the Sustainable Governance Indicator tells the following about Israel's restrictive economy:
Israel’s fiscal policy is characterized by rather strict budgetary discipline, which is maintained by the significant power of the Ministry of Finance, a fiscal framework that sets limits on public deficits and annual increases in public spending, and the so-called Arrangements Law. The Arrangements Law is an omnibus law that is passed in parallel with each budget, consists of numerous restrictions and amendments, and is designed to secure the state’s financial goals.Israel’s comparatively strong fiscal position was maintained during the pandemic. In terms of the deficit, Israel posted a budget deficit (ILBUD=ECI) of 4.6% of gross domestic product by the end of 2021, down from 5.5% during the same period in 2020. The improvement came as an economic rebound that has led to higher-than-expected tax revenue. Over the past year, tax income is up 23.1% from the same period in 2020 (BOI 2021). Consequently, the increase of public debt has been relatively low in comparison to other OECD countries.The ILS 609 billion ($194 billion) spending plan for 2021 is the first budget Israel has passed since 2018. This delay was due to a prolonged political deadlock, which saw successive governments fall before they could bring a proposal to the Knesset. The 2022 spending plan stands at ILS 562.9 billion ($180 billion). The overall budget marks a major reorientation of Israel’s allocation of resources and financial priorities in the coming years. It is based on the principles of streamlining government operations, upgrading public services, boosting economic competitiveness, cutting regulations to support public and private sector growth, limiting Israel’s shadow economy, boosting transportation, housing, energy and technology infrastructure, and investing in human capital by training and integrating marginalized populations into the workforce (Ben David 2021).The Knesset’s approval of the 2021–2022 budget has reduced political uncertainty and risks to public finances, affirming the government’s capacity to advance legislation. Fitch Ratings increased Israel’s rating from A to A+. According to Fitch Ratings, “Israel’s A+ rating balances a diversified, high value-added economy, which proved resilient to the COVID-19 pandemic, strong external finances and solid institutional strength” (Fitch Ratings 2021).
In short, Israel's secret is that despite its restrictive economy, any restrictions in the economy are through legislation. If tariffs are needed to avoid an overflow of imported goods and services, so be it. However, these tariffs may be reduced or removed when the overheating is over. That's different than how the Philippines puts the economic restrictions within the constitution, making it more difficult to make adjustments!
Meanwhile, Communist Vietnam's economic restrictions are ironically more relaxed than the Philippines
Vietnam still has some protectionist measures. I decided to read through the Vietnamese constitution, which was last revised in 2013. The preamble sounds scary, considering that Ho is still regarded as a hero. Just imagine if the Philippines were under the rule of the CPP-NPA, and the new preamble, declared the late Jose Maria Sison, a hero. Vietnam's government is literally under the rule of the CPV, a one-party state!
In the course of their millennia-old history, the Vietnamese people, working diligently, creatively, and fighting courageously to construct and defend their country, have forged a tradition of patriotism, solidarity, humaneness and righteousness, perseverance and indomitableness, and have created Vietnamese civilization and culture.
Starting in 1930, under the leadership of the Communist Party of Vietnam formed and trained by President Ho Chi Minh, our people waged a protracted revolutionary struggle full of hardships and sacrifices for the independence and freedom of the nation and happiness of the people. August Revolution was successful, and on 2 September 1945, President Ho Chi Minh announced the Declaration of Independence, founding the Democratic Republic of Vietnam which is now the Socialist Republic of Vietnam. With the will and the power of entire nation, and with the assistance of friends across the world, our people have gained great victories in national liberation wars, unified the country, defended the Fatherland, fulfilled international duties, attained historic great achievements in the task of renovation, leading the nation to socialism.
Institutionalizing the Political Creed of building the nation during the transitional period to socialism, and inheriting the 1946 Constitution, 1959 Constitution, 1980 Constitution, and 1992 Constitution, the Vietnamese People frame, implement, and protect this Constitution for the objectives of wealthy people, powerful nation, democracy, justice, and civilization.
However, if we go further into Vietnam's constitution, the economic policies aren't found within the constitution. Maybe, I'll call it the Communist Manifesto of Vietnam for laughs. Instead, we find that Vietnam not only updated its constitution, but also has a much shorter negative list than the Philippines! The Vietnam Briefing also writes this:
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.
The negative list of Communist Vietnam is much shorter than that of the democratic Philippines. The Philippines could brag about being democratic, but it's got a much longer negative list. Democracy at the cost of economic development (read here)? The Official Gazette of the Philippines lists this ridiculous list:
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
It makes it even more difficult to amend this ridiculous, restrictive list. However, Vietnam not enshrine the economic policies for free trade and protectionism, aren't listed in their Communist Manifesto! That means should the members of the CPV decide to revoke ridiculous measures (such as allowing banks only 30% foreign equity), they could easily pass a legislation, which requires no amendment to their Communist Manifesto. How ironic indeed that the Philippines, supposedly a bastion of democracy, hasn't thought of that!
The result is that most FDIs will go to Vietnam. A few sectors may require 30% minimum and up to 70% ownership, if ever these sectors require at least 30% to be owned by the Communist state! It's ironically milder than the Philippines requiring too many sectors to be owned by an oligarch, at 60%! Even funnier, just this year, Communist Vietnam even gave banks more ownership up to 49%, which could possibly go higher.
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| Nguyen Duy Cong (Do Muoi) and Lee Kuan Yew Source: VOVworld5 |
FROM ISOLATION TO PROSPERITYBy the mid-1980s, the development model Vietnam had borrowed from the former Soviet Union and its East European allies had revealed numerous flaws and was proving outmoded. On the political and diplomatic front, tense relations with China, the heavy burden of Vietnam's troop presence in Cambodia and strict sanctions imposed on it by the US placed Vietnam in a difficult bind. On the one hand, the country was blocked from cultivating new relations with other countries; on the other, it had become ever more dependent on the Soviet Union for political support and economic and military assistance.The turning point came with a dramatic reduction in Soviet economic and military assistance after the mid-1980s and the economic hardship this caused. For the sake of the country's survival, Vietnam's leaders were forced to adopt economic and political reform, or Doi Moi. In essence, Doi Moi in its early stages was focused mainly on the removal of self-imposed barriers to progress and the utilization of various market-oriented measures, including liberalization of the domestic market, encouragement of foreign direct investment, or FDI, and the private sector, and reduction in subsidies to state-owned enterprises (SOEs).These steps quickly brought positive results. From a country faced with perpetual food shortages, Vietnam in 1989 for the first time exported 1.4 million tons of rice. It has since remained a rice exporter. In 2008, it exported 4.7 million tons, becoming the world's second largest rice exporter after Thailand. Indeed, Vietnam's exports were instrumental in stemming the threat of a severe international food crisis in early 2008.What impresses most, however, is the continuous high economic growth rate that Vietnam has recorded in the 20 years since the introduction of Doi Moi. Vietnam recorded average annual economic growth of 6.5 percent over that period, one of the highest rates among developing countries. And with annual per capita income of $1,000 in 2008, Vietnam was removed from the list of the world's least developed countries. The high economic growth rate in turn helped reduce Vietnam's poverty rate from 70 percent in the mid-1980s to 37 percent in 1998 and 19 percent in 2007.
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