By Arjay L. Balinbin, July 23 2018; Business World

Image Credit to Business World

BUSINESSMEN will perk up their ears as President Rodrigo R. Duterte delivers his third State of the Nation Address (SONA) today amid improvements in state finances as well as perceived mounting overheating and political risks, hoping to hear about steps to further improve the environment in which they operate.

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Two major credit raters — Fitch Ratings and Moody’s Investors Service — last week affirmed the Philippines’ credit score at a rung above minimum investment grade, but flagged signs that the economy may be overheating — with prices overall spiking as production struggles to keep up with rising demand in the fast-growing economy — as well as mounting political risk from current moves to shift to a federal form of government.

Presidential Spokesperson Harry L. Roque, Jr. said in a press briefing last Thursday that “definitely federalism will be there” in the SONA, besides a push to adopt a regular tariff scheme for imported rice that is expected to slash retail prices of the staple by about P7 per kilogram.

Asked about his expectations on Mr. Duterte’s report to the nation, John D. Forbes, senior adviser of the American Chamber of Commerce of the Philippines, said he hopes the President would expound on “how the government plans to implement Point 3 in the Socioeconomic Agenda, which promised to pursue the relaxation of constitutional restrictions on foreign ownership in order to attract FDI (foreign direct investment).”

“What is the administration’s plan to make the Foreign Investment Negative List more positive?” Mr. Forbes said in an e-mailed reply to questions on July 16.

The 11th FINL is now about a year late, with the list — which economic managers have said would be more aggressive than predecessors in easing restrictions to foreign participation in various economic sectors — still awaiting Mr. Duterte’s signature.

Also sought for comment, European Chamber of Commerce of the Philippines (ECCP) president Guenter Taus said in his reply by e-mail on July 19 that “(l)ast year, through the issuance of Memorandum Order No. 16, the President directed NEDA (National Economic and Development Authority) to ease/lift restrictions on certain investment areas / activities.”

The said memorandum, signed by Executive Secretary Salvador C. Medialdea on Nov. 21 last year, directed the NEDA Board to take immediate steps to lift or ease restrictions on foreign participation in eight investment areas: private recruitment for local or overseas employment; practice of professions “where allowing foreign participation will redound to public benefit”; contracts for the construction and repair of locally funded public works; public services “except activities and systems that are recognized as public utilities such as transmission and distribution of electricity, water pipeline distribution system and sewerage pipeline system”; culture, production, milling, processing and trading, except retailing, of rice and corn and acquiring, by barter, purchase or otherwise, these grains and their by-products; teaching at higher education levels; retail trade enterprises; and domestic market enterprises.

Mr. Taus said the ECCP is “eager to hear the President discuss the developments on easing the said restrictions.”

“Moreover, the European business community looks forward to the further opening up of the Philippine market to foreign players as this will make the Philippines a more attractive investment destination and will have positive spillover effects to the Philippine economy,” he added.

The ECCP, said Mr. Taus, “also looks forward to hearing more about the current administration’s updates and next steps on the amendments to the Public Services Act; the liberalization of regular PCAB (Philippine Contractor’s Accreditation Board) license, which will aid the Build, Build, Build Program; and the liberalization of retail trade as this will further promote consumer welfare.”

“Although under way, we also hope that the second tax reform package will make the Philippines more attractive to investments and in turn, facilitate job creation and poverty reduction,” he added, referring to the move to slash corporate income tax rates to put them at par with Southeast Asian rivals as well as remove tax incentives deemed redundant that have cost the government as much as P300 billion in foregone revenues each year.

British Chamber of Commerce Philippines (BCCP) chairman Chris Nelson said in a July 16 phone interview that the British business community in the country also wants to hear “(if) the government is moving ahead to relax foreign ownership.”

Also sought for comment, Federation of Indian Chambers of Commerce and Industry president Rex Daryanani said, “We hope that the government takes a second look at these restrictions.”

“Companies who cannot have at least majority control will normally not invest. We hope that the private sector can be consulted and worked with in coming up with a more friendly scenario that will encourage more people to invest in the Philippines.”

On July 9, the Consultative Committee (Con-Com) tasked to review the 1987 Constitution submitted to Malacañang its draft federal charter, which proposed revisions to the Constitution but also retained restrictions in Articles XII (National Economy and Patrimony) and XVI (General Provisions) on foreign equity.

Philippine Chamber of Commerce and Industry (PCCI) chairman George T. Barcelon said, when asked about the charter-change initiative, “I would like to hear, if this would be addressed by the President, what benefits can we really get from the shifting of government, because we are making a giant leap, from this present government system to an entirely new system.”

“I hope we will be enlightened that, if this will be talked about in SONA, the President will say, ‘Okay these are the options, the benefits, and the downsides’.”

He added that “[t]he timing [for federalism] may not be right. It’s not that they (businessmen) are taking this entirely off the table. Pero pag-aralan muna (But this should be studied first).”

“You have the BBL (Bangsamoro Basic Law) already. You try to run with the BBL and see how it goes,” Mr. Barcelon said.

Pagkabinago mo ‘yung (If you change the) government system, the concern is that we might be starting on square 1, base 1. So, one of the concerns is that this could derail the [economic growth] momentum…”

Mr. Barcelon also said his organization wants the President to “touch a bit” on infrastructure.

“The (third major) telco player, that there should be one, so that there will be more competition,” he said.

ECCP’s Mr. Taus cited a Commission on Audit report that the Department of Transportation (DoTr) “was unable to fully implement P46.6 billion worth of funded projects due to frequent changes in policy, causing the transport problems in the country to persist.”

“This resulted in the failed or delayed implementation of 153 out of 159 DoTr projects last year worth P58.9 billion. While we appreciate the government’s efforts toward infrastructure development, we recommend for these projects to be immediately and efficiently implemented,” Mr. Taus said.

Mr. Taus suggested further that “one aspect the government can explore more is the public-private partnership in the implementation of the Build, Build, Build” infrastructure development program.

“Given the success of the recently inaugurated Mactan-Cebu International Airport, which was built through PPP, we believe that it is worthwhile for the government to encourage the use of this model,” he said.

“Furthermore,” Mr. Taus added, “to realize the benefits of the Build, Build, Build program, we believe that it is vital that the government/administration take strides to liberalize the Philippine market and promote increased participation of the private sector in infrastructure development. With the amendment to the Government Procurement Reform Act, the PCAB (Philippine Contractors Accreditation Board) licensing rules are the only roadblock left to foreign participation in Build, Build, Build. When the PCAB licensing regulations are repealed, the Philippine Competition Commission (PCC) estimates an additional P6.8 billion (in) FDIs in the construction sector.”

PCAB issues two types of licenses to contractors, regular and special. The regular license is issued to domestic contractors and is valid for a year. The special license is issued to joint ventures, consortia, or foreign contractors and is valid for individual projects only. Citing PCAB data, PCC said that out of 1,600 special licenses issued in 2015, only 20 were issued to foreign firms while four were issued to joint ventures or consortia with foreign participation.

The British business community, Mr. Nelson said, “would like to hear more… some further details in terms of when those major infrastructures (are going to be started).”

Mr. Forbes also said, “We would like to hear more about the status of Build, Build, Build to modernize infrastructure.”

Ahead of Mr. Duterte’s SONA, the Office of the Cabinet Secretary and the Presidential Communications Operations Office held three fora at the Philippine International Convention Center to discuss the policies, programs and projects implemented in Mr. Duterte’s second year in office.

The first forum on July 6 featured the government’s economic managers — Socioeconomic Planning Secretary Ernesto M. Pernia, Finance Secretary Carlos G. Dominguez III and Public Works and Highways Secretary Mark A. Villar — who presented the administration’s key reforms and initial successes, led by moves to overhaul the tax system and develop major infrastructure.

A second forum on July 11 featured the participatory governance cluster headed by Interior and Local Government Secretary Eduardo M. Año and the human development and poverty reduction cluster led by Social Welfare and Development Acting Secretary Virginia N. Orogo. Mr. Año reported on the drug war that has led to the arrest of 136,129 suspects and the surrender of 1.2 million others since 2016. Ms. Orogo, reporting on the education component of the Pantawid Pamilyang Pilipino Program, said, “There was an over-1.3 million increase in enrollees in secondary education and (we) enrolled more than 900,000 in 112 state universities and colleges.”

The third pre-SONA forum on July 18 featured the climate change adaptation and mitigation, national disaster risk reduction and resiliency cluster with Environment Secretary Roy A. Cimatu, and the security, justice and peace cluster with Defense Secretary Delfin N. Lorenzana and National Security Adviser Hermogenes C. Esperon, Jr.

Mr. Cimatu talked about the rehabilitation of Boracay island and the government’s initiatives addressing climate change. Mr. Esperon defended the government’s management of its maritime dispute with China that has been seen as weak despite the July 12, 2016 Hague ruling in the Philippines’ favor.

Mr. Forbes said of the Duterte administration’s performance thus far: “The most significant reforms in the first two years of the administration are TRAIN 1 (Republic Act No. 10963 or Tax Reform for Acceleration and Inclusion) and increased spending on physical and social infrastructure… These reforms should make the Philippines more competitive.”

The first tax reform slashed personal income tax rates to prod households to spend more, and increased or added taxes on a host of items.

While he said he was “satisfied” with the administration’s performance, so for, Mr. Barcelon said, “it could be better.”

“There should be more team effort, not only on the executive level but also on the legislative level to get things move faster,” he explained.

Mr. Daryanani said Indian businesses “appreciate the efforts of the President and his team.”

“Hard decisions have to be made for our country. Not everyone will like them, but in the end it has to be made.”

At the same time, he added, “[a]n… overhaul of our visa system is badly needed to encourage more foreign direct investments,” Mr. Daryanani said.

“We also look forward to how our government will aggressively work to level the playing field for all businesses.”

Mr. Taus said the administration has been “trying its level best in initiating and continuing important reforms such as the Build, Build, Build program, the comprehensive tax reform, the release of the Memorandum Order No. 16, as well as the signing of the Ease of Doing Business Act.”

“We look forward to more movement in the aforementioned initiatives and hope to see tangible results within the current administration’s term.”