Foreign direct investment (FDI) has long been acknowledged to be one of the critical inputs to developing the Philippine economy. Recognizing the potential benefits of FDI, the Government has sought to make the investment climate more hospitable by liberalizing its investment policies. However, in spite of various measures to open up more areas to foreign participation in the last twenty years, the country still lags behind its regional neighbors in terms of FDI inflows. There has in fact been a noticeable decline in FDI inflows in the last few years.
International air transport is a critical pillar in the overall competitiveness and sustainability of the Philippine economy. The availability of an efficient network of air transport services to move goods and people is a major attraction for investments in high value production and in service-oriented facilities. International air connectivity is the major infrastructure that will harness the widely-recognized yet least appreciated strategic geographical location of the country for tourism and high value trade and logistics in the Asia-Pacific region. About 70 percent of the value of Philippine exports is moved by air. Ninety-eight percent of visitor arrivals arrived by air. The network of 8 million Overseas Filipinos including the 3.5 million Overseas Filipino Workers (OFWs) travel by air to and from their place of work. The country has an existing and extensive network of international and domestic airports and most of which remain underutilized.
To guide us in this study on legal barriers to investments, we use a basic investment framework with the perspective that institutions are the deep determinants of growth. In this regard, our framework discusses the interconnection of the Coase theorem, the credibility of commitments, the hold-up problem, and the existence of effective third-party enforcement mechanisms.
The study also adopts the approach of identifying the binding constraints on investments and proposes solutions—in the real world, second-best solutions are more effective, to these binding constraints.
This Policy Note focuses on the recent experience of the ports and shipping sectors, discusses the current state of competition and identifies the major legal and regulatory barriers that constrain foreign direct investment in the two sectors. While both sectors had episodes of liberalization, deregulation and privatization in the last two decades, shipping costs have remained high and investments inadequate due to lack of regulatory independence and weak competition. The 2010 Doing Business Survey shows that the Philippines has the highest cost of importing and exporting among its ASEAN and East Asian neighbors. Based on the competitiveness ranking of the World Economic Forum on the quality of port infrastructure, the Philippines ranked 112th out of 133 countries surveyed indicating the lack of competitiveness of Philippine ports.
What fashioned economic nationalism in the Philippines was an inward-oriented economic approach that became wedded to the postwar nationalist struggle. Its beneficiary, the industrial class, flaunted protectionism as an articulated ideology with universal aims. Nationalism was not only held up as the ransom of a sheltered, inward-looking economy, it was also appropriated as the instrument for its legitimation. An unresponsiveness to openness was the logical outcome of this nationalist mystification.
In the intelligence community, there is what is called the intelligence cycle consisting of direction, collection, processing, analysis, dissemination and feedback. The most fundamental problem of Philippine land administration is that it does not possess all the information needed to completely delineate property rights of the government and private persons in the country. It is the most fundamental problem since the other policy objects cannot be achieved without resolving this one first. It represents a failure of intelligence which can be traced to the very beginning of the intelligence cycle – direction and collection.