Regulatory Reforms to Attract Foreign Direct Investment in the Ports and Shipping Sectors

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.

The highly centralized port ownership and administration along with PPA’s lack of independence and multiple roles as developer, operator, and regulator of ports have resulted in conflicting interests and undermined PPA’s regulatory independence and credibility. With its weak incentive to promote competition, PPA has used its regulatory powers to protect its ports from competition. Apart from lack of transparent, fair and competitive bidding process, constitutional restriction on foreign equity has also slowed privatization in the sector. Compared with other countries in the region, studies show that the Philippines, along with Thailand, India and Indonesia; has the most restrictive barriers on maritime trade services.
Effective regulation and competition in the maritime sector is crucial not only to increase foreign direct investment but also to reduce the cost of doing business and improve access to affordable transport. There is a need to restructure the port system and separate PPA’s regulatory responsibilities from its development and operations functions. Regulatory independence and a transparent and rules-based framework are essential to safeguard private (both domestic and foreign) participation. Shifting to a regulator role would entail the development of new skills, institutional capacities and practices including regulating unfair or anticompetitive practices, designing and negotiating contracts with private providers of port services, monitoring performance and enforcing compliance with general standards.

In shipping, further reforms to strengthen MARINA so that it could effectively implement the competitive reforms provided in RA9295 should be pursued. As in ports, there is also a need to develop new skills, institutional capabilities and practices in regulating unfair or anticompetitive practices.

Read full text of “Regulatory Reforms to Attract Foreign Direct Investment in the Ports and Shipping Sectors” (in .PDF, 11pp.)

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