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And there were three: The economic recovery toolkit

Retail Trade Liberalization Act, Foreign Investments Act, Public Service Act, Foreign direct investment

With the enactment of RA 11595, RA 11647, and RA 11659 and the signing of E.O. 166, the Philippines is poised to open the floodgates to more foreign direct investments and avenues for economic growth and recovery.

 

The Philippines is poised to open the floodgates to more foreign direct investments (FDI) and avenues for economic growth and recovery after the enactment of three significant pieces of legislation by Congress and the signing of an Executive Order that aims to accelerate and sustain economic growth from the Covid-19 pandemic.

The three significant pieces of legislation, signed into law by President Rodrigo Duterte in the last 3 months, were the following:

  • Republic Act No. 11595 (“An Act amending Republic Act No. 8762 or the Retail Trade Liberalization Act of 2000”)
  • Republic Act No. 11647 (“An Act Promoting Foreign Investments, Thereby Amending Republic Act 7042 Otherwise Known as the Foreign Investments Act of 1991, as Amended and For Other Purposes.”)
  • Republic Act No. 11659 (“Amending the Public Service Act”)

Further boosting the promising impact of these three newly enacted laws is Executive Order (E.O.) 166 signed by President Rodrigo Duterte, which is a 10-point policy agenda aimed at accelerating the economy’s recovery from the Covid-19 pandemic.

New laws in a nutshell

Under RA 11595, the minimum capital requirement for foreign retailers has been reduced from $2.5 million (or approximately PHP125 million) to PHP25 million. The amendment also reduced the investment per retail store requirement to at least P10 million per store.

Furthermore, RA 11595 repealed the requirements under Section 7 of the original law, which provided that all retail trade enterprises under Categories B and C, in which foreign ownership exceeds 80% of equity, should offer a minimum of 30% to the public through any stock exchange in the Philippines within 8 years from the start of operations. The new law also encourages foreign retailers to have a stock inventory of products made in the Philippines.

RA 11647, meanwhile, allows for foreign ownership of micro, small and medium enterprises (MSME) with a minimum paid-in capital of $100,000 (half of the original amount), installs an inter-agency committee to promote and facilitate these foreign investments, adds safeguards at the disposal of the President to allay national security concerns, and institutionalizes the upskilling of Filipino workers employed by foreign businesses. This law makes investing in the Philippines more attractive by lowering the required capital, will help break apart huge local players, and will help push the economy towards recovery.

Thirdly, RA 11659 eases restrictions on foreign investments in public services. One of its salient amendments is the distinction defined between “public services” and “public utility.” Under the bill, public utility refers to a “public service that operates, manages or controls for public use” of any of the following: distribution or transmission of electricity; petroleum and petroleum products pipeline distribution systems; water pipelines distribution systems and wastewater pipeline systems; as well as airports, seaports, public utility vehicles and tollways or expressways. Those not classified as public utility shall be considered as public service, which will not be bound by the restriction on foreign ownership. Public services include telecommunications, air carriers, domestic shipping, railways, and subways.

Finally, further boosting the promising effect of these three newly enacted laws is E.O. 166, a 10-point policy agenda aimed at accelerating the economy’s recovery from the Covid-19 pandemic. It promotes a more resilient healthcare system, an accelerated vaccination program, the reopening of the economy and face-to-face classes, streamlined and less restrictive travel requirements, and the use of more relevant reporting metrics of the Covid-19 situation on the ground. All of these serve to sustain the country’s economic recovery and development trajectory through a whole-of-government approach to eliminate the pandemic’s long-term effects.

Colliers view

With the amendments introduced to the Retail Trade Liberalization Act, the Foreign Investments Act, and Public Services Act, plus the 10-point economic recovery policy agenda of E.O. 166, the easing restrictions and requirements for investments will attract more foreign investors who will generate new business opportunities and economic drivers across the country. The economic growth brought about by liberalization of investment policies will also help the country recover from the Covid-19 pandemic and improve its competitive standing in attracting and mobilizing foreign capital.

Foreign entrants, should they decide to invest in the Philippines, will need to set up a local operating center or headquarters, which in turn will lead to increased office demand in Metro Manila and other provincial locations. Having Metro Manila as the first base of operations in the country is a tried-and-tested formula for success, which will bode well for such new entrants. Colliers recommends for new entrants to explore office options in highly developed business districts, such as Bonifacio Global City, an army base developed into a commercial hub teeming with modern buildings and high-end retail establishments, or the Makati CBD, the country’s most established financial and business district. Both of these locations are home to many of the country’s top local corporations and multinational firms and Premium and Grade A office buildings.

Moreover, depending on operational, budget, or talent hiring considerations, new entrants can consider leasing opportunities in emerging localities, such as Quezon City and Bay Area, both of which offer significant amount of Grade A office supply, attractive rental rates, and a huge talent pool.

With the flow of investments accelerating the economic development of various areas across the country, Colliers believes that the economic opportunities created by the aforementioned amendments will have a positive cascading effect on Philippine real estate and the livelihoods of many Filipinos.

Note: This article is an update of a previously published piece.

 


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