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Opening the investment floodgates for public services

Retail Trade Liberalization Act of 2000, Public Service Act of 1935, Public service, Public utility, Foreign direct investment

With the signing of Republic Act No. 11595 (“An Act amending Republic Act No. 8762 or the Retail Trade Liberalization Act of 2000”) into law and the approval of Senate Bill No. 2094 (“Amending the Public Service Act”) on its third and final reading, the Philippines is poised to open the floodgates to more foreign direct investments and avenues for economic growth.

 

To further liberalize the Philippine economy, lawmakers introduced amendments to two existing pieces of legislation: namely, the Retail Trade Liberalization Act of 2000 and Public Service Act of 1935.  Republic Act (RA) No. 11595, which amended the Retail Trade Liberalization Act, was signed into law by President Duterte in December 2021, while Senate Bill (SB) No. 2094, which will amend the Public Service Act of 1935, is currently awaiting the president’s approval after it passed its third and final reading.

The two amendatory pieces of legislation are part of the three investor-friendly measures endorsed by President Duterte and whose passage has been advocated by Department of Finance secretary Carlos Dominguez III and the chief executive’s economic team.

Under RA 11595, the minimum capital requirement for foreign retailers has been reduced from $2.5 million (approximately PHP125 million) to PHP25 million. The amendment also reduced the investment-per-retail-store requirement to at least PHP10 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 Furthermore, RA 11595 repealed the requirements under Section 7 of the original law, which provided that all retail trade enterprises under Categories B and C in which foreign ownership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 percent of equity, should offer a minimum of 30 percent 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.

On the other hand, SB 2094, which President Duterte previously certified as urgent, seeks to ease the restrictions on foreign investments in public services. One of its salient amendments is the distinction 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; and 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.

Opening the investment floodgates for public services

Colliers view

With the amendments introduced to the Retail Trade Liberalization Act and Public Services Act, the eased restrictions and requirements for investments will attract more foreign investors, which will generate new business opportunities and economic drivers across the country. The potential economic growth to be brought by the liberalization of investment policies will also help the country recover from the Covid-19 pandemic and improve its competitive standing in attracting foreign capital.

Moreover, foreign entrants will likely need to set up a local operating center or headquarters, which may lead to increased office demand in Metro Manila and other locations across the Philippines. 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 urges new entrants to explore office options in some of the country’s established business districts, such as Fort Bonifacio, a former army base developed into a commercial hub teeming with modern buildings and high-end retail establishments, and the Makati central business district, which is the country’s foremost business and financial hub. Both of these locations are home to top local corporations and multinational firms.

Moreover, depending on operational, budget, or talent-hiring considerations, new entrants can consider leasing opportunities in emerging localities, including Quezon City and the Bay Area, both of which offer high inventory of new office supply, attractive rental rates, and proximity to talent.

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

Annex: Summary of key provisions

Annex Summary of key provisions


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