What foreign investment restrictions?

  • Reading time:7 mins read

First of Three Parts

In the past few months, moves to change the constitution by foreign chambers of commerce to lift purported restrictions on foreign investments’ entry into the country have intensified.

Both Senate President Franklin Drilon and House Speaker Feliciano Belmonte are saying there is enough time under the 16th Congress and during President Benigno S. Aquino’s term to amend the Charter’s economic provisions to make the country more open to foreign investments.

While the issue hardly belongs to his territory, Foreign Affairs Secretary Alberto del Rosario has claimed that the country direly needs to lift its restrictions on foreign capital if it is to participate in new global economic arrangements. As I will argue, though, in subsequent installments of these three-part series, Belmonte and del Rosario’s motives may not be as purely patriotic as they seem to be — their keen interest in charter change may point to the real motive behind all this cha-cha agitation.

What restrictions on foreign capital are they talking about — I mean in practice and not in theory?

Unless you live in the boondocks or in some isolated island in this archipelago, you cannot spend a day without buying – having to buy, actually – a product or a service sold by corporations either majority owned by foreign firms, even exceeding the constitutionally-mandated 40 percent limit for utility companies, or in which these have very significant shares.

Household brands in the Philippines: Foreign firms have majority or significant shares in them.

When you get up at dawn, and you turn on the lights, you’re buying electricity from Manila Electric Co., controlled by the Indonesian conglomerate which is tightly owned by Anthoni Salim, son of the late Liem Sioe Liong, who had been Indonesian dictator Suharto’s biggest crony. (See my column, Feb. 13, “Indonesian Magnate Controls Meralco.” To date, the Salim group or Meralco has not corrected any single information nor assertion in that article.)

Your breakfast and then your bath are likely to contain products made or distributed by a big multinational. The biggest consumer-products multinationals in the world, the Swiss Nestle and the American Procter and Gamble, have dominated the industry since before the war.

When you take a drink of water, and you live east of the metropolis, you must have bought the water from Manila Water, in which the old-elite Ayalas own just 31 percent, while about 34 percent is shared by the Japanese Mitsubishi Corp., Singaporean firms, and the International Finance Corp. of the World Bank. If you live west of Manila, you’ll be buying water from Maynilad Water, which is 53 percent owned by Salim’s holding firm in the country, Metro Pacific Investments.

For your calls and your internet connection, you’re using Smart or Globe, both of which are controlled and run by foreign firms. The Salim group, through Philippine Long Distance Telephone Co. (PLDT), and Japan’s biggest communications company, Nippon Telegraph and Telephone together own 47 percent of Smart. (See my column, “PLDT now an Indonesian-Japanese joint venture,” March 11). You think the Ayalas are the biggest stockholders of Globe? Nope: it is 47 percent owned by Singapore Telecom. Ayala Corp. has 30 percent, and other foreigners hold 17 percent through the stock market.

If you like to read the newspapers at breakfast, Salim, through PLDT’s Beneficial Trust Fund, has 20 percent of the Philippine Daily Inquirer, and 70 percent in each of Philippine Star and BusinessWorld. Salim is also firming up plans to buy 70 percent of the Manila Standard TODAY from the Romualdezes by early next year.

On your way to the office you stop for gas; if you’re not buying from Petron, you’ll likely be buying from foreign firms’ subsidiaries Pilipinas Shell and Chevron (Caltex), which has been in the country for a century and together have 40 percent of the market.

7-Eleven is Taiwanese
If you stop to buy bottled water at the now ubiquitous 7- Eleven convenience store, guess who controls our 21st century version of sari-sari stores?

No, it’s not the family of the late Vicente Paterno nor Erap’s trade and industry secretary Jose Pardo nor Mar Roxas’ Araneta clan – although each of these, you might say, are ten-percenters, i.e., they each own 10 percent of shares in the firm.

Philippine Seven Corp. is 57 percent owned by Taiwanese President Chain Stores, one of the biggest conglomerates in Asia with 80 subsidiaries and affiliates all over the region. The Texas-based 7-Eleven has nothing to do with the Philippine 7-Elevens, except to collect royalty for the use of the name and logo. (For details see my column June 2, 2013, “Taiwanese firm booming in the Philippines”). As in my columns on Salim, the firm has not corrected any information or assertion in that column.

If you live outside the metropolis, and you don’t want to suffer the terrible traffic of regular roads, you’d have to pay firms to use the toll roads run by companies in which Indonesian firms have majority control.

The South Skyway was built by a company owned by former Indonesian strongman Suharto’s eldest daughter, Siti Hardijanti Rukmana, known as Tutut. Her firms are still in Citra Metro Manila Tollways Corporation, which receives the tolls from there. Salim owns 67 percent through Metro Pacific Investments, of Metro Pacific Tollways Corporation, the largest tollways firm in the country that gets the tolls from the North Luzon Expressway, the Subic-Clark-Tarlac Expressway and the Manila-Cavite Toll Expressway.

And, knock on wood, in case you’re hurt in a terrible car accident in those expressways, you may be brought to the country’s top hospitals majority-owned or run by Salim’s holding company Metro Pacific Investments: Makati Medical Center, Asian Hospital, Cardinal Santos Medical Center, De Los Santos Medical Center, and three others outside Metro Manila.

But if you’ve driven safely home and have relaxed to watch TV, you’d likely be using the services of SkyCable, 40 percent owned by the Singapore firm STT Communications Pte. Ltd., or of Cignal TV, controlled by the Salim group through MediaScape, which is funded by PLDT’s Beneficial Trust Fund.

What restrictions are they talking about, when Starbucks has 226 stores here, more than those in any European country and most countries in Asia, which are ostensibly more open to foreign investment?

I’d be very interested to know how they’re doing it, but the Tantoco (Rustans’) Group of Companies, one of whose subsidiaries is the Starbucks Philippine partner, and the Henry Sy conglomerate, have been so successful in being the venue for the massive entry of foreign retail stores (such as the Japanese Uniqlo) into the country in recent years.

Most of these foreign firms operating in the Philippines have simply taken advantage of our liberal economic policies. However, the big question, though, is how Salim and the Ayalas have managed to skirt the constitutional provision limiting foreign ownership in utility industries, which include electricity distribution and telecommunications.

The answer is contained in a notion economists have invented to explain market failures: Regulatory Capture.

And you’ll find it shocking how a nondescript government entity – the Securities and Exchange Commission, the regulatory firm “captured” – has on its own, in effect, lifted the 40 percent limit on foreign companies’ ownership of utility firms, clearly specified by the Constitution and upheld by the Supreme Court.

That on Wednesday.