MANILA WILL HOST the annual Asia-Pacific Economic
Cooperation (APEC) Summit this coming November 18-19, 2015, or less than four
months from now. Presidents and Prime Ministers of the 21 member-countries
including the three largest economies in the world, US, China and Japan, will
be coming to Manila for two days to discuss and sign certain agreements related
to trade, investments and related concerns.
The Philippines’ trade and investments in the face of
ASEAN integration just five months from now was also discussed last July 15 at
the Tower Club in Makati City, sponsored by the Albert Del Rosario (ADR)
Institute.
The convenor and main speaker was Dr. Epictetus
Patalinghug (UP College of Business Administration, and a Trustee of ADR
Institute). Discussants were Dr. Gilbert Llanto (President of the Philippine
Institute for Development Studies/PIDS), Dr. Ramon Clarete (UP School of
Economics/UPSE Prof. and former Dean), Mr. Donald Dee (Honorary Chairman,
Philippine Chamber of Commerce and Industry/PCCI), and Atty. Wilfredo
Villanueva (Head of Tax and General Counsel, SGV & Co.).
In his presentation, “The Role of Exports and Foreign
Direct Investments in Industrial Development,” Dr. Patalinghug said that the
five striking resemblance among highly successful economies were: (a) Openness
to the global economy, (b) Macroeconomic stability, (c) High saving and
investment, (d) Market allocation, and (e) Leadership and governance.
He also showed this summary of Philippine economic
history. (See Table 1)
That is an objective and correct assessment. And it is
not unique to the Philippines or its neighbors in the ASEAN, but rather the
general trend for the rest of the world. If we check the economic integration
and liberalization of the four newcomers to the ASEAN, namely Cambodia,
Myanmar, Laos and Vietnam (CMLV), their pace of liberalization in trade and
investments on average was much faster than the Philippines.
Let us focus on investments; in particular, foreign
direct investments (FDIs). The UN Conference on Trade and Development (UNCTAD)
released the World Investment Report (WIR) 2015 last month and that paper shows
many interesting data. (See Table 2)
There was significant expansion in FDI inward stock (ie,
net of FDI outflows) in many APEC member-economies. In particular, the
expansion from 1994 to 2014 (two decades) were as follows:
* Americas: Peru 18x, Mexico and Chile 10x, US 7x, Canada
6x.
* North Asia: China 15x, S. Korea 12x, Japan 9x, HK 7x,
Taiwan 5x.
* Southeast Asia: Vietnam 23x, Singapore 17x, Indonesia
16x, Thailand 13x, Philippines 11x, Malaysia 6x.
Australia, New Zealand and PNG did not experience
significant FDI expansion.
Russia and Brunei are the “outliers” with 114x and 103x
expansion, respectively, mainly because they have very low base in 1994. Russia
has emerged from partial disintegration where a number of central Asian
economies (Georgia, Kazakhstan, Tajikistan,…) separated from the former USSR.
APEC was formed in 1989 but Russia, along with Vietnam and Peru, joined it only
in 1998.
In terms of FDI stock/GDP ratio, three economies that
have undertaken unilateral trade liberalization (meaning no or little trade
negotiations) stand out: Hong Kong, Singapore and Chile, with ratio of 535%,
296% and 80%, respectively.
Some important lessons from the above numbers and
discussion:
One, openness to trade almost always results in high
attractiveness to foreign investments and all the opportunities they bring --
technological, financial, managerial, and market access. Clear examples are HK,
Singapore and Chile. Also the socialist economies China and Vietnam that
allowed certain degrees of economic freedom and the market system.
Two, global capitalism is about integration and
competition, complementation and substitution, happening simultaneously.
Business risks will always be there. Companies and people need to keep their
radar for adaptation and familiarization of those risks, while keeping the pace
of innovation at regular or higher levels.
Three, for the Philippines, its FDI stock/GDP ratio of
20% is the lowest among its neighbors in SE Asia, but this is not something to
look down or commiserate. Some richer economies have rates lower than 20% like
Taiwan, Japan, S. Korea and China. Nonetheless, this should be one reminder
that the country needs to amend its Constitution to remove protectionist
provisions that restrict or prohibit foreign investments in many sectors of the
Philippine economy.
Four, more than low taxes and/or high profit, foreign
businessmen are concerned more with the security of their investments, that
threats of confiscation and political harassment are zero or kept to the
minimum. Respect of private property, rule of law, and economic freedom by the
people, producers and consumers alike, domestic and foreign entrepreneurs
alike, are important factors to attract, retain and expand investments in the
economy.
Bienvenido S.
Oplas, Jr. heads the free market think tank, Minimal Government Thinkers, Inc.,
and also a fellow of the South East Asia Network for Development (SEANET), a
regional center that advocates trade and investments liberalization.
-----------
See also:
BWorld 8, Manila's Traffic and Transport Woes, June 27, 215
BWorld 9, Poitical populism vs. tax realism, July 05, 2015
BWorld 10, Greece crisis, pension and rule of law, July 11, 2015
BWorld 11, China's stockmarket and central planning, July 18, 2015
No comments:
Post a Comment