The Philippines Gearing up for the New Millenium: "Opportunities and Challenges"

Carl John G. Matriano
Department of Trade and Industry

(This is an excerpt from the speech delivered at the 5th General Membership Meeting of the Philippine Chamber of Industrial Estates & Ecozones held on the 7 December 2000, at the Mandarin Oriental Hotel)

The country's strong macroeconomic fundamentals and stable democratic government gave us a GDP growth of at least 3.9% and inflation of 4.2% during the first semester of 2000. This achievement is a result of keeping domestic prices stable despite rising fuel prices all over the world due to OPEC's cut back in oil production. The inflationary pressures of oil price increases were offset by bumper crops for rice and corn. This is a confirmation that the government is on the right path in giving priority to agriculture and food security.

Our exports of US$ 8.6 billion for the first quarter of 2000 showed an increase of 9.6% relative to the same period of last year.

Government Actions in Facilitating Investments

In promoting and facilitating investments, the Philippine government has undertaken an economic reform program. This program focused primarily on three areas: privatization, deregulation and liberalization.

The operational goal of our developmental objectives is the creation of Philippine industries, which are globally competitive and world-class. Thus we have been undertaking a program of privatizing state enterprises in order to place industries in the hands of those best suited to running a productive and profitable concern: the private sector. To date, we have privatized government participation in steel, power generation, banking, airlines, water utilities, hotels and infrastructure development, to name a few.

We have also deregulated many industries in order that they may grow and develop through free initiatives of the private sector and with the minimum of unnecessary government restriction and regulation of the airline, telecommunications, oil and banking sectors. Consumers of these industries now enjoy better products, more choices and better services as a result of the infusion of healthy competition. Increased competition as a result of deregulation has resulted in improved services and production outputs by the firms of deregulated industries.

The end results of these reforms aimed at privatization, deregulation and liberalization is a Philippine economy that is increasingly open, transparent and not plagued by the structural inefficiencies that have been brought down by a number of our neighbors.

In the area of opening up the country to foreign investment, we continue to make great strides.

The E-Commerce Law will further enhance the Philippines' attractiveness as an ideal investment site in the field of information technology (IT). The salient features of the law include the legal recognition of electronic signatures; and the grant of authority to the Department of Trade and Industry to direct and supervise the promotion of E-commerce in the country.

The Philippine Build-Operate-Transfer (BOT) Scheme has been hailed as one of the more successful BOT efforts in the world and has become a model in Asia.

The Retail Trade Liberalization Act (Republic Act 8762) liberalizes Philippine retail industry and encourages Filipino and foreign investors to forge an efficient and competitive retail sector in the interest of empowering the Filipino consumer through lower prices, higher quality goods, better services and wider choices. Foreigners may now own up to 100% of enterprises engaged in retail trade, subject to minimum capital requirements and other restrictions.

The Banking Sector was also liberalized allowing the entry of foreign banks and full service foreign banks. We have also allowed the establishment of banks subsidiaries with up to 60% foreign ownership and permitted foreign acquisition of up to 60% voting stock in an existing bank.

The Philippine Investment House Industry was also liberalized by allowing foreign equity participation of up to 60% and raising the minimum capital to P 300 million.

Recently, the law on Regional Headquarters / Regional Operating Headquarters (RHQ/ROHQ) was approved granting better tax breaks to multinational corporations locating their regional headquarters in the Philippines.

In line with the government's thrust to prepare the country for the e-world, the IT Services is included in the Investment Priorities Plan for this year. IT and IT related projects are also granted a maximum of 12 years Income Tax Holiday without securing prior DOF approval under the proposed Amendments to the Omnibus Investment Code.

DTI/BOI Programs

The DTI/BOI Agenda is based on creating a policy environment hospitable for the creation of wealth and economic activities all throughout the country. This consists of:

  1. Job and income generation through more investments and exports;
  2. Rationalizing the cost of doing business and cost of living;
  3. Increasing the value of money for consumers
  4. Preparing the country particularly local businessmen and enterprises for entry, engagement and meeting the challenges of the whole new world of E-Commerce and Information Technology

In lowering the cost of doing business, DTI/BOI's efforts are geared towards reviewing all procedures, red tape and bureaucratic steps that may have been important in previous years but are now just being done because of habit, or because they have always been done that way. So we are taking a long hard look at all of these steps and processes not only at the national level but also down to the local government level to try to squeeze out the inefficiencies, the duplications, the inconsistencies and perhaps eliminate as many of them as possible. We have to make the processes much more painless for our prospective investors and businessmen.

Future Opportunities

To further boost the image of the Philippines as an investment destination, BOI continues to proactively promote the Philippines through the conduct of investment promotion activities both here and abroad. Likewise, it initiated moves to further enhance the investment environment via the filing of a bill which proposes a new package of BOI incentives which will include a 12 year Income Tax Holiday for IT projects and other major undertaking worth at least US$ 50 Million, NOLCO, tax and duty free importation of capital equipment, among others. To date, the bill has already been passed at the Lower House and is undergoing readings at the Senate.