In 2023, the Philippines saw $8.9 billion in FDI net inflows, a 6.6% decline from 2022. Comparatively, Singapore attracted $141.2 billion, Vietnam $28.9 billion, and Indonesia $47.34 billion. President Ferdinand Marcos Jr. supports amending the constitution to lift the 60-40 rule limiting foreign ownership to only 40%. Key provisions under review include Article XII, Sections 2, 10, and 11. The reforms face political resistance from a public skeptical of the Marcos legacy of corruption and from elite families concerned about losing control and facing foreign competition.
Source: Southeast Asia Link
Foreign Direct Investment (FDI) net inflows into the Philippines in 2023 amounted to a modest $8.9 billion, representing a 6.6% decline from the $9.5 billion in 2022. These figures are relatively low compared to other Southeast Asian nations. For example, in 2023, Singapore attracted $141.2 billion, Vietnam $28.9 billion, and Indonesia $47.34 billion.
To entice more investors, President Ferdinand Marcos Jr. has expressed support for changing the constitution to remove some or all of the restrictions limiting foreign ownership of land and businesses in the country.
The main clause hindering investment is the "60-40 rule," which states that at least 60% of the capital in key sectors such as natural resources, public utilities, and land ownership must be owned by Filipino citizens and entities.
Primary Clauses Under Discussion
The Philippines has had three constitutions. The first, the Constitution of 1935, was part of the preparatory process before the granting of independence by the United States in July 1946. The second, from 1973, provided the fourteen-year authoritarian regime of President Ferdinand Marcos Sr. with a veneer of legitimacy. The third, taking effect in 1987, restored a republican democratic system in the country and has not been amended since its ratification.
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The specific provisions in the 1987 Philippine constitution that are under scrutiny are primarily found in Article XII, Sections 2, 10, and 11.
Article 2:
All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant.
Article 10:
The Congress shall, upon recommendation of the economic and planning agency, when the national interest dictates, reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of investments. The Congress shall enact measures that will encourage the formation and operation of enterprises whose capital is wholly owned by Filipinos.
Section 11:
No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.
Challenges to Change
The primary impediment to reforming the constitution is political in nature. In January, Philippines President Ferdinand Marcos Jr said the country's constitution should be changed to support the economy and was "not written for the globalized world", as the country's senate criticized efforts to amend it as "sinister and underhand".
Opponents argue that Marcos' motives are driven by an agenda to change political clauses, such as those limiting Presidents to serving just one six-year term.
The Father's Legacy
The current President's father, Ferdinand Marcos Sr., served as president of the Philippines from 1965 to 1986 and is remembered for his authoritarian rule marked by corruption and human rights abuses. He declared martial law in 1972, leading to severe repression, political persecution, and extrajudicial killings. Estimates suggest that the corruption during his period may have exceeded $10 billion in plundered public funds.
The legacy of corruption and human rights abuses during Ferdinand Marcos Sr.'s rule casts a long shadow, influencing contemporary political dynamics and public sentiment in the Philippines.
Complex Process
Amending the constitution is a complex process requiring either a Constitutional Convention, a Constituent Assembly, or a People’s Initiative, each with procedural and political hurdles. A Constitutional Convention is costly to organize, requires significant public engagement, and must ensure elected delegates represent a diverse cross-section of society rather than elites.
A Constituent Assembly, involving existing members of Congress convening to propose and approve changes by a three-fourths supermajority vote, is easier but lacks the necessary supermajority support.
A People’s Initiative allows citizens to propose amendments by gathering signatures from at least 12% of registered voters, with at least 3% from each legislative district. This method, while legitimate, faces challenges such as potential fraudulent signatures and the current lack of grassroots mobilization.
Elites Threatened
Allowing greater foreign investment would introduce competition that local elites are not accustomed to. International firms, with substantial capital, advanced technologies, and management expertise, could outperform and outmaneuver local businesses.
The status quo would be disrupted, forcing domestic companies to innovate or lose market share. The elites oppose changes, arguing that amendments could erode national sovereignty and lead to the exploitation of local resources by foreign entities.
Many blame the Philippines' lackluster economic performance on the concentration of power among a few families, which stifles broader economic growth and equitable development. The disparity in power held by the elites is reflected in the country's high Gini coefficient, consistently ranking towards the bottom in Asia according to the World Bank, which measures income inequality.
In 2022, the Philippines ranked 15th out of 63 countries in income inequality, and number two in Southeast Asia behind only Thailand with a Gini coefficient of 42.3%.
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