Playing fair to court investors
by Arsenio M. Balisacan, PhD
July 10, 2018
Foreign direct investment (FDI) is key to sustaining the rapid growth of the Philippine economy and, more important, to the generation of higher-paying, better-quality jobs for Filipinos. As rapid growth of employment opportunities is fundamental to poverty reduction, making the country attractive to FDI, especially in manufacturing and tourism, is part and parcel of the country’s strategy to winning the war against poverty.
The country has made impressive strides in attracting FDI during the current decade. While the Philippines was Southeast Asia’s laggard at the start of the decade, with only $1.07 billion in 2010, the country’s net FDI has grown to $10.05 billionby 2017, surpassing those of Malaysia ($9.51 billion) and Thailand ($9.10 billion). The country’s FDI, though, is still far lower than those of Vietnam ($14.10 billion), Indonesia ($22.08 billion) and Singapore ($63.63 billion).
Much remains to be done to sustain the inflow of FDI, especially as the government embarks on a massive infrastructure buildup. The challenge is to promote the Philippines as an attractive investment destination where foreign capital can expect to receive reasonable returns. To be sure, a country’s appeal to investors hinges on a host of factors, most notably the quality of its infrastructure, the skills and competitiveness of its labor force, the effectiveness of its enforcement agencies (or the transparency and consistency of rules, regulations, and policies), and local peace and order.
In short, for long-term investors, what counts is the ease of doing business in the country and the prospect for durable, competitive returns to capital.
Anticompetitive conducts, agreements or practices by monopolies, cartels or dominant market players exercising market power contribute to high cost of doing business, stifle economic growth, and reduce consumer and overall welfare. In some cases, a captive regulatory agency perpetuates the burden faced by investors and consumers alike.
As the enforcer of the Philippine Competition Act (PCA), the Philippine Competition Commission (PCC) polices market conduct by prohibiting anticompetitive practices, such as price fixing, bid rigging, dividing markets between suppliers, or foreclosing of inputs or customers by a dominant market player. By ensuring that anti-competitive conduct is caught or deterred, the PCC is, in effect, upholding the principle of fairness (through the rule of law) for anyone who chooses to set up shop in the country, foreign investors included.
The PCC assures current and prospective investors that the Philippines offers a level playing field, one where companies are expected to increase their market shares or attain dominance through merit and innovation alone—not through underhanded deals or unscrupulous business practices. Because of vigorous competition enforcement and advocacy, investors can also expect lower costs, as the improvement of market efficiency entails having both consumers and businesses pay competitive prices for the goods and services they need.
Investors do consider the rule of law in their decision to locate in a particular country. Perceptions matter, because the expected returns are weighted by risks and uncertainties. If a foreign entrant intends to pour in millions or billions of dollars to the local economy, it would want to know whether the company will receive the same treatment under the law as market incumbents. Similarly, start-ups in the fast-growing and data-driven “disruptive sectors” would only consider locating themselves in the Philippines if they knew that incumbents are prevented from abusing their dominance by engaging in input or customer foreclosure.
The point is especially important, considering that many large companies who are potential investors may already be familiar with, and comply to, competition or antitrust regulation in their home countries. Indeed, the Philippines is a latecomer to the group of countries with a working competition regime—some countries like the US have had an antitrust law for more than a century already.
Yet, even after investments have been locked in and foreign competitors have entered, the PCC still has its work cut out for it. It must ensure that the entrants also abide by the rules of free and fair market competition. Reinforcing the rule of law will allow all incumbent market players to benefit from the entry of a foreign competitor, especially if it brings in new technology that results in more efficient production processes, as well as cheaper and higher-quality products. These, in turn, can make the entire market more attractive to future investors. A virtuous cycle is born.
Of course, it is one thing to talk about the role of competition policy in helping to drive economic growth by improving the country’s attractiveness to potential investors. It is another thing altogether to achieve this through vigorous competition enforcement and advocacy.
In this regard, we are making significant progress. The PCC takes pride in ensuring that its rules are transparent and accessible to all stakeholders. In holding various discussions with our stakeholders in the private sector, we are constantly reinforcing our message that all businesses must observe strict compliance with the PCA. This is complemented by conducting trainings with our partners in government and providing critical inputs to legislation, both of which ensure that competition policy becomes part and parcel of our country’s development framework.
If we want to make the Philippines more attractive to investors, we need to make sure that the market is fair. If we build a level playing field—they will come. No sensible player would want to join a high-stakes game that is rigged against them.
Dr. Arsenio M. Balisacan is the chairman of the Philippine Competition Commission and a professor of Economics (on secondment) at the University of the Philippines (UP). Prior to his appointment to the commission, he served as socioeconomic planning secretary and, concurrently, director general of the National Economic and Development Authority. He also served as dean of the School of Economics in UP Diliman.
(Originally published on Business Mirror’s Competition Matters column on July 10, 2018 here.)