Edificio gubernamental filipino en el que se rige la Economía Filipina

The Philippine economy is currently one of the most vibrant economies in Southeast Asia, to the extent that, according to HSBC’s forecasts, it will rank 16th among the thirty most important economies in the world by 2050, ahead of others in the region such as Indonesia (17), Malaysia (21), and Thailand (23). This is due, on the one hand, to its location, population, and natural resources; and on the other hand, to the policies adopted by successive Philippine governments in recent years, especially since 1986, with measures emphasizing the creation of a business-friendly environment for foreign investors in sectors such as infrastructure, renewable energy, IT-BPO industries, tourism, real estate, and construction. A climate where the progressive relaxation of regulatory rigor and the gradual simplification of bureaucratic procedures are two of its most significant milestones, which I will briefly address below.

In the case of regulatory rigor, there is a set of regulations that are significantly contributing to the relaxation of the Philippine economy, including Law No. 11595 on Retail Trade Liberalization (RTLA) of January 21, 2022; Law No. 11647 on Foreign Investment (FIA) of March 21, 2022; and Law No. 11659 on Public Service (PSA) of March 22, 2022. These are complemented by two Presidential Decrees, Presidential Decree (EO) No. 175 of June 27, 2022, and Presidential Decree No. 18 of February 23, 2023, which update the 12th Regular Foreign Investment Negative List (RFINL) and promote the establishment of a “Green Lane” for strategic investments, respectively. Lastly, Circular DC2022-11-0034 from the Ministry of Energy, amending Circular DC2009-05-0008, the existing implementing regulation of the Renewable Energy Act (REA) of December 16, 2008.

Despite the importance of all these regulations, space limitations compel me to select some of them and focus mainly on Law No. 11647 on Foreign Investment, Law No. 11659 on Public Service, Presidential Decree No. 18, and Circular DC2022-11-0034, which I consider the most relevant for the Philippine economy at least for this article’s purposes. The first one, updating Law No. 7042 (“Foreign Investment Act 1991”), emphasizes the importance of attracting, promoting, and incentivizing foreign capital presence. It allows this presence without any limit in exporting companies whose products and services do not fall under Lists A or B of the previously mentioned Regular Foreign Investment Negative List. Or in small and medium-sized local companies, significantly reducing the capital requirement from $200,000 to $100,000 as long as these companies develop advanced technology, support start-ups, or hire a minimum of 15 Philippine workers.

Law No. 11659 on Public Service, amending Law No. 146 (“The Public Service Act”), recognizes in its Article 1 that “the role of the private sector is one of the main drivers of national growth and development.” Accordingly, both the law and its implementing regulations ensure full access to foreign capital in public services such as telecommunications (subject to reciprocity from the respective country), logistics, transportation, airports (especially regional ones like Laguindingan Airport serving Cagayan de Oro, Iligan, and Marawi), and highways. However, it maintains the rule of 60% (Philippine ownership) – 40% (foreign ownership) for the operation, management, and control of public enterprises related to electricity distribution and transmission, water distribution systems, wastewater systems, oil transmission systems and petroleum products, and ports.

Presidential Decree No. 18 establishes a Single Entry Point (OSAC-SI) for investments considered strategic for the Philippine economy including: a) Projects that create high value-added jobs, build new industries or attract significant capital or investments; b) Foreign direct investments; and c) Activities falling within one of the three levels outlined in the 2022 Strategic Investment Prioritization Plan (SIPP), such as infrastructure and logistics (Level I); electric vehicles and activities related to health or defense (Level II); and research and development (Level III), which may benefit from exemptions, deductions, or preferential tax rates depending on the case. This Green Lane aims to expedite and simplify processes and requirements for issuing permits and licenses, with permits expected to be granted in 3, 7 or 20 days depending on the type of transaction: simple, complex or highly technical.

Finally, concluding this brief analysis of the Philippine economy, mention must be made again of Circular DC2022-11-0034 for its impact on liberalizing the exploration, development, and utilization of renewable energies. It facilitates full access of foreign capital to solar, wind, hydroelectric, geothermal, oceanic, and tidal energies. Perhaps driven by the imminent depletion of the Malampaya gas field and within the context of the National Renewable Energy Program 2020-2040 (NREP), aiming to have renewable energies account for 35% of total energy generation by 2030 and 50% by 2040 in an area estimated to have 246,000 MW untapped. To this end, a wide range of incentives is planned including a seven-year corporate income tax exemption (CIT) followed by a 10% reduction in this tax at its expiration along with a fiscal cap of 1.5% on the original cost of equipment and installations.

Antonio Viñal
AVCO Legal