EVEN though they are spending far more time behaving as though they’re auditioning for a reality show, most of the candidates for next year’s presidential election here do occasionally take a moment to utter a few words about a topic of actual relevance.
One of those topics is the Philippines’ restrictive environment for foreign investors, and at least for now, there seems to be a consensus among the aspirants for higher office that it should be liberalized to some degree.
In general, that’s good; constitutional restrictions on foreign investment are at least partly responsible for the country’s embarrassingly low FDI inflows year after year, and are perceived as having stymied development and consumer choice. Foreign analysts and would-be investors also frequently cite the investment restrictions as a reason to take one’s business elsewhere.
Of course, what’s said before an election and what happens after are too often entirely different things. “Easing investment restrictions” has been a key issue for 20 years or more, and for all we know based on how much discussion of it has actually accomplished, may still be one 20 years from now. Nevertheless, even I sometimes hope cynicism is not warranted, and that the Philippines’ juche-like perspective toward foreign investment will soften sometime during the next presidential term.
As much as I would like to see (and could make an empirical case to support, if necessary) the easing of investment restrictions, however, somewhere well short of full liberalization is as far to the left of the spectrum of opinion as I will go. There are legitimate reasons to impose some restrictions, and Australia this week provides a perfect example of why some carefully considered limits should probably be maintained.
On Tuesday, Australia enacted a new investment regime primarily addressing investment in residential real estate and agricultural land. With regard to residential property, the rules were not changed—foreigners are only permitted to invest in new, not existing properties—but enforcement of them has been tightened, with harsh new penalties being set for violators. Foreign investors and Australians who knowingly assist them in skirting the law now can be jailed for up to three years, will be divested of the properties in question, and will forfeit any capital gains from the divestment; in addition, individual investors can be fined up to A$135,500 (about US$97,000) and companies can be hit with fines as high as A$675,000.
For agricultural land, the financial value threshold above which a proposed investment must be approved by the national regulator has been lowered from A$252 million to A$15 million; non-property interests in agribusinesses above A$55 million will also be subjected to additional scrutiny before being approved.
Finally, for all foreign investments, fees for investment applications will now be collected, in part as a way to further discourage what has been the biggest problem for Australia’s property sector, individual Chinese speculators.
This is a bit of an oversimplification, but what has basically happened in Australia—and probably would be happening here, if the Philippine constitution did not already prohibit most foreign ownership of real estate—is that as the Chinese property market became unattractive due to oversupply in some places and unmanageably high prices in others, Chinese buyers began speculating in Australia and started to create a similar bubble there. Australian builders were not putting up new units fast enough to whet Chinese appetites, and so they started to find their way into existing properties, driving prices up in general, but especially in big cities like Sydney, Melbourne, and Adelaide.
The need to protect agricultural land to at least some degree for the sake of food security is fairly obvious, particularly in light of China’s enormous demand for Australian agricultural products. Chinese customers have caused milk shortages in both Australia and New Zealand at least three times in the past two years, for instance.
The object lesson in all this for the Philippines is not necessarily about real estate or agricultural land—although it is certainly relevant for those areas—but rather about the approach to liberalization. The Australian government will now spend years cleaning up the mess of investments that fall outside acceptable bounds, and in terms of attracting new investment, having to rein in investment activity presents a bit of negative image, and makes investment the country actually wants to attract a little tougher sale.
When or if the Philippines reaches the point where it is inclined to actually give more than lip service to loosening investment restrictions, it should proceed gradually. Unlike Australia, this country has no real experience or likely even the competence to deal with a wide-open investment environment; rushing into things will almost certainly mean having to reimpose restrictions later, perhaps ones that are even stiffer than they are now, and that will obviously not do anyone any good at all.