Access Alert | The Philippines Fully Liberalises Key Economic Sectors, Including Telecoms

Access Alert | The Philippines Fully Liberalises Key Economic Sectors, Including Telecoms

After huge efforts that spanned decades and multiple Congresses, the Philippines became the latest country in the APAC region to finally take the leap in liberalising key economic industries with the recent enactment of Republic Act No. 11659. The law, which amends the 85-year-old Public Service Act, rationalises foreign equity restrictions by clearly defining the scope of “public utilities,” thus paving the way for full foreign capital in economically significant sectors.

Accordingly, only six industries remain classified as “public utilities” that are subject to the Constitution’s 40% foreign equity limit: electricity distribution, electricity transmission, petroleum pipeline transmission, water distribution systems, seaports, and public utility vehicles. All other industries are to be classified as public services, and therefore no longer subject to any foreign equity cap. This effectively allows 100% foreign ownership in telecommunications, airlines, domestic shipping, railways, expressways, and app-based ride hailing services, among others.

Empirical data shows a high degree of market concentration in the Philippines compared to other Southeast Asian countries. This has been attributed to very restrictive rules on foreign ownership, which has vastly hindered competition in key economic sectors. These market access barriers have caused the country to lag in key indicators such as the OECD data on FDI restrictiveness and the World Bank’s Doing Business report. With this long-awaited reform, the Philippines joins the ranks of its neighbours who have also recently liberalised their foreign investment rules, the most recent of which is Indonesia.

Telecommunications, however, has been additionally classified as a critical infrastructure and is therefore subject to certain safeguards. These include a prohibition on ownership by any foreign state-owned enterprises, as well as a reciprocity clause governing investments made by private parties. Nonetheless, carved out from these rules are certain areas like passive telecommunications infrastructure and value-added services.

This reform complements the recently enacted Republic Act No. 11647 which amends the Foreign Investments Act. Accordingly, qualified non-Philippine nationals are now allowed to invest in a domestic enterprise of up to 100 percent of its capital. These new laws are touted as being “game-changers” in the country, with its authors expecting an increase in foreign direct investments (FDI) of up to PhP 299 billion (US$ 5.81 billion) and an estimated GDP growth contribution of 0.47%.

While this competition-enhancing law is expected to benefit 112 million Filipinos through more jobs, lower prices, and better services, it also creates opportunities for foreign enterprises to penetrate the increasingly lucrative Philippine market. Notably, several European telecom players have already signified their intent to do business in the Philippines following these developments. With these market access barriers gone, it

The implementing rules for some of the law’s provisions have yet to be drafted by the relevant agencies. For more information about the law, its implications, and the prospects for businesses it opens, please contact Carlo Agdamag at [email protected].

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