The Philippines’ 12th Foreign Investment Negative List: Implications for Foreign Investors

Posted by Written by James Fox Reading Time: 4 minutes

The Philippines’ 12th Regular Foreign Investment Negative List was issued in June 2022, providing foreign investors with greater access to the Filipino economy. The changes reflect the country’s desire to liberalize the investment environment and ably compete with neighbors in the fast-growing ASEAN economy.

On June 27, 2022, then-president Rodrigo Duterte signed an executive order promulgating the Philippines’ Twelfth Regular Foreign Investment Negative List (RFINL). The negative list provides an update to regulations and specifications governing foreign investment in the Philippines.

The publishing and updating of the RFINL are mandated under the Foreign Investment Act of 1991. Specifically, the list is mandated to cover investment areas that are open to foreign investors and/or reserved for Filipino nationals.

The issuing of the RFINL was well received with the National Economic and Development Authority (NEDA) commending the government’s continued relaxation of restrictions.

“The revised list is aligned with the recently passed amendments to the Public Service Act (PSA), Retail Trade Liberalization Act (RTLA), and Foreign Investments Act (FIA),” Socioeconomic Planning Secretary Karl Kendrick Chua said in a statement at the time. Chua added, “it is also consistent with the policy to ease restrictions on foreign participation.”

What is the Foreign Negative List?

The RFINL is split into two areas – List A and List B. List A enumerates the areas of activities that are subject to foreign equity restrictions under the Philippine Constitution and specific laws. Meanwhile, List B contains areas of activity that are restricted for reasons of security, defense, the risk to health and morals, as well as for the protection of small-and medium-scale enterprises.

The document highlights areas of the economy whereby there shall be a) no foreign equity, b) up to 25 percent foreign equity, c) up to 30 percent foreign equity, and d) up to 40 percent foreign equity. List B only includes areas of economic activity that allow up to 40 percent foreign equity.

The industries and sectors not listed are not subjected to restrictions.

Economic activities whereby no foreign equity is permitted include mass media, the organization and operation of private detectives, watchmen or security agencies, and small-scale mining. Ownership, operations, and management of cockpits as well as any activities related to nuclear weapons are also prohibited under the RFINL.

Updated sectors

A number of changes were made from the previous list issued by former president, Duterte, in 2021. One major update includes changes to rules regarding investment in the manufacture and distribution of products requiring clearance from the Defense department.

The RFINL no longer includes the manufacture and distribution of products requiring clearance from the Defense department. Previously, products including guns and ammunition for warfare, military ordnance, guided missiles, tactical aircraft, space vehicles, and military communication equipment were limited to 40 percent foreign equity.

The June amendment also permits foreign ownership in private recruitment – up to 25 percent, regardless of whether it is for local or overseas employment.

The culture, production, milling, processing, and trading – except retailing – of rice and corn is limited to 30 percent foreign equity, which is down from 40 percent in 2021.

List A updates include:

Amendment to the foreign equity restriction on the operation of public utilities reflecting changes of the definition under Commonwealth Act No. 146, as amended by Republic Act 11659 (“Amended PSA”).

Under the Amended PSA, only the following services are considered ‘public utilities’ and subject to the 40 percent foreign ownership limitation under the constitution: (a) distribution and transmission of electricity; (b) petroleum and petroleum products pipeline transmission systems; (c) water pipeline distribution systems; (d) wastewater and sewerage pipeline systems; (e) seaports; and (f) public utility vehicles.

Corporations engaged in activities that were previously considered public utilities, such as telecommunications, are no longer considered public utilities.

The foreign equity restriction on retail trade in the Philippines will apply only to enterprises with paid-up capital of PHP 25 million (US$430,000). Previously, the paid-up capital requirements stood at US$2.5 million (approximately PHP 135 million) – the update represents a considerable change.

List B updates include:

As noted, the foreign equity restriction concerning the manufacture, repair, storage, and/or distribution of products requiring Department of National Defense clearance has been removed.

The foreign equity restriction on domestic market enterprises applies to micro or small domestic market enterprises with paid-in equity of less than the equivalent of US$200,000. 

Corporations engaged in activities that were previously considered public utilities, such as telecommunications, are no longer considered public utilities.

As an exception to the US$200,000 paid-in equity requirement for domestic market enterprises, the foreign equity restriction on micro or small domestic market enterprises that (i) involve advanced technology; (ii) are endorsed as start-ups or start-up enablers by the Department of Trade and Industry, Department of Information and Communications Technology, and Department of Science and Technology; or (iii) have Filipinos as the majority of their direct employees (but not less than 15 Filipino employees) will apply only if such enterprises have paid-in equity of less than the equivalent of US$100,000.

Naturally, many aspects of foreign investment regulation have stayed unchanged. A 30 percent foreign equity ceiling in advertising continues. The June order also maintained the 40 percent foreign equity permitted in contracts for the supply of materials, goods, and commodities to government corporations and agencies as well as the operation of deep-sea commercial fishing vessels, ownership of condominium units, and private radio communication networks.

What does this mean for foreign businesses?

As highlighted by the NEDA, the list reflects the Philippine government’s encouragement of foreign investment by liberalizing foreign equity policies in key sectors. Industries, including telecommunications, retail trade, and domestic market enterprises, are gradually being opened to international investors.

The 2022 updates provide new opportunities for investors, particularly in the sphere of weapons, ordinance, and defense hardware.

This could be a particularly lucrative area of the economy as the Philippines, at least under Duterte, has spent considerably on police equipment as part of a wider war on crime and drugs.

While some of the changes are incremental movements towards liberalization, the June order does provide foreign investors with greater access to the country’s US$350 billion economy. The country of some 109 million people is one of the fastest growing in the region and had the fastest-growing economy in the ASEAN region earlier in the year – growth exceeded a median analyst forecast of 6.6 percent in Q1 2022.

As such, these changes should be observed as part of a longer-term program, allowing international investors to incrementally enhance their equity in the Filipino industry.

The liberalization project may be enhanced further in future updates with the new president, Ferdinand Marcos Jr, insisting in September that he would “reintroduce the Philippines” to the world.

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