But a senior Trade official downplayed such concern, saying Hanoi’s recent move had limited scope and that the Philippines still shone with its stronger banking sector and macroeconomic fundamentals.

“We don’t anticipate being affected by Vietnam’s decision, but we’ll just have to see how it plays out,” Trade Undersecretary Adrian S. Cristobal, Jr. said in a mobile phone reply yesterday when sought for comment.

Vietnam Prime Minister Nguyen Tan Dung has signed a decree removing the 49% foreign ownership cap on many listed firms, although some sectors will remain restricted, Reuters reported last weekend. The new rule, which was published late Friday and will take effect in September, said the 49% cap will still apply in areas where “conditions” were placed on foreign investments, except for sectors regulated by separate ownership rules such as banking, which has a 30% limit on foreign stakes. There will be no limit on all other equities, unless restricted by the companies themselves.

Mr. Cristobal noted that Vietnam will not lift foreign ownership caps on its “sensitive sectors” including banking -- in contrast to the Philippines, which liberalized that industry to allow a 100% ownership.

“Vietnam’s economy faces different challenges than ours. Their state-owned enterprises, for instance, are an issue they have to address as well as their macroeconomic fundamentals and banking system,” he explained.

“We are in a better position in those aspects of the economy.”

But business leaders in the country remain concerned.

“Vietnam is our competitor so we have to be better than them or follow them,” Philippine Chamber of Commerce and Industry President Alfredo M. Yao said in a telephone interview yesterday.

“The effect on FDI is not immediate. But in the long run, if there is a better condition in another ASEAN (Association of Southeast Asian Nations) country, foreign investors will go there unless we’ll have a really superior economy.”

Henry J. Schumacher, executive vice-president of the European Chamber of Commerce of the Philippines, shared his concern, saying: “It makes Vietnam more attractive for foreign investors, especially in the light of a hardly improved FINL (Foreign Investment Negative List) released by Malacañang and the withdrawal of House Resolution No. 1 which was supporting the amendment of the economic provisions of the Constitution which in turn could have led to more competition in the country.”

Executive Order No. (EO) 184, dated May 29, provided the 10th Regular FINL that left unchanged the list of domestic activities and sectors restricted to foreign participation, as laid out by the preceding EO 98 of Oct. 29, 2012.

“This move by Vietnam is an added plus for their competitiveness. The Philippines must consider similar policy shifts that... allow us to compete more aggressively with our neighbors,” Makati Business Club Executive Director Peter Angelo V. Perfecto said in a mobile phone reply.

“We must not be left behind by our inflexibility.”

Philippine Stock Exchange President and Chief Executive Officer Hans B. Sicat shared this concern, saying separately by text: “It will give Vietnam a potential comparative advantage over the Philippines, everything else being equal.”

“This may be more pronounced as ASEAN economic integration takes place and financial market integration also moves forward.”

For his part, Bank of the Philippine Islands (BPI) associate economist Nicholas Antonio T. Mapa said in an e-mail that even before its latest reform, Vietnam has been able to attract “much more FDI despite struggling with high inflation and high borrowing costs.”

The World Investment Report 2015 which the United Nations Conference on Trade and Development released on Wednesday last week showed the Philippines among top FDI destinations in East Asia, beating global and regional growth rates. But value of its inflows still paled against those of comparable ASEAN peers. Philippine inflows, as tracked by the central bank, grew 65.9% to an all-time high last year, compared to East Asia’s 10% increment and Southeast Asia’s 5%.

BPI’s Mr. Mapa said that Vietnam’s move “could further limit the ability of the Philippines to attract FDI flows given the many impediments to investment in the country. Foreign ownership restrictions has been cited in the past as a reason NOT to invest in the Philippines...”

‘STILL POSSIBLE’
Business groups had initially placed their hopes in the House of Representatives, which had almost clinched early this month a last-reading plenary approval of Resolution of Both Houses (RBH) 1 that would open the Constitution to amendments that would lift foreign ownership caps for business. The current 16th Congress is now expected to have only up to February to act on vital bills before adjourning for May’s national elections and the entry of a new administration and a new legislature on June 30 next year. Bills unacted on by then will have to go back to the drawing board.

In an interview yesterday, House Speaker Feliciano R. Belmonte, Jr. said: “They (Vietnam) managed to do it because their restrictions are not in their constitution...”

“That will be to their advantage... (and) will put us at a disadvantage. We have to confront that idea. But I think that (RBH 1 approval) is still possible.” 

Source: Business World Online