Foreign Investment

Philippines Table of Contents

Foreign participation in the Philippine economy was a controversial issue throughout much of the twentieth century. The 1935 Commonwealth Constitution contained several provisions limiting the areas of economic activity in which non-Filipinos could participate. Operation of public utilities, exploitation of natural resources, and ownership of public lands were limited to Filipinos or corporations controlled by Filipinos. Control of banking and credit was limited to Filipinos with the passage of the General Banking Act in 1948, and the Retail Nationalization Act of 1954 restricted ownership in retail trade to Filipinos. Except in specifically designated areas, foreigners could invest only through joint ventures with Filipino capitalists. Legal decisions altered the interpretation of various restrictive measures, as did Marcos decrees during the martial law era, but the basic restrictions remained and were reaffirmed in the 1987 constitution. Constraints on foreigners also were aimed at non-Filipino residents in the Philippines. The 1987 constitution, for example, includes a provision similar to one in the 1935 constitution defining as natural-born citizens only those individuals whose mother or father was a citizen. The Securities and Exchange Commission ruled in September 1990 that firms engaging in business in areas of the economy that had been at least partially nationalized could not employ non-Filipinos in management positions. Liberalization of rules limiting areas of foreign investment was being considered in the Philippine Congress in early 1991.

Despite legal restrictions, foreign investment has played a prominent role in Philippine economic development. In 1948 approximately 50 percent of the assets in manufacturing, commerce, and mining were foreign owned, as were 80 percent of electricity assets. By 1970, however, foreign ownership in manufacturing, commerce, and mining had declined to around 40 percent, and very little foreign investment remained in utilities. Incomplete data for the early 1980s indicated that foreigners controlled about 30 percent of the assets of the 1,000 largest corporations operating in the Philippines at that time. Central Bank statistics, reporting inflows without taking divestments into account, showed foreign investment inflows between 1970 and 1988 totaling US$2.9 billion. Half went to manufacturing, of which chemicals and food were the most important industries; 24 percent was invested in petroleum refining; and 12 percent was in banking and other financial institutions.

United States corporations have been the largest foreign investors in the Philippines. Because of the colonial relationship between the United States and the Philippines, as well as a postindependence agreement protecting United States business interests, United States citizens were not bound by Philippine citizenship restrictions with respect to foreign investment until 1974. A government survey showed that 80 percent of foreign investment in 900 of the 1,000 largest firms in 1970 was American. In the late 1980s, the United States remained the largest foreign investor, but its dominant position had been eroded. According to Central Bank statistics, United States investment between 1970 and 1988 totaled US$1.6 billion, more than one-half the total of foreign-owned equity in the country. Japan was second with US$396 million, almost 14 percent. The Central Bank reports for 1989 showed registration of US$310 million in foreign investment. The United States had the largest investment with US$68.8 million, followed by Japan with US$51.9 million. Also important were Hong Kong with US$16.9 million, the Netherlands with US$15.8 million, and Taiwan with US$14.7 million.

Although foreign investors were forbidden by the Philippine constitution to either own or lease public agricultural lands, there were 124 transnational agribusiness firms operating in the Philippines in 1985, of which 58 were directly engaged in the cultivation of cash crops on the southern island of Mindanao. As early as the 1920s, Del Monte Corporation had established a pineapple plantation in Bukidnon in northern Mindanao. B.F. Goodrich and Goodyear Tire Corporation came in the 1950s, and Castle and Cooke entered in the 1960s, setting up a pineapple plantation in South Cotabato Province. The Philippine government facilitated investment of foreign enterprises in plantations through the government-owned National Development Corporation, which acquired land and leased it to the investors. Foreign-owned firms also were able to get around leasing prohibitions by entering into growers' agreements with landowners and subsequently changing the agreement to allow direct cultivation of the land. Such arrangements have generated considerable controversy.

In the late 1980s, pineapples were cultivated directly by Del Monte and the Castle and Cooke subsidiary, Dole Philippines. Together their plantations comprised 21,400 hectares in 1987. These two transnational corporations, along with a third, United Brands, also produced bananas, almost exclusively for sale in Japan. Production arrangements in the banana industry were more complicated than those in the pineapple industry, involving contract production-marketing arrangements with domestic agribusinesses and small growers, as well as direct cultivation. The three transnational corporations each controlled directly or through contract arrangements about 5,000 hectares of land planted in bananas in the late 1980s. In 1988 exports of bananas totaled US$146 million, and those of canned pineapples US$83 million.

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Source: U.S. Library of Congress