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Philippines Foreign Investment
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 (see
table 14, Appendix).
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
(see
table 15, Appendix). 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.
Data as of June 1991
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