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Constitutional Amendment and Foreign Direct Investments
Socioeconomic Issue on Spotlight


Lawmakers often call for a constitutional amendment—almost in every administration—claiming that the strict economic provisions of the 1987 Constitution hamper economic growth.

The 2024 Social Weather Station (SWS) Survey Review revealed that Filipinos have diverse opinions on the matter. Based on survey results, 40 percent are undecided, 33 percent support amending the Constitution, and 27 percent oppose amending the Constitution now. Most Filipinos admit they know little about the Philippine Constitution, highlighting a significant gap in public awareness.

Former president Rodrigo Duterte advocated for a shift to federalism during his early years in office. This message was also central in his campaign to appeal to voters during the 2016 national elections. However, as his term ended in 2022, the anticipated shift to federalism remained unfulfilled, and like in previous administrations, efforts failed to amend the Constitution. According to Yusingco et al. (2022), despite Duterte’s public popularity and huge political support, and the supposed prioritization of economic reforms to boost foreign direct investments (FDIs), the ambiguity in the proposed constitutional changes and the apparent self-interests among key political figures contributed to widespread public mistrust.  

FDIs can drive economic development in the Philippines by bringing in capital, technology, and job opportunities. The proponents of constitutional amendments in Congress push for changes to encourage foreign investments that will “stimulate economic activities, create job opportunities, reduce poverty and lower prices of goods and services” (par. 2).

Malana (2014) highlighted the limits in the Constitution when it comes to foreign equity in the exploration, development, and utilization of natural resources, public utilities, and build-operate-transfer projects. Additionally, foreigners are barred from owning land and equity in mass media, and the practice of profession.

The Organization for Economic Co-operation and Development’s FDI restrictiveness index ranked the Philippines as the third-most restrictive nation out of 84 countries in 2020 . Parcon-Santos et al. (2021) urged the government to regularly review FDI regulations, as strict restrictions may lead to missed investment opportunities. However, the same study revealed that the overall FDI restrictiveness index was “statistically insignificant for all investors when macroeconomic stability, governance, ease of doing business, and quality of infrastructure are accounted for” (p. 30). Furthermore, there is no single factor that can exclusively attract FDIs. Simply reducing taxes and FDI restrictions will not be enough without fostering a robust investment climate.

Early studies show that the country’s trade policy affects the kind of foreign investments it attracts. Aldaba (1994) found that the country’s trade policy, which favors import substitution, tends to lead foreign investments to be heavily focused on the domestic market. Consequently, this orientation fails to attract substantial amounts of export-oriented FDIs. Since the 1990s, the manufacturing sector has ruled the foreign investment inflows. As of 2022, it remains the dominant sector, followed by financial and insurance and real estate activities.

Although this policy helped boost exports and the overall economy, Aldaba and Aldaba (2013) learned that it did not do much for local firms. This is because they struggle to compete and harness foreign investors' new technology or knowledge. Local firms must absorb and use new knowledge and technology effectively to make a bigger impact. The authors suggest implementing human resource development and training, industrial and technology upgrading, financing programs for small and medium enterprises, and improving infrastructure, logistics, and the overall investment climate, among others.

Rivera and Tullao (2024) discovered that FDIs may not be the best fit for the agricultural sector, as it can exacerbate existing issues. In labor-intensive industries, there appears to be a connection between FDIs and a decrease in employment opportunities. Several factors contribute to this scenario, including higher wages due to labor emigration, most FDIs going to capital-intensive sectors (increasing their production rather than benefitting the sector), and protection of the labor-intensive sector from foreign participation. With its limited capabilities and weak competitiveness, the agricultural sector struggles to absorb new technologies, further worsening its situation.

Amending the Constitution’s economic provision could potentially increase the country's FDIs and have a positive impact on the economy. However, recalling insights from the SWS survey, opponents of constitutional amendments voice concerns over potential hidden and illegitimate motives behind those advocating for changes.

The public must understand that even the slightest modification to the Constitution can have irreversible consequences. It is crucial for everyone to be attentive and well-informed because even a small change in wording can affect the lives of millions.

SERP-P has resources about the constitution and FDIs. Below are some of them:

 

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