Philippines: Foreign Investment In The Philippines: Recent Developments

Last Updated: 20 January 2017
Article by Matthew Gorman and Gerald Licnachan

Following the recent decision by the Supreme Court of the Philippines in Roy III v. Chairperson Teresita Herbosa (Roy) we take the opportunity to review the foreign investment landscape in the Philippines, the implications of this decision for investors and the foreign investment outlook for 2017.


Historically the Philippines has struggled to keep up with the other large economies in the Association of Southeast Asian Nations (ASEAN) when it comes to foreign direct investment (FDI). According to ASEAN statistics, in 2015 FDI in the Philippines was around US$5.7 billion whereas Indonesia, Thailand and Vietnam attracted FDI of US$16.9 billion, US$8.0 billion and US$11.8 billion respectively in the same period. FDI in the Philippines has also been waning in recent years following an all-time high in 2014. To compound matters, in common with other larger ASEAN nations, the Philippines has also been losing out to the CMLV countries (Cambodia, Myanmar, Laos and Vietnam), whose aggregate share of the reduced ASEAN FDI pie grew 38 per cent in 2015 (albeit from a much lower base).

With the Philippine Government targeting GDP growth of between 6.5 per cent and 7.5 per cent in 2017 compared with around 6.1 per cent in 2016 (and the 5.6 per cent forecast by UBS in its 2017 Regional Economic Outlook), this is a situation that Manila clearly needs to address. Moreover, in a response to the generally accepted view that under-investment in the infrastructure sector has become the number one impediment to economic growth in the Philippines, the Duterte administration has made bold commitments to infrastructure spending which can only realistically be met if significant foreign capital can be attracted into the proposed projects.

On the plus side, however, there have been two notable developments over the last 18 months which suggest that the Government may be up to the challenge.

Legislative Reform

Early in 2016, the National Competitiveness Council of the Philippines launched Project Repeal: The Philippine Red Tape Challenge. Aimed at streamlining the regulatory environment, this scheme seeks to overhaul the legal and regulatory framework with a particular focus on the repeal of unnecessary, redundant and burdensome laws which stifle entrepreneurial activity and inhibit growth in the wider economy. While Project Repeal is still in its infancy, there are encouraging signs that it is gathering momentum, with over 60 laws identified for review according to reported statistics. Although this initiative is not specifically aimed at encouraging FDI, if successful, it can only be seen as a positive move and is to be welcomed by foreign investors generally. Project Repeal has certainly been well received domestically. For example, in a recent press interview Perry Pe, president of the Management Association of the Philippines – who criticised the Philippines for putting up too many barriers to foreign investment ?while simultaneously sending out a message of welcome – applauded the scheme.

Pivot to China

There has been much press coverage of President Duterte's so-called 'pivot to China' – a shift in Philippine foreign policy with an emphasis on rebalancing the Philippines' dependency on the US versus China (and Russia). It is still too early to gauge how far down this road Duterte intends to go but, in an early example of his apparent intentions, Manila recently announced that the Beijing-based Asian Infrastructure Investment Bank (AIIB) would participate in two new infrastructure projects in the Philippines. Launched in January 2016, the AIIB is a multi-lateral funder primarily financed by China and is seen as a rival to the World Bank and the Asian Development Bank. The projects concerned are both in the Manila area and involve flood control and mass rapid transport.

A further signal of Beijing's new-found favour with Manila came during President Duterte's state visit to China in October 2016, when it emerged that Hong Kong- and Shanghai-listed China Railway Engineering Corporation (CREC) was considering investments of over US$400 million in the Philippines. CREC, which is majority owned by China Railway Group Ltd (a state-owned infrastructure firm), has been linked with the 2,000km Mindanao railway project, among others.

Legal Framework

In common with a number of other ASEAN countries, foreign investment in the Philippines is subject to a suite of regulatory measures driven in part by the social, economic and other policy considerations of the incumbent Government. The principal legislation governing such foreign investment in the Philippines is the Foreign Investment Act of 1991 (FIA). The FIA provides foreign investors with basic rights including the right to repatriation of investment, the right to remittance of earnings and freedom from expropriation (subject to certain exceptions). The FIA expressly states that the Philippines wishes to attract and promote foreign investment for the purposes of, inter alia, furthering industrialisation and socio-economic development subject only to the limitations of the Philippine Constitution and other relevant laws. The other relevant laws referred to in the FIA are typically industry-specific laws that deal with sensitive industries such as banking, telecommunications and power generation.

The FIA is supplemented by the Foreign Investment Negative List (Negative List), which comprises a list of economic activities – essentially industry sectors and sub-sectors – where foreign equity participation is either prohibited or limited to certain percentage levels. The Negative List itself comprises two lists – List A and List B. List A deals with areas where foreign equity is prohibited or limited by mandate of the Philippine Constitution or other specific laws. List B deals with areas where foreign equity is limited for security, defence, health or moral reasons, or to protect small and medium-sized enterprises. In effect, List A is a summary of the relevant limitations as mandated by the Constitution or the specific law concerned, whereas List B represents the limits determined by the Government from time to time pursuant to presidential order.

The Negative List is updated and re-issued periodically subject to the proviso that those items in List A are updated as and when there are changes to the relevant provisions of the Constitution or the specific law, whereas List B may not be re-issued more than once every two years. The current version of the Negative List was issued in May 2015 and was largely perceived as underwhelming by the business community, with little or no movement in the permitted levels of foreign investment across most sectors. However, for List A items, effecting a change to the limitations requires considerable legal reform given that the limitations are set by the Constitution or primary legislation, whereas the limitations applicable to those items in List B can be amended more readily.

Recent Developments

So, with a Government that is committed to driving significant foreign investment and economic growth targets that are dependent on it succeeding, what is the relevance of the Roy case to the FDI landscape?

Roy was preceded by the 2011 case of Gamboa v. Teves (Gamboa). In Gamboa the petitioner contended that the respondent, publicly listed telecoms utility the Philippine Long Distance Telephone Company (PLDT), had violated a constitutional provision which limits foreign ownership of the capital of a public utility to not more than 40 per cent. In its decision in Gamboa, handed down in 2012, the Philippine Supreme Court was required to determine the definition of 'capital' for such purposes and in particular, where a company (such as PLDT) has multiple classes of shares with different economic and voting rights, which classes of shares form part of such capital. In reaching its decision the Supreme Court determined that the ownership test should be made by reference to those shares having the right to vote on the election of directors.

Following Gamboa, the Philippine Securities and Exchange Commission (SEC) issued a set of guidelines in 2013 for the purposes of assisting companies and other market participants in determining compliance with the foreign ownership limitations applicable to companies (such as PLDT) operating in nationalised or partly nationalised industries (Guidelines).

Notwithstanding the decision in Gamboa and the issue of the Guidelines by the SEC, some residual uncertainty remained as a result of further comments made by the Supreme Court when it dismissed a motion for reconsideration filed by the petitioner in Gamboa. In dismissing the motion the Supreme Court observed that the foreign ownership test should be applied to all classes of shares and not just those entitled to vote on the election of directors. The uncertainty centred around whether this requirement applied to each class of shares separately – such that a failure to meet the test in respect of any single class of shares would be fatal – or whether it applied to all shares in aggregate irrespective of their class. The former interpretation was reflected in the Guidelines.

In Roy the Supreme Court found that the Guidelines were valid but that the provisions which required the foreign ownership test to be extended to all classes of shares separately (and not in the aggregate) were based on obiter dicta in Gamboa and, as such, were not binding. In giving its decision the Supreme Court notably observed that the flexibility of corporations to create different classes of shares in order to raise much needed capital was an important one and that the Constitution made no reference to any intention to limit such flexibility.

In Roy the Supreme Court also looked at the question of beneficial ownership in the context of determining the level of foreign ownership of companies operating public utilities. It determined that in order for shares to be owned by a Filipino for such purposes, both the legal and beneficial ownership must be held by a Filipino. Accordingly, where a Filipino is the registered holder of a share one must also look at the beneficial ownership, which is to be determined by an analysis of who has the right to exercise the voting and investment powers attaching to the share. If a foreign party has the right to exercise either voting power or investment power over such share (i.e., the decision whether to hold or sell the share), then the share is not to be regarded as being held by the Filipino for the purposes of determining the level of Filipino ownership under the Constitution. Given that the Philippines has an Anti-Dummy Law, which imposes civil and criminal sanctions on those who violate the foreign ownership limitations, it is suggested that this should not be seen as surprising and merely recognises the need to look at substance over form.


The Supreme Court's decision in Roy is to be welcomed as it signals a reluctance on the part of the judiciary to apply an overly restrictive interpretation of the Constitution in the area of foreign investment. That the Supreme Court also expressly referenced the need for corporations to be afforded flexibility when it comes to their capital structure is also a positive development, particularly in light of the ever-increasing complexity of financial instruments and the related blurring of the line between debt and equity.

It is anticipated that the Negative List will be re-issued at some point in 2017. Given the Government's commitment to foreign investment generally and infrastructure spending in particular, it is hoped that revisions to the Negative List will be more progressive than was the case in 2015. However, even following Roy, since the FIA and the Negative List are subject to certain restrictions which are hard-wired into the Constitution or primary legislation, unless President Duterte is prepared to push through constitutional reform or amendments to significant primary legislation in the area of foreign investment then, in some sectors of the economy, there is only so much that can be done by tinkering with the Negative List.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions