Dindo Manhit, President of the Stratbase ADR Institute
The constitutional restriction on foreign equity in certain sectors has hampered the entry of foreign direct investments (FDIs) into the country. Nevertheless, the Philippines has moved up and emerged as the fourth largest recipient of FDIs in Asean in 2016. This remarkable progress has led to its being named the “best investment destination” by the US News and World Report in its 2018 Best Countries Report.
The 2017 Foreign Direct Investment report of the Bangko Sentral ng Pilipinas reflects the positive investor confidence in the Philippines. Its record-breaking $10.04 billion worth of net FDIs in 2017 is higher than the 2016 figure by 21 percent.
“Sound macroeconomic fundamentals and robust growth prospects” could have contributed to the increase in net FDIs. There remain uncertainties in domestic and even international politics, but the Philippines’ robust growth prospects appear to have surpassed these qualms.
Another contributory factor could be that the Philippines enjoys a sweet demographic spot. It is seen to have a population of more than 107 million by the end of 2018 with a median age of 23. Its young population and dynamic workforce offer a lot of opportunities for investors. Such a young and dynamic population can likewise serve as a lucrative market for investors’ products and services.
Yet, despite the Philippines’ robust growth prospects and young demography, the annual growth rates are starting to decline. From 65 percent in 2013-2014, FDIs have grown by only 21 percent in 2016-2017.
Interestingly, despite the “unstable and unpredictable” PH-US relations since 2016, the net FDI inflows from the United States grew by 459 percent from 2016 to 2017: $469 million in net FDIs last year, from $84 million in 2016.
And notwithstanding the relentless swearing of President Duterte at the European Union for the latter’s criticism of “extrajudicial killings” as a result of the war on drugs and its serious concern about the state of human rights in the country, the net FDIs from Europe to the Philippines have increased to $1.69 billion in 2017, which is higher than the 2016 level by 1,277 percent.
On the other hand, Japan’s net FDI inflows to the Philippines declined from $1.08 billion in 2016 to $56.33 million, equivalent to a 94-percent decrease. In terms of percentage growth rates, net FDIs from South Korea, Hong Kong, Taiwan, Thailand and Vietnam also decreased in 2017.
The “renewed bilateral relations” premised on the rapprochement policy with China was expected to stir major investments in different sectors of the Philippine economy. Taking into account the BSP report as a benchmark, China’s net FDIs grew by 167 percent in 2017. In fact, China’s FDIs to the Philippines are said to reach $28.79 billion in 2017 from a mere $10 billion in 2016 and $570 million in 2015. Apparently however, much of the investment pledges have not been realized as of last year.
These FDIs can further increase should a change in policy on foreign equity restrictions, at least in the public services sector, is legislated. Last March 20, Sen. Grace Poe sponsored Senate Bill No. 1754, which seeks to amend the Public Services Act. The House of Representatives passed its own version last September. The House and Senate bills similarly define public utility as limited to these services: distribution of electricity, transmission of electricity, and waterworks and sewage systems.
With the sought policy change, a number of public services will be freed from foreign equity restrictions. As stated by Senator Poe in her sponsorship speech, public services otherwise not considered as public utilities — such as transportation and telecommunications — would not be covered by the constitutional restriction. Once the measure is approved, we can rightfully expect FDIs to surge, thereby promoting inclusive growth by creating job opportunities.