Making PH an investment haven

Dindo Manhit, President of the Stratbase ADR Institute

The Philippines has maintained a robust economy with a GDP growth rate of at least 6.5 percent for the past 10 consecutive quarters. But the bigger question is: How far can we sustain this economic momentum?

President Duterte himself said the economic boom is not being felt in all provinces, because “economic activity is stagnating” in some areas and “projects are barely progressing.”

In the meantime, a London-based economic research firm raised concerns over the President’s “erratic and crass behavior and commitment to the rule of law.”

Despite uncertainties, there are still notable positive reforms, such as the increased investment in infrastructure and the tax reform program.

The recent passage of the Ease of Doing Business and Efficient Government Service Delivery Act, spearheaded by Sen. Migz Zubiri, and soon the passage of the Public Services Act in the Senate, are both positive moves to attract more foreign investments and improve the country’s competitiveness.

The new law seeks to solve the perennial problem of bureaucratic red tape in government and make the process of doing business faster and more efficient. It can help address the decline in the country’s economic competitiveness globally, and especially in our region. The Philippines ranked 50th out of 63 countries in the world based on the 2018 World Competitiveness Yearbook. The country’s ranking dipped by 9 notches from 2016, the sharpest drop among our peers in the Asia-Pacific region.

But, despite problems in infrastructure, business and government inefficiency that collectively pulled down the country’s competitiveness ranking, the Philippines was able to attract some $10 billion in net foreign direct investments and P217 billion worth of approved investments from foreign and local investors in various investment promotion agencies last year.

The value of the overall approved investments from foreign and local nationals for the first quarter of 2018 rose by more than 52 percent. However, Approved Investments from six out of the top 10 high-investing countries declined from 11.4 percent to as high as 86.7 percent in the first quarter. In particular, investments from the United Kingdom, the Netherlands, Singapore, South Korea, Taiwan and the United States suffered major declines.

Japan was the Philippines’ top investing country in the same period, with investment commitments totaling P7.86 billion, accounting for 55.3 percent of total foreign pledges. This was followed by the United Kingdom (P1.54 billion or 10.9 percent). The rest, such as the Netherlands, Singapore, United States, China, and South Korea, registered less than P900 million worth of approved investments.

A DTI report showed a decrease in projected employment generation despite the positive number of approved investments for the same period.

Given these developments, the Department of Finance continues to push for the passage of TRAIN 2, or the second tax reform package of the Duterte administration. In general, the new tax measure seeks to lower corporate income tax and rationalize fiscal incentives. These two objectives are expected to boost efforts by the Philippines to become a more attractive investment destination.

Foreign business groups and investors have warned about the impact of the rationalization of fiscal incentives on the overall business environment. The Philippine Association of Multinational Companies Regional Headquarters Inc. cautioned legislators that the removal of tax incentives may scare away foreign investors. They also warned that some companies could migrate their operations to India, Malaysia, Vietnam and Hong Kong. The American Chamber of Commerce and the Japanese Chamber of Commerce and Industry echoed the same sentiments.

Ironically, the removal of tax incentives may run counter to the goal of making our country more investor-friendly in the coming years. Instead of using the Ease of Doing Business Act as a leverage to attract more foreign investors, the reverse may happen.

The stability and predictability of policies and reform measures to sustain investor confidence are more essential. Moreover, reducing the cost of doing business and relaxing or lifting restrictions on foreign investment should remain a priority.

We need to do a tough balancing act between making the Philippines an investment haven for foreign and local investors, and making sure we don’t sacrifice resources that are needed to strengthen our domestic competitiveness for long-term development.

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