By Ian Nicolas P. Cigaral
Reporter

THE PHILIPPINES has become “more attractive” to foreign direct investments (FDI), the US State Department said in a June 29 report, but nagging constraints like limits to foreign ownership, poor infrastructure, corruption and red tape must be addressed to improve competitiveness and ease the conduct of business.

Prepared by more than 170 US diplomatic posts around the world, the Investment Climate Statements for 2017 report gives an assessment of the business climate in foreign economies, according to the department’s official blog site.

“The Philippines is becoming a more attractive destination for foreign direct investment,” read the report, which comes after the World Investment Report 2017 — published on June 8 by the United Nations Conference on Trade and Development — in
which “[t]op executives” counted the Philippines “among the most promising host countries” for FDI.

“The country’s middle class is growing and Filipinos quickly spend disposable income in a fairly stable political environment,” the State Department said, noting such spending helped “gross domestic product soar to an average growth of 6.1% over the last six years.”

The report noted further the Philippines has retained investment-grade credit ratings it first bagged in 2013, showing the country “has improved its overall investment climate” particularly “due to… robust economic performance, continued fiscal and debt consolidation and improved governance.”

“[N]oteworthy advantages” of doing business here include the presence of economic zones in which investment rules and conditions are fairly “clear” and “predictable”; an English-proficient, “relatively low-cost” and “highly motivated” work force and a “stable” banking system, the report read.

Philippine FDI net inflows grew by 40.7% year on year to a record $7.933 billion in 2016, outstripping Singapore’s and Malaysia’s 20.8% and 14.7% annual increases, respectively, as well as Indonesia’s and Thailand’s respective drops of 81% and 63.5%, according to data of the Bangko Sentral ng Pilipinas (BSP).

But in nominal terms, Philippine net FDI inflows paled in comparison to Singapore’s $61.632 billion and Malaysia’s $12.571 billion, although they were more than double Indonesia’s $3.762 billion and Thailand’s $3.286 billion for the same year.

Philippine FDI net inflows amounted to $1.56 billion as of end-March, growing 16.6% from the $1.337 billion recorded in 2016’s first quarter that itself was up 52.1%.

The central bank projects FDI net inflows to hit $8 billion this year, slightly more than 2016’s record $7.93 billion.

“Still, improvement is needed,” the State Department said in its report.

“The Philippines lags behind most of the 10 Association of Southeast Asian Nations in attracting FDI.”

It cited seven key disincentives, namely:

• foreign ownership limitations in many industries and sectors — as reflected in the Constitution and the foreign investment negative list (FINL) — which the report described as “a significant constraint”;

• poor infrastructure, including high power costs and slow broadband connections;

• inconsistency of regulations;

• corruption in the bureaucracy;

• a complex, slow and “sometimes corrupt” judicial system that thwarts “the timely and fair resolution of commercial disputes” ;

• slow, cumbersome business registration system;

• as well as traffic and port congestion that increase the cost of doing business.

LONG-STANDING COMPLAINT
The 10th two-year FINL issued in 2015 had retained virtually unchanged the preceding roster of domestic activities and sectors restricted to foreign participation, prompting foreign business leaders then to press the 16th Congress “to pass several non-controversial bills… that will make the next FINL less negative.”

The administration of former president Benigno S. C. Aquino III, however, was lukewarm to any move to amend the Constitution in order to lift restrictions to foreign ownership of land and in various sectors, as well as on the practice of certain professions.

President Rodrigo R. Duterte, who took over from Mr. Aquino at noon of June 30 last year, has repeatedly voiced support for lifting such restrictions.

The FINL is up for updating this year.

The same report also noted that American businessmen have described the Philippine government’s enforcement of regulations as “weak, inconsistent and unpredictable.”

“Many US investors describe business registration, customs, immigration and visa procedures as burdensome and frustrating,” the report read.

The problem, it added, can be traced partly to the fact that “regulatory agencies are generally not statutorily independent, but are attached to Cabinet departments or the Office of the President and, therefore, subject to political pressure.”

COURTS’ FAIRNESS QUESTIONED

The report also cited “inefficiency and uncertainty” in the court system as “a significant disincentive to investment.”

“Many investors decline to file dispute cases in court because of slow and complex litigation processes and corruption among some personnel,” it read.

“The courts are not considered impartial or fair,” it added, noting further that the judiciary was “inexperienced” in dealing with issues of technology, science and intellectual property rights.

The report also said that “investment disputes can take years to resolve due to systemic” issues like lack of resources, understaffing and corruption that “make the already complex court processes protracted and expensive,” even as moves like alternative dispute resolution have been taken in an attempt to decongest clogged dockets.

Also, while the government protects property rights, “implementation of these laws is weak and fragmented,” with registration processes of the Justice department’s Land Registration Authority and its Register of Deeds said to be “tedious and costly.”

“Multiple agencies are involved in property administration which results in overlapping procedures for land valuation and titling…,” the report read.

“Record management is weak due to lack of funds and trained personnel… corruption is… prevalent among land administration personnel and the court system is slow to resolve land disputes,” it added, noting that the Philippines placed 112th out of 190 economies in terms of ease of property registration in the World Bank’s 2017 Ease of Doing Business report.

It also noted that while the Philippines is not on the US Trade Representative’s Special 301 Watch List nor is it mentioned in the 2016 Notorious Markets Report, American investors have complained that even as “the country has a solid intellectual property rights (IPR) regime in place… implementation and enforcement are inconsistent.”

“US rights holders continue to report concerns about the availability of counterfeit items such as software, medicines and clothing, as well as judicial inexperience in IPR enforcement,” the report said.

“The Philippines generally has strong patent and trademark laws,” it noted, but added that “enforcement actions… are often not followed by successful prosecution” since “IP infringement is not considered a major crime in the Philippines and takes a lower priority in court proceedings.”

THE WORLD BANK has tempered its economic growth outlook for the Philippines to 6.8% for this year from an April 6.9% estimate, after official first-quarter data bared slower investment and public spending, but kept its 2018 projection at 6.9%.

“The World Bank has updated the economic outlook for the Philippines for 2017-2018 as part of its quarterly forecast exercise. The new and slightly revised 2017 projection considers recent economic trends and compares with the 6.9% forecast released in the April edition of the World Bank Philippine Economic Update. The forecast for 2018 remains unchanged at 6.9%,” World Bank said in a statement.

The World Bank’s estimate for the Philippines matches the International Monetary Fund’s 6.8%, is slightly below the United Nations Economic and Social Commission for Asia and the Pacific’s 6.9% but is faster than the Asian Development Bank’s 6.4%.

Philippine gross domestic product (GDP) grew by a slower-than-expected 6.4% last quarter — against a 6.5-7.5% official full-year target — as household consumption and state spending weakened without the boost last year’s May election gave the economy.

That pace nevertheless made the Philippines the second fastest-growing major Asian economy next to China in those three months.

“Growth in the first quarter of 2017 was in line with the World Bank growth projection, given the high base in quarter one of 2016, when large election-related spending boosted growth,” the multilateral lender added.

“Reflecting slower public spending in the first quarter, government consumption and investment growth somewhat weakened on an annual basis.”

The first three months saw government expenditures rise four percent annually to P615.4 billion, with P117.5 billion going to infrastructure that itself was a bigger 12.2% increment. Overall state spending has been picking up, growing six percent year-on-year to P1.06 trillion in the five months to May. But latest available official data show infrastructure spending edging up just 2.6% to P151 billion in the four months to April against a P847.2-billion program for the entire 2017. The government aims to spend a total of P2.909 trillion this year.

“In the medium term, supporting higher investment levels will be critical to sustain the economy’s growth momentum,” the statement quoted Birgit Hansl, World Bank Lead Economist for the Philippines, as saying. “The government’s ability to realize its infrastructure spending agenda will determine if the Philippines can achieve the growth target of 6.5-7.5% for 2017.”

Household consumption, which has historically contributed more than 60% to GDP, “is anticipated to grow at a stable rate of 5.6% in 2017 and 6.1% in 2018” from 2016’s actual 7.2%, the World Bank said in its statement.

Money sent home by Filipinos abroad, which grew eight percent in the first quarter compared to the year-ago three percent, is expected to fuel consumption. — Elijah Joseph C. Tubayan

By Maria Eloisa I. Calderon
Editor-at-Large

FIVE DAYS a week, from her home in suburb Bacoor City to her Quezon City office and back, Junelyn C. Remoto takes the pedicab, hops on a provincial bus, braves the crowded Metro Rail Transit line and squeezes into a packed jeepney.

In her mid-30s — young enough to survive the long walks, an hour of waiting in queues, and all the bumping and knee-brushing — Ms. Remoto says she doesn’t know how long she can last that daily ordeal.

“My eyes well up with tears while on a bus ride everyday,” the senior treasurer for a media company said in an interview.

“I had thought of resigning but when I think of the bills to pay, I’d tell myself: Fight!”

Current transport woes are not unique to Metro Manila — from Bangkok to Jakarta to India, governments had been announcing mammoth infrastructure spending plans aimed at solving their cities’ worsening traffic.

But whether those projects are meshed neatly together in a grand master plan of highways, subways, bus rapid transit systems and elevated railways is unclear to a commuter like Ms. Remoto.

On Wednesday, two days before President Rodrigo R. Duterte marks his first year in office, the National Economic and Development Authority (NEDA) announced that the government has adopted a “National Transport Policy” (NTP) that “aims to unify all transport-related projects in the country.”

It’s all up in the air, with the policy’s implementing rules “yet to be formulated” and given the lack of clarity on whether the transport projects under the Duterte government’s broader “Build Build Build” infrastructure plan will fall under it. That plan budgets public spending at P8-9 trillion from 2017 to 2022, so that it accounts for 7.4% of the economy by then from just 4.7% last year.
What’s clear is that the NTP “envisions a national transport system that is safe, secure, reliable, efficient, integrated, intermodal, affordable, cost-effective, environmentally sustainable, and people-oriented,” NEDA’s June 28 press release read.

MASTER PLANS
Though clearly late in the game, that national transport policy may be the panacea needed to unify Metro Manila’s fragmented mass transit system, just like master plans were the very backbone that allows a traveler to get to Yokohama from Tokyo in a seamless train ride in just an hour; that guarantees commuting in Singapore, by 2030, complete in 60 minutes if the distance is less than 20 kilometers; and that introduces Bus Rapid Transit corridors in London to add to its already efficient transit system also by 2030.
Those cities — considered among the most livable in the world — stick by decades-old but evolving master plans. Tokyo’s urban rail master plan is over 100 years old, but Japan’s capital has introduced an updated version in 2000 and then for urban development last year to take into account earthquakes and the 2020 Olympics, while Singapore’s landmark 1996 transport master plan shaped the city-state’s transport landscape for almost two decades until it revised it in 2013 after its steel trains broke down for the first time in December 2011.

Centralized planning and continuity had been missing here, an urban planner said.

“Projects planned in the 70s, early 80s but not implemented are partly being implemented now,” Felipe A. Palafox, Jr. said in a statement to BusinessWorld sent through his executive assistant.

“We lost so much opportunity developing our country,” the now 67-year old urban planner said, noting how a transport land-use and development planning project that he helped craft for Metro Manila in the ‘70s was put on the backburner.

The “Build Build Build” plan does have shades of continuity, with about two-thirds of the 61 projects being inherited from the Aquino and Arroyo governments as President Rodrigo R. Duterte honored contracts awarded during his predecessor’s time so that they didn’t have to start from the drawing board.

About a quarter, or 14 of the 61 listed under the infrastructure plan, are transport projects specifically focused on Metro Manila — from roads and bus rapid transit systems that link the upscale commercial and residential Bonifacio Global City to the Ortigas business district and to the Ninoy Aquino International Airport; to a bus rapid transit system within the city that shuttles commuters to railway interchanges; to transport hubs and extensions of the elevated railway systems which are projects inherited from the previous administration; and more expressways that will connect suburbs in the north to the south, effectively decongesting the city’s busiest road, EDSA.

Click to enlarge

“We can all agree the Philippines needs infrastructure of just about every kind: better roads, airports, seaports, mass transit, etc. The most important thing is that projects are being approved now,” said Sylvester Wong, Philippines Business Lead at global infrastructure firm AECOM, the urban planner behind the London 2030 Transportation Master Plan.

“We need every infra project… we just need them to be more than the sum of their parts. AECOM is ready to assist the Philippines… on individual projects, or to help weave the current mosaic of individual projects into a more cohesive tapestry,” Mr. Wong said in a June 29 e-mail when asked whether the projects are glued neatly together to form a grand master plan for a livable, sustainable city.

LOOSER PURSE STRINGS
One year after Mr. Duterte took office, investors appeared to be forgiving about how fast infrastructure projects are delivered, banking on his promise that his government will spend anyway.

“One year since coming to power, President Duterte… has not been the disaster for the economy that some feared… he has delegated economic management to his respected finance minister, Carlos (G.) Dominguez III,” London-based Capital Economics wrote in a June 23 note that reviewed the president’s accomplishments on his first year.

“Dominguez’s other main achievement has been to stick with the previous government’s plans of raising infrastructure spending.”
The delay has to do with the nitty-gritty in how to finance them, an economic manager said.

Majority of the infrastructure projects are to be bankrolled either by the national budget or official development assistance (ODA), according to the tally provided by the Build Build Build portal. That’s the plan as the Duterte government slowly weans away from the public-private partnership (PPP) model championed by Mr. Aquino, but the tricky part is that it has also launched an abrasive rhetoric against its longtime foreign aid donors, the European Union and the United States.

Socioeconomic Planning Secretary Ernesto M. Pernia said the funding mix isn’t final.

“It will be an optimal mix of GAA (General Appropriations Act), ODA and PPP,” Mr. Pernia said in a June 28 phone interview.
The NEDA, Finance and Budget departments are “trying to determine which of the three modes of funding will be fastest and most cost-effective,” he said.

To a government wanting to spend more but still persistently remains in the red, building an efficient mass transit system similar to that of Tokyo, Singapore or London would be a luxury.

To a commuter in an economy growing at a pace almost matching China’s, that efficient mass transit system should be a banal amenity.
“The MRT train to Cavite (part of the Build Build Build plan) will be a relief,” Ms. Remoto said.