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Reforms eyed to boost FDI inflows

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PHILIPPINE STAR/MICHAEL VARCAS

By Janina C. Lim
Reporter

FOREIGN direct investments (FDI) inflows to the Philippines dropped in 2018 even as most Southeast Asian countries saw gains that pushed the region’s overall haul for the year to an all-time high.

While admitting that challenges to the Philippines’ investment environment persist, Trade Secretary Ramon M. Lopez said the government is pushing reforms to make the country more attractive to foreign investors.

The United Nations Conference on Trade and Development’s (UNCTAD) 2019 World Investment Report on special economic zones showed FDI flows to Southeast Asia last year went up 3% annually to a record $149 billion, hiking the subregion’s share in global inflows to 11% in 2018 from 10% in 2017.

“The growth in FDI was mostly driven by an increase in investment in Singapore, Indonesia, Vietnam and Thailand. Manufacturing and services, particularly finance, retail and wholesale trade, including the digital economy, continued to underpin rising inflows to this subregion. Strong intra-ASEAN (Association of Southeast Asian Nations) investments and robust investment from other Asian economies also contributed to the trend,” the report said.

“However, inflows to some countries (Malaysia and the Philippines) declined,” it added.




FDI inflows to the Philippines slid by 25.75% to $6.46 billion from $8.70 billion in 2017, the UNCTAD report showed.

Mr. Lopez admitted “there are still challenges [to investments] we have to continuously work on.”

The Trade chief cited the need to revise the Public Service Act and the Retail Trade law and the Foreign Investment Negative List (FINL) to open up to more foreign investors, further improvement in infrastructure; digital connectivity; power and logistics; ease of doing business reforms down to the local government units; special eco zones with access to more skilled resources; better infrastructure links; data connectivity; relevant technologies; and environmental and sustainability systems.

“We are now working on modernization of incentives to make it performance-based and timebound,” Mr. Lopez said in a mobile message yesterday.

“We need to attract more quality investments, bringing in higher value operations, more R&D and innovation-oriented industries, in industries with comparative advantages, provide greater facilitation in government permits and services,” Mr. Lopez added.

UNLOCKED POTENTIAL
American Chamber of Commerce of the Philippines, Inc. Senior Adviser John D. Forbes meanwhile said the fact that FDI flows to the country continue linger around the $10-billion threshold already marks an improvement.

Data from the Bangko Sentral ng Pilipinas showed that FDIs settled at $9.802 billion last year, sliding 4.4% from 2017’s $10.256 billion.

However, the Philippines’ continued failure to remove barriers in some areas, coupled with uncertainties that hounded the local investment environment last year, prevented the economy from capturing potentially bigger gains, he said.

“It has more potential, but the potential is not being unlocked. Mining has not been issued any new license since 2012…while agribusiness is still a difficult area for foreign investment. Also, in the last year, we had TRAIN (Tax Reform for Acceleration and Inclusion) 2 and also security of tenure, so those measures created uncertainty on what the rules would be going forward,” Mr. Forbes said in a phone interview on Wednesday.

“Companies that are here are still expanding but at a slower rate…and there are the companies that did not choose to come here,” Mr. Forbes added.

The UNCTAD report further noted that Chinese investments in ASEAN members continued to increase in 2018 “partly due to several large M&A deals in the services sectors in Singapore, Indonesia and the Philippines.”

Meanwhile, FDI outflows from Southeast Asia were steady at $70 billion last year, accounting for 7% of global outward flows in 2018.

Nevertheless, the outlook for the subregion remains “promising, as countries in the subregion continue to introduce measures to improve the investment environment,” according to the UNCTAD report which cited, among other developments, the Philippines’ move to ease some investment restrictions through an updated FINL that took effect in November last year.

Strong economic fundamentals, low-cost and resource-rich environments, the digital economy, and commitments to develop and upgrade information and communication technology, transport and power facilities will remain attractive to investors.

“A doubling of announced greenfield investment projects in the subregion to $139 billion in 2018 corroborates this promising outlook,” the report added.

Ranking seventh in the 10 biggest greenfield projects intended for least-developed countries announced last year is Aboitiz Equity Ventures, Inc.’s $1.15-million fossil fuel electric power project in Myanmar, the report showed. The project was the lone initiative from an ASEAN firm in the list.

Global FDI flows in 2018 fell by 13% to $1.3 trillion, marking the third straight year that FDIs moved downward.

The UNCTAD report attributed this mainly to large-scale repatriations of accumulated foreign earnings by United States multinational enterprises in the first two quarters of 2018, following tax reforms introduced in that country at the end of 2017.