AMERICAN BUSINESSES said they broadly agree with the US State Department’s conclusion that the Philippine investment climate in 2020 is improving, though they believe the improvements are insufficient to keep up with its neighbors.
They added that the State Department report underplayed the impact on investment of the drug war and tax incentive uncertainty.
John Forbes, senior advisor to the American Chamber of Commerce of the Philippines, said in a mobile message Tuesday that the group agrees with the assessment of overall improvement, “but we think not enough to keep up with regional competitors.”
The State Department report found that foreign direct investment (FDI) remains low relative to other countries in the Association of Southeast Asian Nations (ASEAN). It ranked fifth out of the 10 ASEAN economies in terms of FDI in 2019.
Mr. Forbes said that the report understates the negative impact of President Rodrigo R. Duterte’s drug war, which has killed at least 8,663 people. He added that “the recent unwillingness of the government to accept international arbitral awards” has also had an effect on investor sentiment.
Manila Water Company, Inc.and Maynilad Water Services, Inc. waived almost P11 billion in awards won from arbitration cases against the government, after they were accused of economic sabotage by Mr. Duterte.
The Permanent Court of Arbitration in Singapore in separate cases ordered the government to pay the concessionaires after the government did not reimburse foregone revenues from the regulator’s refusal to allow the concessionaires to raise rates.
Discussing the political and security environment, the report noted terrorist groups in some regions, as well as human rights concerns arising from the drug war.
“The ongoing operation continues to receive worldwide attention for its harsh tactics,” it said.
Mr. Forbes added that the report underplayed the uncertainty surrounding the pending changes in tax incentives, which could upend investors’ cost structures.
The Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) pending with the Senate proposes to cut corporate income tax as well as rationalize tax incentives.
Business groups including the American chamber recently reiterated their call to congress for the grandfathering of current incentives for exporters, such as the 5% tax based on gross income earned in lieu of national and local taxes following an initial income tax holiday period.
“Grandfathering will provide them the confidence to remain in the Philippines long-term,” the business groups said.
While Mr. Forbes said that the report is comprehensive and useful for investors, he notes that it could in the future add more positive information on sectors that have attracted substantial FDI.
The report said the Philippines has been addressing its FDI constraints, including restrictions on foreign ownership and investment and problems with red tape. It said the business environment for exporters under the Philippine Economic Zone Authority has been transparent, and noted the promise of the government’s infrastructure program.
The report noted the “pervasive and long-standing problem” of corruption in both public and private sectors. — Jenina P. Ibañez
