Double-digit falls in foreign investment

Last week, House Speaker Ferdinand Martin Romualdez told foreign investors in Davos that “now is the most opportune time to invest in the Philippines.” Have investors listened?

Net foreign direct investment (FDI) in the Philippines shrank 30 percent year on year to $0.66 billion in October 2023. All major FDI components posted a decrease in net inflows during the month. From January to October, FDI net inflows were 17.5 percent lower compared to the corresponding period last year.

Thanks to the offshoring of services in information and communication technology, many local observers believe the Philippines is well-positioned for the future. But Romualdez should have seen the writing on the wall in Davos, where the International Monetary Fund warned that a whopping 40 percent of jobs across the globe could be affected by the rise of artificial intelligence (AI). IMF chief Kristalina Georgieva urged policymakers to tackle this “troubling trend” and “to prevent the technology from further stoking social tensions.” One of the prime areas to take a hit could be ICT offshoring. Then there is the debacle with China’s huge Belt and Road Initiative (BRI), which has facilitated Southeast Asia’s economic recovery. China’s trade with Asean member states has been growing 2 to 3 times faster relative to the EU and the US, respectively. Yet, last November, the Philippines dropped out of the projects under China’s global infrastructure scheme, saying it would seek other sources; that is, the West, whose inflation has been lingering in the Philippines as well.

As many concerned observers have noted, the risk is that Manila is sleepwalking into military and nuclear minefields while fragmenting Asean unity (TMT, Feb. 20, 2023).

Militarization will limit opportunities to bring jobs and capital into the Philippines. Not just because of Manila’s friction with Beijing but due to the perception that the associated uncertainty may endanger long-term investment horizons. Would you invest heavily in a country proposing to serve as a logistics platform in a potential Taiwan conflict?

That leaves tourism.