Enhance the advantages
Some economic managers are still in denial, but consumer prices have spiraled upward, and people haven’t seen the last of it. The February inflation rate, the fastest in three years, has been attributed to the Tax Reform for Acceleration and Inclusion or TRAIN law, particularly the hefty taxes slapped on fuel and energy.
Finance officials say the additional earnings from TRAIN are still not enough to finance the Duterte administration’s “Build Build Build” infrastructure program. The second phase is being readied, which will reportedly include reforms in incentives given to certain sectors such as business process outsourcing and special industrial zones.
BPOs and export processing zones are bright spots in the economy, drawing foreign direct investments that have generated meaningful employment. The jobs in these sectors offer salaries and benefits that are competitive enough to prevent Filipinos from seeking jobs overseas. The Philippine Export Processing Zone under Lilia de Lima in particular drew consistent praise from investors for clean and efficient management. Now PEZA investors are worried that the incentives that drew them to the export zones would be run over by the TRAIN.
The foreign chambers have expressed concern over reported plans to remove certain perks enjoyed by enterprises in the industrial zones. Even with sustained economic growth and positive news from the export zones, the country still lags behind its neighbors in levels of foreign direct investment. Last year, for example, the country received $10.05 billion in FDI. Compare this with Indonesia’s $32.24 billion and Vietnam’s $35.6 billion in 2017.
A survey taken recently by a webbased publication picked the Philippines as the best country in the world for investment. Whether this will translate into actual investments is uncertain. Government officials attributed the ranking to strong macroeconomic fundamentals, although the ranking and survey methodology have been challenged by some quarters.
The Philippines has certain advantages over its neighbors in attracting FDI, starting with the skilled and English-speaking workforce. But the country also has its minuses, including restrictions on foreign ownership, inadequate infrastructure and poor ranking in ease of doing business except in the PEZA zones.
Regional competition for investments is stiff. The government should not only preserve the aspects where the country enjoys an edge in drawing FDI, but also enhance them. Filipinos have no choice but to bear the continuing increase in consumer prices due to TRAIN, but foreign investors can find other places to do business if they lose their incentives. This merits consideration as the government deliberates on the next phase of tax reforms.