Luring, securing industries open to FDIs this 2023
The government has passed laws that will improve the country’s investment climate. One such law is the Public Services Act that allows 100-percent ownership of public services.
Foreign investments have played a huge role in the development of the Philippines. These have contributed to the country’s economy by way of infrastructure and human capital development, industrial transformation and structural change, employment creation, and income generation.
Now that the country is getting back on its feet after three years in a global pandemic, the government is looking toward luring foreign investors to help bolster the economy amid new challenges such as skyrocketing inflation and higher interest rates that could dampen domestic demand.
Despite a soft patch from June to September 2022, foreign direct investments (FDIs) are still a source of optimism for the economy as these would lead to more business/economic activities, thereby generating more jobs among other benefits as we further pivot to greater normalcy.
INDUSTRIES OPEN TO INVESTMENTS
In December 2022, the World Bank forecasted that for the Philippines, 2023 is “premised on reduced consumer demand, alongside high inflation and high interest rates that are expected to temper household spending and investments.”
The country ended 2022 on a strong note, posting a growth of 7.2 percent in the fourth quarter of 2022, resulting in a 7.6 percent fullyear growth, higher than its previous growth projection of 6.5 percent.
“A dire global environment, however, has been affecting the domestic economy, weakening the country’s growth prospects this year,” Ralph van Doorn, a senior economist at the World Bank, said in a media briefing last December.
In an email interview with The Philippine STAR, economist Dr. Cid Terosa has the same projection, but he said that although economic growth is expected to slow down in 2023, investments might pick up during the last half or quarter of the year if inflationary pressures and supply chain disruptions are reduced. “If the revival of investments happens in the second half or last quarter of the year, it can create more additional jobs and household income,” he said,
“It can even exert downward pressure on prices as it can stimulate greater production and enhance local supply chains.”
Terosa clarified that past contributions of investments, both foreign and local, to the PH’s GDP were not as substantial and consistent as consumption spending.
“But there were years, particularly during the terms of Presidents Macapagal-Arroyo, Noynoy Aquino, and even Rody Duterte when foreign and local investments exhibited growth spurts,” he added.
The senior economist at the University of Asia and the Pacific said that among the industries that are currently open for investments include agro-processing; creative industries and knowledge-based services; aircraft maintenance, repair, and overhaul; telecommunications; mass housing; infrastructure; logistics; and alternative energy vehicles.
He added that activities enhancing local value chains and those advancing research and development, as well as innovations are open
to foreign investors.
In a separate email interview, Michael L. Ricafort, chief economist of the Treasury Group of RCBC, said that the latest investment commitments from President Ferdinand Marcos Jr.’s foreign trips, if realized/monetized, could also help generate more investments, employment, infrastructure spending/projects, trade (exports and imports), foreign tourism, and business/economic opportunities. These add to overall economic growth and development, as well as support higher investment valuations, thereby also supporting sentiment in local financial markets.
He emphasized, though, that we still have to wait and see if these commitments would translate to actual investments/FDI in the country in the coming months.
LURING AND SECURING INVESTORS TO THE PHILIPPINES
In its effort to lure more foreign investors to Philippine shores, the government has passed laws that will improve the country’s investment climate. One such law is the Public Services Act that allows 100-percent ownership of public services such as telecommunications, distribution of electricity, transportationrelated infrastructure, and public transportation.
Ricafort said that the passage of reform measures in recent months, especially the CREATE Law that reduces corporate income tax by at least five percentage points (from 30 percent) retroactive July 2020, and providing greater certainty to investments would also continue to help attract more FDIs to be more decisive and locate in the country.
Aside from the Public Services Act and CREATE Law, other reform measures to ease foreign ownership limits as already signed into law are the Foreign Investments Act, Retail Trade Liberalization Act among others.
“These would all further encourage and attract more FDIs into the country, thereby aligning the country’s rules with other countries in ASEAN/Asia and could help the country’s total Foreign Direct Investments (FDIs) to increase further and catch up with neighboring countries,” explained Ricafort.
He mentioned how the membership of the country in the Regional Comprehensive
Economic Partnership (RCEP), which is the world’s biggest free trade agreement led by China, would help attract more FDIs to set up shop in the country as a production and/ or marketing base, as well as an access point to bigger export markets of other RCEP member countries in the region and in other parts of the world.
“Improved foreign relations,” he added, “especially with developed countries that are the biggest sources of FDIs would help improve FDI data in the coming months, especially if ESG (environmental, social, and governance) standards are increasingly adhered to in the country, as encouraged by regulators worldwide as basis for investment decisions.”
“FDIs remain one of the bright spots and one of the major pillars of the economic recovery program from COVID-19 for the Philippine economy, [it’s] still among the highest since the pandemic started,” Ricafort said.
Lastly, he said that the improved economic and credit fundamentals of the Philippines in recent years amid attractive demographics, with the 12th largest population in the world at about 113 million, makes the Philippines a compelling investment destination and additional hedge
for the global supply chain of various multinational companies looking for increased growth/sales. “These make the country an attractive production and marketing hub, as well as an attractive entry point to the other free trade agreement (FTA) partner countries of the Philippines in the Asia Pacific Region.”
Terosa, in addition, said that to encourage more investors, the government should continue to put in place merit-based tax incentives as well as enhance public infrastructure in support of investments and related activities.
“Also, the government should level the playing field by consistently implementing the so-called ‘rules of the game’ in markets and the economy in general,” he explained.” This includes heightening transparency and accountability, removing wanton discretionary power among government officials and offices, and expunging monopolistic institutions and practices to reduce corruption.”
Terosa explained that the government’s facilitatory and administrative roles are critical in human capital development, advancement of science and technology, infrastructure, and investments. “The government must encourage strategic participation of the private sector in advancing economic growth and development.”
To achieve this, he said that the government can create a legal framework for social enterprises and inclusive business that will protect and guide private investments in business activities that result in productive employment particularly for poor individuals and households.
“Indeed, investing in people will draw more investments across sectors and industries in the economy,” Terosa added.