Legal limits hinder FDI inflows to Phl — HSBC
British banking giant HSBC said the Philippines needs to address structural issues such as constitutional restrictions to be able to attract more foreign direct investments (FDIs).
In a research note, HSBC said the Philippines and Indonesia still receive a relatively small part of FDI inflows since the global financial crisis (GFC) despite constituting almost half of the population in the Association of Southeast Asian Nations (ASEAN).
“The Philippines and Indonesia’s share remain below their regional peers. We believe these are primarily due to structural issues, such as constitutional restrictions to FDI in the Philippines and souring foreign investment sentiment in Indonesia, which their respective governments must address to take larger part in the broader region’s FDI windfall,” HSBC said.
HSBC said the Philippines also receives the least amount of FDI from its ASEAN peers, averaging only $200 million, compared to Indonesia’s $9 billion per year since 2010.
“This may be partly due to the country’s onerous restrictions on foreign ownership of certain key industries, as protected by its constitution,” it said.
It added much of the flows since the GFC have predominantly streamed into Singapore.
“It is also important to highlight that not all ASEAN countries have benefitted equally from the recent FDI boom,” it added.
The British bank said many countries in the region must also continue to find ways to remain competitive in the long term.
“For instance, the sustainability of investment incentives may be in question for countries with reduced fiscal space, such as Vietnam, while the Philippines is also considering amending its incentives to corporations and investments in the second phase of tax reforms,” HSBC said.
The Duterte administration is pursuing its comprehensive tax reform program with the proposed Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) bill that aims to rationalize or remove fiscal incentives.
Based on the estimates of the Department of Finance, the government lost P178 billion in potential revenue in 2016 due to redundant incentives.
The Philippines booked a record FDI inflow of $10.05 billion last year, 21.4 percent higher than the $8.28 billion recorded in 2016 as investors continued to view the country as a favorable investment destination.
The Bangko Sentral ng Pilipinas expects the Philippines to book a net FDI inflow of $9.2 billion this year amid the improving global perception of the country as an investment destination.
Latest data showed net FDI inflows jumped 49 percent to $4.85 billion in the first five months of the year from $3.25 billion in the same period last year.