The Philippines has improved its overall investment climate throughout the past decade, and the country’s sovereign credit ratings remain investment grade due to the country’s sound macroeconomic fundamentals. The Philippines continues to experience high levels of net foreign direct investment (FDI), even as FDI inflows slightly dipped to USD 9.8 billion for 2018 from a record high of USD 10.3 billion in 2017, according to Department of Trade and Industry data. The majority of FDI investments included manufacturing, financial and insurance activities, real estate, gas, steam, and tourism/recreation. (https://www.dti.gov.ph/resources/statistics/net-foreign-direct-investments-fdi#table)
Foreign investment pledges approved by Philippine investment promotion agencies (IPAs) increased from USD 2.04 billion in 2017 to USD 3.45 billion in 2018, a 69 percent increase. (https://www.dti.gov.ph/resources/statistics/ipa-approved-investments). FDI in the Philippines, however, remains relatively low in the Association of Southeast Asian Nations (ASEAN) as it ranks fourth out of 10 ASEAN countries for total FDI in 2018.
Foreign ownership limitations in many sectors of the economy constrain investments. Poor infrastructure, high power costs, slow broadband connections, regulatory inconsistencies, and corruption are major disincentives to investment. The Philippines’ complex, slow, and sometimes corrupt judicial system inhibits the timely and fair resolution of commercial disputes. Investors often describe the business registration process as slow and burdensome. Traffic in major cities and congestion in the ports remain a regular cost of business. Proposed tax reform legislation to reduce the corporate income tax from ASEAN’s highest rate of 30 percent would be positive for business investment, although some foreign investors have concerns about a possible reduction of investment incentives proposed in the measure.
The Philippines is working to address investment constraints. In October 2018, President Rodrigo Duterte signed into law the Foreign Investment Negative List (FINL), which enumerates investment areas where foreign ownership or investment is banned or limited. The most significant changes permit foreign companies to have a 100 percent investment in internet businesses (not a part of mass media), insurance adjustment firms, investment houses, lending and finance companies, and wellness centers. It also allows foreigners to teach higher educational levels, provided the subject is not professional nor requires bar examination/government certification. The latest FINL now allows 40 percent foreign participation in construction and repair of locally funded public works, up from 25 percent. The FINL, however, is limited in scope since it cannot change prior laws relating to foreign investments, such as Constitutional provisions which bar investment in mass media, utilities, and natural resource extraction.
There are currently several pending pieces of legislation which would have a large impact on investment and unleash investment within the country. Congress approved the Ease of Doing Business Bill and Efficient Government Service Delivery Act in May 2018 (which amends the Anti-Red Tape Act of 2007) that allows for a standardized maximum deadline for government transactions, a single business application form, a one-stop shop, an automation of business permits processing, a zero contact policy, and a central business databank (https://www.officialgazette.gov.ph/2018/05/28/republic-act-no-11032/). It is presently awaiting the President’s signature and expected to be signed in 2019. Touted as one of the Duterte Administrations’ landmark law, it creates an Anti-Red Tape Authority under the Office of the President that oversees national policy on anti-red tape issues implement reforms to improve competitiveness rankings. It will also monitor compliance of agencies and issue notices to erring and non-compliant government employees and officials.
While the Philippine bureaucracy can be slow and opaque in its processes, the business environment is notably better within the special economic zones, particularly those available for export businesses operated by the Philippine Economic Zone Authority (PEZA), known for its regulatory transparency, no red-tape policy, and one-stop shop services for investors. Finally, the Philippines plans to spend about USD 180 billion through 2022 to upgrade its infrastructure through the Build, Build, Build program.
|TI Corruption Perceptions Index||2018||99 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report “Ease of Doing Business”||2018||124 of 190||doingbusiness.org/rankings|
|Global Innovation Index||2017||73 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2017||$7.1||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2017||$3,660||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|