By Catherine N. Pillas
TRADE Secretary Adrian S. Cristobal Jr. said the country can hit the “aspirational” goal of attracting $7.5 billion in foreign direct investments (FDI) annually—the same target set by the Joint Foreign Chambers (JFC) in its Arangkada Philippines blueprint—in three years, provided the policy reforms and liberalization thrust are continued in the next administration.
Cristobal admitted that the JFC’s target was a bit ambitious in the previous years and aspirational today.
“That $7.5 billion is doable in the next three years if we continue the reforms that we’ve established. That includes the ease of doing business reforms; what more if we open up certain sectors of the economy,” Cristobal said at the BM Coffee Club forum on Tuesday.
The Philippines’s FDI from 2011 to 2015 amounted to some $20 billion, AmCham Senior Adviser John Forbes estimated earlier, or averaging about $3.9 billion annually over the said period.
That’s way below the $7.5-billion average yearly haul over a 10-year period—or a total of $75 billion—that the JFC targeted under the Arangkada Philippines. “We share that kind of aspiration and we will work hard to make it happen and institutionalize the needed reforms. The confidence of the JFC is clear; they believe it can be hit,” Cristobal stressed.
He said with the current trend, the country should be hitting a 10-year total of $55 billion to $60 billion in FDI by 2020. But if the needed reforms are implemented, Cristobal said this figure would climb further.
The JFC target used the $1-billion FDI in 2010 as jump-off point. The inflow of foreign capital steadily increased until it peaked at $6.2 billion in 2014. Initial data for 2015 gave little chance that the 2014 haul would be exceeded.
“Admittedly, we’re trailing behind other Asean nations. Several factors ’yan: the basic elements of ease of doing business, infrastructure is also a factor and what is important is the openness of the economy, which includes the constitutional and legal limitations on foreign-equity ownership,” the Department of Trade and Industry (DTI) chief said.
The opening up of some sectors of the economy, in particular, should be high on the agenda of the next administration if the country hopes to embark on greater trade liberalization vis-á-vis more free trade agreements and partnerships, such as the Trans-Pacific Partnership (TPP) agreement.
“We’re negotiating for instance with the European Union…and we’re looking at the TPP because our competitors are there, so that means more liberalization. So how will we carry out a calibrated liberalization of the economy? So in the next six years we will have to face this, which includes the constitutional provisions of the economy,” Cristobal said.
Aside from foreign-equity restrictions, other challenges that must be addressed include improving the business climate through protecting the sanctity of awarded contracts, lack of infrastructure and the complicated tax structure.
But, even with these setbacks, the country has its advantages, Cristobal said.
The absence of labor strikes has long been touted as a feat drawing in foreign investors. The country has, likewise, attained some measure of political stability compared to decades past, he noted.
On the industry side, he said a significant sector that can draw in more FDI is manufacturing.
“Our FDI approval last year was up, according to the Philippine Statistics Authority, and more than 50 percent was in manufacturing. For Japanese firms, we’re already No. 1; we’re the preferred site already, so we’re seeing an influx of Japanese investments,” Cristobal noted.
With no foreign-equity restrictions in manufacturing, the sector remains a bright spot to generate more employment and draw in FDI.
Currently, the country’s main investment-promotion agency, the Board of Investments, attracts more investment commitments in energy and real estate.
With manufacturing only being third on the list, the DTI is now studying how to attract more projects and investments in that area.
The sector is listed in the agency’s rolling three-year Investment-Priorities Plan, which offers fiscal and nonfiscal perks to companies engaging in sectors and activities on the list of preferred activities.
Image credits: Stephanie Tumampos