The relationship between the Philippines and Foreign Direct Investment is complicated, maybe Johnny Depp/Amber Heard complicated.
The Philippines and FDI have had trouble with each other going back decades. It is obviously not fair to look at numbers prior to 1990 because we all know the 1980 decade of political and economic turmoil. It was the administration of Fidel Ramos that kicked off the search for potential investment suitors from the international community.
The “Foreign Investments Act of 1991” was passed to “Promote Foreign Investments.” “It is the policy of the State to attract, promote and welcome productive investments from foreign entities.” And for 30 years we have been struggling with that idea.
Not everyone agrees that FDI is beneficial to the nation. There is no consensus on how to get foreigners to invest. At the same time, there is “green with envy” jealousy about the FDI that goes to our neighbors. “March 8, 2022: Malaysia’s 2021 investments hit record $73 billion.” “The Philippines recorded its highest foreign direct investment net inflows ever in 2021 amounting to $10.5 billion.”
Why are we the last one asked to dance at the Junior-Senior Prom? Maybe it is because “Vietnam spends more on research and development than the Philippines.” But habitually the go-to answer is something like “The Philippines trails Vietnam in graft and corruption, policy stability, and government responsiveness.” If only Joma Sison and his team were in charge, right?
Succeeding governments have attempted to change laws that might bring the foreigners in to “show us the money.” But we had a dismal performance until things started improving under “2010 Aquino” after President Arroyo put the government’s financial affairs in order. This positive investment trend continued—even through the pandemic—under Duterte.
However, we cannot at the same time decide on what we think FDI is looking for in a country. Surveys of firms that have invested trillions around the world say this is their priority list: Wage rates, skilled labor, tax rates, the economy’s potential for growth, political stability, low volatility exchange rate, and access to free trade areas.
HSBC recently published its Navigator: Southeast Asia in Focus report, surveying more than 1,500 “FDI” companies with operations in the region. “The Philippines is seen as a strong market for future growth. One in 5 companies (21 percent) plan to expand here in the next 2 years, making the Philippines a close second (after Thailand) as the most preferred destination for investment.”
“The Philippines will continue to attract investment in the years ahead. What makes the Philippines particularly attractive for business expansion? A competitive wage price was mentioned by 30 percent surveyed.” “Proven economic resilience in response to the pandemic” and “growing middle class” were considered attractive by 28 percent. “The future is bright for this market.”
What’s the downside to the Philippines? “The problem of adapting to changing regulations and policies was most likely seen as a “particular challenge” by international companies, with 36 percent of respondents selecting this.” And that may be the most important part of the report.
The nation has spent years debating what economic sectors we should target for FDI. We have spent more years on the questions of incentives and tax rates. We cannot reach any sort of agreement on our foreign investment restrictions. Further, there is always the genuine fear that, like the Mining Act of 1995, any legislation could be in the courts for decades.
Read what the foreigners are saying: “The problem of adapting to changing regulations and policies.” In simple words, “Hey, Philippines, make a decision, stick to it, and look at changes after a couple of years.”
You know what they call people looking for a Perfect Love Relationship? Confirmed bachelors or Guānggùn (“bare branches”) and spinsters or Sheng nu (“leftover ladies”).
E-mail me at mangun@gmail.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis provided by AAA Southeast Equities Inc.