The Philippines remains an excellent site for job-generating foreign direct investments (FDIs), given the country’s highly skilled workforce, competitive labor cost and strong macroeconomic fundamentals.
The government continues to make the business environment more conducive to investors. President Rodrigo Duterte, addressing the business community during the 30th founding anniversary of Toyota Motor Philippines Corp. on August 2, said: “This government will protect you and your investments and will ensure a level-playing field for you to thrive in as long as you obey the laws of the land and safeguard the welfare of your people and the general public.”
Data from the Board of Investments (BoI), one of the government’s tax incentive-giving bodies, show that newly-approved investments surged 165 percent to P14.5 billion in the first six months of 2018 from P5.5 billion in the same period in 2017.
Including domestic projects, total investment approvals increased 27 percent in the six-month period to P238.9 billion from P188 billion a year ago.
Trade Secretary Ramon Lopez said the growth in investment pledges was a concrete proof of the continued confidence of both foreign and local investors in the Philippines. These figures represent the private sector’s investment commitments in the country. Actual FDI flows are even more impressive.
The Bangko Sentral ng Pilipinas reported that FDI net inflows reached $3.2 billion in the first four months of 2018, up by 24.3 percent from the same period last year. The BSP said such inflows were boosted by continued favorable investor sentiment, solid macroeconomic fundamentals and strong growth prospects.
The BSP now expects FDI inflows to reach $9.2 billion in 2018 amid the sustained positive developments in the domestic economy and with the implementation of various infrastructure projects.
“FDI uptick is further seen in 2018 in line with the continued fast-tracking and modernization of the country’s soft and hard infrastructure, growing interest from non-traditional investment sources, and improved global perception of the Philippines as an investment destination,” the BSP said.
Foreign direct investments hit record highs in the past two years, reaching $8.28 billion in 2016 before climbing to $10 billion in 2017, as the Philippines was viewed as a favorable investment destination.
These figures are already comparable to the amount of foreign funds going to other Southeast Asian countries and are likely to continue to grow in the coming years, given the Philippines’ investment-grade credit rating.
Fitch Ratings, one of the three major global debt watchers, said the country’s credit score of ‘BBB’ with a stable outlook remains intact. This score is a notch above the minimum investment grade. Fitch said the Philippines was expected to keep its “place among the fastest-growing economies in the Asia-Pacific region.”
Fitch noted that domestic demand would sustain the country’s strong growth of 6.8 percent in 2019 and 2020. The gross domestic product grew 6.8 percent in the first quarter, in line with market expectations, but below the government’s target of 7 percent to 8 percent.
The government aims to boost growth to 8 percent annually, on the back of infrastructure spending which is expected to increase from 6.1 percent of GDP in 2018 to 7.3 percent of GDP by 2022.
Aside from foreign investments, there is enough liquidity in the financial market to support infrastructure spending and overall domestic demand.
The BSP, which celebrated its 25th anniversary on July 27, said the growth of the domestic banking industry would support the economic expansion. A sound and strong financial sector is critical to the continued growth of the economy. “The banking system is healthy and profitable,” BSP Governor Nestor Espenilla said.
Other factors being considered by investors are political stability and peace and order where President Duterte is doing a good job as a leader. His political will and commitment to rid the Philippine society of illegal drugs will prove beneficial in the long run, as this will make our labor force more productive and our economy more vibrant.