Foreign Equity and Professionals NewsPart 4 News: General Business Environment

41-percent decline

EDITORIAL
  | October 21, 2019

Year in and year out, the Philippines’ inability to attract more long-term investments from overseas businesses has been belabored by economic and political pundits.

The current year is proving to be no different in that regard. Latest government data show that foreign direct investments (FDIs) as of July reached a mere $543 million, representing a 41-percent decline from the same-period figure last year.

More alarmingly, this marks the fifth consecutive month of decline in the amount of capital plunked in by foreign businessmen into the country. February was the only bright spot this year, with investments showing a slight uptick.

And from all indications, FDIs — a crucial barometer of the foreign business community’s confidence in the country’s prospects — will continue to remain weak for the rest of the year.

For the entire 2019, the Bangko Sentral ng Pilipinas estimates that investments of this nature will total only $9 billion. To be sure, that is nothing to scoff at.

For perspective, it should be noted that in 2010, net FDI inflows reached a mere $1.1 billion. It inched up to $2 billion in 2011, $3.2 billion in 2012 and $3.7 billion in 2013. In 2014, it amounted to $5.7 billion, went down slightly to $5.6 billion in 2015 and shot up to $8.3 billion in 2016.

Indeed, for the two full years under the current dispensation, FDIs have been impressive, totaling $20 billion over the 2017-2018 period. Add to that this year’s expected tally, and the Philippines will have a respectable $30-billion stash.

All this is happening at a time of great uncertainty in the global economy. A recently published study by the United Nations Conference on Trade and Development revealed that global FDI flows have declined for a third year in a row, no thanks to massive amounts of capital being repatriated
by investors, most notably in the United States.

In particular, protectionist and isolationist policies laid out by the Trump administration are making more businessmen rethink their policies of investing abroad.

The result of this pullback in investments by developed economies is being felt most severely by developing countries like the Philippines. When the United States sneezes, the rest of the world catches a cold, as it’s been said.

The Philippines is nowhere near getting sick, and the country’s FDIs are at decent levels. But it can certainly do much better.

After all, some regional peers, Vietnam specifically, have outstripped the Philippines in attracting FDIs even at a time when investors are pulling funds back to their home countries. What accounts for this?

Infrastructure is important, but that’s not deterring conglomerates from going to Vietnam, which has a less developed infrastructure system compared to the Philippines. Yes, incentives are important, but that’s not the main determinant for businessmen in deciding where to put up a factory.

What investors want most is predictability. They want policy continuity. They want clarity from the government. They want to be able to make plans for the next five to 10 years, at least, or maybe more. And that kind of predictability is not the Philippines’ strong suit at present. Indeed, it could be argued that it never was.

Bangko Sentral Governor Benjamin Diokno has pointed out that uncertainties regarding the next phase of the Duterte administration’s tax reform package may be causing some foreign investors to hold back from putting more dollars into the country while they await the results of the debate in Congress. He is correct. The head of the economic team, Finance Secretary Carlos Dominguez III, has been pushing Congress to act speedily on the tax bill to address this climate of uncertainty.

Lawmakers and policymakers need to give foreign investors the clarity they badly need for them to be able to make long-term investing decisions. Having firm policies in place — especially, say, the broad tax cut being promised to corporate entities under the proposed tax measure — will help entice more investors to take the plunge.

On a bigger level, the government needs to ensure the effective implementation of the ease of doing business law, to spur and hasten the country’s efforts to remake itself into a much more attractive destination for international investments.

The Duterte administration, poised to enter the last third of its six-year term, should focus on this critical reform program — perhaps the biggest legacy it could leave the Philippine economy.

Source: https://opinion.inquirer.net/124722/41-percent-decline