Rising fiscal deficits, the increasing influence of vested interests in the courts and in lawmaking, and the government’s weakness "in creating and enforcing freely competitive and/or regulated markets" act as deterrents to prospective investors, said the report, obtained by AFP yesterday.
"While private enterprises dominate the economy, effective competition does not exist in many sectors," it added.
The Manila-based ADB said private investment flows to the Philippines slowed after the mid-1997 Asian crisis "and have yet to recover."
Gross domestic investment fell to 18.1 percent of gross national product in 2002 from 23.8 percent of GNP in 1998. FDI flows meanwhile plunged to $100 million in 2003 from a high of $2.1 billion in 1999.
President Arroyo’s administration reported earlier this week that FDI flows had jumped 191 percent from a year earlier to $495 million in the six months to June but the total was a pittance compared to amounts going to many of Manila’s developing Asian neighbors.
"For foreign investors, the perceived risks of doing business in the Philippines are rising, encouraging them to seek alternative investment destinations" such as China, South Korea and Thailand, the ADB report said.
"Disputes concerning private contracts in power, water and airport sectors have highlighted the weakness of the legal and regulatory framework, the limited recourse available to resolve disputes, and the high level of political intervention in the commercial sector."
"High costs of power and labor" are also key factors, it said.
The government has little room to improve physical infrastructure due to chronically low revenue collection, the rising burden of losses by state-owned corporations, and high foreign debt service costs, it added.
The report recognized steps taken by Mrs. Arroyo to improve governance, which it said must continue.
"In the Philippines, vested interests and systemic corruption will continue to make this process very challenging but significant progress can be achieved with sustained political commitment." – AFP