We need more foreign direct investments

Our perennial problems on poverty, criminality and lack of competitive education need long-term solutions. We can engage in endless debates but ultimately, the country must pursue specific strategic objectives that will address these issues. Included in the list of priority measures is to attract enough foreign direct investments (FDI’s) to strengthen our economy.

The additional investments by foreign companies will expand and stabilize our economy. The steady increase in capital flow translates to more jobs and improves the consumers’ capacity to purchase and less people left behind in the over-all national growth. The corresponding technology-transfer sophisticates our human capital to become at par with global standards.

We can also assume that our exports shall significantly increase and perhaps end the widening gap in our trade balance, which endangers our foreign currency reserves. On the contrary, more foreign investments will help stabilize our exchange rates and manage inflation.

While we need more FDI’s, the numbers show an alarming negative trend. Investments brought  in by foreign firms are decreasing. We had $9.95 billion in 2018. This is followed by a lower amount of $8.67 billion in 2019, then a much lower figure of $ 6.8 billion in 2020, although we enjoyed a higher FDI of $10.5 billion in 2021. However, as officially reported by the Bangko Sentral ng Pilipinas (BSP), our FDIs plunged by 52 percent in June this year compared to last year for the same period.

The usual biggest investors are from Japan, the United States, Singapore and Netherlands, except for 2019 wherein China topped the list with $925-million investment. They have mainly engaged in the sectors of IT and communications, manufacturing, real estate and electricity development.

We are thankful that these investments came in and propped our economy up. Coupled with the more than $16-billion regular remittances from our overseas Filipino workers (OFW’s), our situation has been resilient from the uncertainties of international crises and external factors such as the pandemic and the ongoing war in Ukraine.

Challenges in attracting FDIs must be addressed. The Philippines is not the favorite investment destination of foreign players. Recently, Vietnam, Malaysia and Thailand are comparatively better in the eyes and appetites of global companies. We have yet to fully resolve several obstacles that dampen their interest to gamble on our economy.

First problem is the basic difficulty in doing business in the Philippines. Registration, in fact, can take weeks or months. Sadly, ease of doing business is more of an aspiration than a reality. Using the PricewaterhouseCoopers’ (PwC) 2022 report, we are dismally ranked as third most restrictive among the 84 member countries of the Organization for Economic Cooperation and Development (OECD). PWC objectively used the “Foreign Direct Investments Regulatory Restrictiveness Index” which included as parameters for evaluation foreign equity limitations, discriminatory screening or approval mechanisms, restrictions on the employment of foreigners for key positions and other operational restrictions such as branching, capital repatriation and land ownership. We are just a few points away from Libya and Palestine.

Such parameters are in the backdrop of other hurdles that include inadequate public investments in infrastructure, lack of transparency in procurement tenders, higher power rates and, at times, political instability.

Champions must double their efforts. At the forefront of attracting foreign investors is the Board of Investments, which is in the domain of the Department of Trade and Industry. Personally, we had a pleasant experience with the professionalism of their officers and staff during some occasions when we assisted several interested investors from Korea and China.

The Philippine Economic Zone Authority (PEZA) is also a lead participant in managing the interest of foreign companies, especially those in the manufacturing and IT industries. Like the BOI, we also receive good feedback on the job that PEZA is undertaking.

However, to succeed for the long-term, we might have to revisit our Constitution and adjust the restrictive provisions on foreign ownership of real properties and equities. These two items are the usual stumbling blocks that discourage serious foreign investors. Fiscal incentives such as tax relief and preferential tax treatments are not enough to establish our competitiveness. Even the 2021 Corporate Recovery and Tax Incentives for Enterprises (CREATE), which lowered corporate income tax from 30 percent to 25 percent, must be bundled with structural reforms that will govern the corporate lives of foreign investors.

We need more foreign investments. This is the main solution to our dilemma in improving the conditions of all Filipinos. But to succeed in this, we must not be remiss on changing the fundamentals in our business environment.