Country faces challenge in attracting FDIs

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WHILE the Philippines is seen to lead its neighboring countries in terms of growth, attracting job-generating foreign direct investments (FDI) remains a challenge.

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According to the United Nations Conference on Trade and Development (Unctad), investment flow in the Philippines increased for the past few years but the country is still lagging compared to its neighboring countries.

Unctad’s World Investment Report 2013 showed that the FDI flows in the country went up by 54 percent last year. FDI inflows in 2012 rose to $2.797 billion from the $1.816 billion recorded in 2011.

Compared to the Philippines, the Unctad report showed that the countries in the Association of Southeast Asian Nations (Asean) countries such as Indonesia and Thailand had higher FDI inflows last year with $19.853 billion and $8.607 billion, respectively.

Norio Usui, an economist at the Asian Development Bank (ADB), said that the increase in the FDI inflows in the Philippines is a major achievement of the current administration for the past three years.

However, Usui said that although FDI inflows in Philippines have been increasing it is still small compared to its neighbors.

“Still, the focal level of FDI in the country is too small. Sure, it can be improved given the strong economy, but my position is that [FDI level] it is not enough,” he said.

The economist noted one of the reasons for this is the low labor productivity in the major sectors in the country particularly in manufacturing.

“The point is that the [labor productivity]in the Philippines still lagged and much of it is in manufacturing,” he said. Usui also said that one of the major problems of the economy is the jobs creation which can reduce poverty.

“To change the economy to a more inclusive, we do need more job creation to poverty reduction,” he said.

The ADB economist explained that the labor force in the country now is at 40 million which also increase at about two percent or 800,000 new workers yearly.

For its part, Standard Chartered Bank said that the Philippines has so far not outperformed its Asean neighbors in terms of attracting FDI.

“Its FDI growth lagged that of Indonesia and Thailand in 2012. With already-slow investment growth compared with other Asean countries, the Philippines will need to attract FDI to complement domestic market-driven investment,” it said.

FDIs for inclusive growth
Advisory and research consultancy group Stratbase Research Institute said that the recent fall of Philippine stocks and the peso in the middle of uncertainty in the global economy highlights the need for the country to attract FDIs to achieve inclusive economic growth.

Professor Victor Andres Manhit, president of Stratbase Research Institute, said that the financial market reflects investor confidence, and the best protection for stock investments is solid economic growth fuelled by job-generating investments.

Manhit said FDI going to the Philippines is the smallest in Southeast Asia, depriving millions of jobless Filipinos of employment opportunities.

Unemployment rate in the Philippines climbed to a two-year high of 7.5 percent in April 2013, with at least three million Filipinos of working age having no jobs as of April. Another 7.25 million considered themselves underemployed as of April.

Meanwhile, the National Economic and Development Authority said that there is a need to shift the structure of the Philippine economy to be able to sustain the growth it has achieved during the past three years.

Socioeconomic Planning Secretary Arsenio Balisacan said that sustaining the economic growth that benefits everyone, regardless of location or social status should be ensured.

The NEDA chief said there is a need to shift the structure of the economy from being largely consumption-driven to one that is increasingly led by investments.

“In particular, we need to improve the efficiency of public investment to serve as a catalyst for greater private sector participation; connect the regions to facilitate access to markets and basic services; and address critical constraints to investments, particularly high power cost, poor infrastructure, policy inconsistencies, and administrative inefficiencies,” he added.

Balisacan noted that to promote rapid, sustained growth, the government is anchoring public investment to areas and programs that will improve the investment climate for private investors.

He added that the government’s strategic framework envisions the public sector as the provider of enabling conditions for the private sector to invest in productive sectors, thereby creating decent and remunerative employment opportunities for our rapidly growing labor force.

“Macroeconomic stability will still be the major strategy to fuel positive expectations. Government will continue to exercise fiscal prudence. We will strive to maintain, if not improve our credit ratings, so that businesses and employers can enjoy a lower cost of capital,” he said.

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