Fitch’s think tank cites crime, terrorism, bureaucracy, corruption as areas of concern
Despite having the potential of being one of the most attractive investment destinations in Asia, the Philippines continues to limit its appeal to investors with operational risks remaining high on the list of key areas of concerns, BMI Research said in an outlook.
On one hand, the think tank unit of the Fitch Group cited the positive factors that attract investment into the country, such as its geographic location, a large labor market and strong trade connectivity.
“However, a number of key risks limit the market’s overall appeal, not least the threat of terrorism along with other security concerns,” BMI said in its latest operational risk outlook for the Philippines.
Bureaucratic obstacles and corruption remain as major issues, which, along with inadequate transport networks and high labor costs, indicate that the Philippines is often overlooked in favor of other markets in the region, it said.
Such realities make the Philippines a regional underperformer in the overall BMI Operational Risk Index, ranking 25th out of 38 states in the Asian region, garnering a score of 46.2 on a scale of 0 to 100, with 100 indicating the least risk.
BMI’s Operational Risk Index compares the challenges quantitatively of operating in 201 countries worldwide. The entire index consists of 20 subindices, as well as 79 individual surveys and datasets, which all contribute to the headline score.
Crime and security
“We highlight Crime and Security as the most serious risk to businesses looking to enter the Philippines as there is a high level of criminal and terrorist activity, as well as the threat of interstate conflict,” according to the outlook.
The think tank stressed that terrorism, in particular, is a significant concern, with a number of such organizations operating in the country and a history of attacks on foreign businesses and other vital infrastructure.
“We do not expect the security situation to improve in the Philippines, as the country will continue to attract terrorist activities and criminal organizations from China, Hong Kong and Taiwan,” it said.
Furthermore, BMI is seeing that the ongoing maritime dispute between China and the Philippines in the South China Sea will not subside in the short term.
Trade and investment
Reflected by its fairly low foreign direct investment (FDI) levels in comparison with some of its regional peers, the country performs poorly in terms of trade and investment, the study said.
“Further, regulatory inconsistency, lack of transparency and corruption are often cited by foreign businesses as being a serious drag on investment, particularly while regulatory authority remains weak or ambiguous,” it continued.
The labor market, according to the think tank, is another sector where the Philippines underperforms its potential, despite having one of the largest populations in the world and high levels of unemployment.
The think tank also mentions the low quality of education and high cost of redundancies and severance packages that make the country less attractive than its regional peers.
“These factors somewhat outweigh the appeal offered by the country’s large pool of labor and a tertiary education sector, which produces high numbers of graduates in specialized fields,” it said.
On the positive side, the think tank cited the Philippines’ strategic geographical location for maritime trade and international connectivity, with low costs making it attractive for companies looking to serve the Asian markets.
Nevertheless, the country’s archipelagic geography has resulted in road and rail transport networks being underdeveloped and causing delays when moving goods, BMI said, adding that the Philippines is also subject to extreme weather and natural disasters.
“Consequently, logistics networks suffer damage, which entails lengthy repair works and prevents more widespread infrastructure upgrades. This inadequate logistics network detracts from the country’s otherwise appealing trade connections,” it concluded.