Foreign direct investment (FDI) in the Philippines still lags behind those of other Association of Southeast Asian Nations (Asean) members, and unless deterrents to investment are addressed, the country could lose out to its neighbors when an integrated Asean community begins implementation next year.
According to the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2014, FDI inflow in the Philippines grew 24 percent to $3.8 billion last year, with a phenomenal 118 percent increase seen in the first three quarters, but it took a hit from Typhoon Haiyan in the fourth quarter.
Presenting the UNCTAD report, Cielito Habito, chief of party of the USAID Trade Related Assistance for Development (TRADE) Project and former Philippine economic planning chief, said , “We are breaking last year’s FDI performance but we are still lagging behind our neighbors.”
Habito said some deterrents to FDI persist in the Philippines, such as constitutional restrictions on foreign ownership, the high cost of power, infrastructure inadequacies, cumbersome trade transaction processes, and governance hurdles including at the local government levels.
“(Our) policy measures are mostly geared towards investment promotion and liberalization but the share of regulatory or restrictive investment policies increased 27 percent in 2013,” Habito noted.
According to UNCTAD report, FDI inflow in Asean last year increased by 7 percent to $125 billion, with Singapore attracting half of it or $63.7 billion, Indonesia getting $18.4 billion, Thailand attracting $12.9 billion, Malaysia taking $12.3 billion, and Vietnam taking $8.9 billion.
The 10 member states of Asean and its six free trade agreement (FTA) partners—Australia, China, India, Japan, the Republic of Korea and New Zealand—have launched negotiations for a Regional Comprehensive Economic Partnership (RCEP).
In 2013, combined FDI inflows to the 16 negotiating members of the RCEP amounted to $343 billion, accounting for 24 percent of world inflows.
Over the last 15 years, proactive regional investment cooperation efforts in East and Southeast Asia have contributed to a rise in total and intraregional FDI in the region, the report said.
It said FDI flows from RCEP now makes up more than 40 percent of inflows to Asean, compared to 17 percent before 2000. Intraregional FDI in infrastructure and manufacturing, in particular, is bringing development opportunities to low-income countries such as Laos and Myanmar, the report said.
Asia is the world’s top recipient of foreign direct investment (FDI), accounting for nearly 30 percent of global FDI inflows, the report said. Total inflows to developing Asia (excluding West Asia) amounted to $382 billion in 2013, or 4 percent higher than in 2012.
Investment in sustainable development goals
“In a second analysis by UNCTAD, the investment incentives mostly focus on economic performance objectives, and less on sustainable development,” he said. “There is a need to better align incentives to sustainable development goals (SDGs),” Habito said.
“The SDGs are intended to galvanize action worldwide through concrete targets for the 2015 to 2030 period for poverty reduction, food security, human health and education, climate change mitigation, and a range of other objectives across the economic, social and environmental pillars,” Habito said.
Habito added that inadequate public finances will need to be supplemented by private sector investments, which are currently very low.
The UNCTAD report bats for doubling the annual growth rate of private investment from 8 percent to 15 percent per annum. It also cites the need for a proper balance between easing investment versus regulation to protect public interest, ensuring attractive returns versus accessibility and affordability of services for all, and is pushing for more private investment versus a parallel push for more public investment, which should complement each other.