The Philippines should refrain from giving out tax incentives as sweeteners to foreign investors, and instead focus on providing a business-friendly environment as its “unpredictable nature” has become the main factor in discouraging major investments from coming into the country, Ilian Mihov, dean of the prestigious INSEAD business school said.
In an interview with The Manila Times, Mihov said that tax incentives merely help investors build capital. However, he said that “capital” in itself is only a small part of the reason why investors would want to invest in an emerging economy such as the Philippines.
“Tax incentives basically only help investors build, which is part of the capital. But the capital is a very small part of it,” Mihov said. “If the Philippines can improve the business environment within which these companies operate, and do so even for small local investors who employ three or fewer people, then the Philippines does not need to give tax incentives.”
Mihov said that the main reason why the Philippines does not attract as much foreign direct investment as it wants was its unpredictability.
“I would say that the biggest concern of most multinational companies with regard to the Philippines is to ensure that they have a relatively stable and predictable environment,” Mihov said.
“Let me ask you, do you know what will happen during your national elections this May? So it is very difficult,” he added.
He said that multinational companies would inevitably consider the Philippines, as the country possesses key traits that investors take into account in selecting an ideal investment hub.
“One should not underestimate the power of so many people speaking English in the Philippines, thus making communication very easy. Philippines could be a huge market for production. Also, the Philippine government is currently addressing its infrastructure requirement. But it is known for being unpredictable,” Mihov said.
The dean noted that although the Philippines has been moving in the right direction in the past five years, and as a result is enjoying “amazing” annual economic growth rates of 6 to 7 percent, there is still a lot to be done in terms of providing a more business-friendly environment.
“The 6 -7 percent GDP [gross domestic product]growth rate in the Philippines means it is doing something right. These are amazing growth rates. Most of the countries that converge where middle-income earners become rich would have an economic growth rate of 6 to 7 percent,” he said.
But Mihov noted that based on his discussions with some of INSEAD’s alumi and Philippine-based top executives the only impression he got is “nobody knows what will happen,” under the next administration.
He said that each time INSEAD students, who are mostly top executives of multinational companies, discuss diversifying their investments to Southeast Asia, the Philippines has always been mentioned as a top destination.
However, he said that although capital and skills are major factors in the selection of an investment destination, the primary consideration remains “productivity.”
“Productivity is based on a good institutional environment, because that environment plays an integral part in sustaining and growing the business. Even if you have the capital where tax incentives come into play, and the people have the necessary skills, if a country lacks the transparency, stability and predictability, at the end of the day, an investor may still lose his investment,” he said.
INSEAD has been ranked by the Financial Times as the number one MBA program in the world. It is the first and only business school to have all three MBA programs ranked first in FT’s rankings.
In addition to being first in MBA, the Tsinghua-INSEAD EMBA is the number one EMBA in the world and INSEAD’s Global EMBA is also the highest ranked single school program. It is also named as the top MBA school by Forbes magazine.
Given the Philippines economic growth rate, INSEAD’s dean said that that the MBA school sees more demand for formal education, especially for Philippine-based corporations who have become more and more multinational.
INSEAD, which has campuses in Fontainbleau France, Singapore, and Abu Dhabi, United Arab Emirates, has more than 51,000 Alumini distributed across 172 countries with 157 nationalities.
Ferdinando Zobel de Ayala, president and chief operations officer of Ayala Corp is one of its few Filipino graduates.