The Philippines continues to improve its overall investment climate with 2019’s biggest highlight being Standard & Poor’s upgrade of its rating to BBB+, the country’s highest credit rating to date. Overall sovereign credit ratings remain at investment grade based on the country’s sound macroeconomic fundamentals. The Philippines has received record-high foreign investment pledges approved by its investment promotion agencies (IPAs) at USD 7.65 billion in 2019, which more than doubled from 2018’s USD 3.60 billion. (https://psa.gov.ph/sites/default/files/Total%20Approved%20Foreign%20Investment%20by%20Investment%20Promotion%20Agency%202018%20to%202019.xlsx) Actual foreign direct investment (FDI) in the country, however, still remains relatively low when compared to the Association of Southeast Asian Nations (ASEAN) figures; the Philippines ranks fifth out of ten ASEAN countries for total FDI in 2019. FDI declined by almost 24 percent in 2019 to USD 7.6 billion from USD 9.9 billion in 2018, according to the Bangko Sentral ng Pilipinas (the Philippine’s Central Bank), mainly due to lower equity capital placements. The majority of FDI investments included manufacturing, financial/insurance activities, real estate, tourism/recreation, and transportation/storage. (http://www.bsp.gov.ph/statistics/spei_new/tab9_fdi.htm)
Foreign ownership limitations in many sectors of the economy constrain investments. Poor infrastructure, high power costs, slow broadband connections, regulatory inconsistencies, and corruption are major disincentives to investment. The Philippines’ complex, slow, and sometimes corrupt judicial system inhibits the timely and fair resolution of commercial disputes. Investors often describe the business registration process as slow and burdensome. Traffic in major cities and congestion in the ports remain a regular cost of business. Proposed tax reform legislation (Corporate Income Tax and Incentives Rationalization Act — CITIRA) to reduce the corporate income tax from ASEAN’s highest rate of 30 percent could be positive for business investment, although some foreign investors have concerns about the possible reduction of investment incentives proposed in the measure.
The Philippines continues to address investment constraints. In late 2018, President Rodrigo Duterte updated the Foreign Investment Negative List (FINL), which enumerates investment areas where foreign ownership or investment is banned or limited. The most significant changes permit foreign companies to have a 100 percent investment in internet businesses (not a part of mass media), insurance adjustment firms, investment houses, lending and finance companies, and wellness centers. It also allows foreigners to teach higher educational levels, provided the subject is not professional nor requires bar examination/government certification. The latest FINL allows 40 percent foreign participation in construction and repair of locally funded public works, up from 25 percent. The FINL, however, is limited in scope since it cannot change prior laws relating to foreign investments, such as Constitutional provisions which bar investment in mass media, utilities, and natural resource extraction.
Implementing rules and regulations for The Ease of Doing Business and Efficient Government Service Delivery law of 2018 (Republic Act 11032) were signed in 2019. The law allows for a standardized maximum deadline for government transactions, a single business application form, a one-stop shop, an automation of business permits processing, a zero-contact policy, and a central business databank (https://www.officialgazette.gov.ph/2018/05/28/republic-act-no-11032/). Touted as one of the Duterte Administrations’ landmark laws, it created an Anti-Red Tape Authority under the Office of the President that oversees national policy on anti-red tape issues and implements reforms to improve competitiveness rankings. The authority also monitors compliance of agencies and issues notices to erring and non-compliant government employees an officials.
There are currently several pending pieces of legislation, such as amendments to the Public Service Act, the Retail Trade Liberalization Act, and the Foreign Investment Act, all of which would have a large impact on investment within the country. The Public Service Act would provide a clearer definition of “public utility” companies, in which foreign investment is limited to 40 percent according to the 1987 Constitution. This amendment would lift foreign ownership restrictions in key areas such as telecommunications and energy, leaving restrictions only on distribution and transmission of electricity and maintenance of waterworks and sewerage systems. The Retail Trade Liberalization Act aims to boost foreign direct investment in the retail sector by changing capital thresholds to reduce the minimum investment per store requirement for foreign-owned retail trade businesses from USD 830,000 to USD 200,000. It also would reduce the quantity of locally manufactured products foreign-owned stores are required to carry. The Foreign Investment Act would ease restrictions on foreigners practicing their professions in the Philippines and give them better access to investment areas that are currently reserved primarily for Philippine nationals, particularly in sectors within education, technology, and retail.
While the Philippine bureaucracy can be slow and opaque in its processes, the business environment is notably better within the special economic zones, particularly those available for export businesses operated by the Philippine Economic Zone Authority (PEZA), known for its regulatory transparency, no red-tape policy, and one-stop shop services for investors. Finally, the Philippines plans to spend more than USD 180 billion through 2022 to upgrade its infrastructure with the Administration’s aggressive Build, Build, Build program; many projects are already underway.
|TI Corruption Perceptions Index||2019||113 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report “Ease of Doing Business”||2020||95 of 190||https://www.doingbusiness.org/rankings|
|Global Innovation Index||2019||54 of 129||https://www.globalinnovationindex.org/
|U.S. FDI in Partner Country (millions of U.S. dollars) USD, stock positions)||2018||$7.6||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2018||$3,830||http://data.worldbank.org/