Why FDIs are low in the Philippines

In East Asia, the Philippines has the lowest level of foreign direct investments (FDIs). A major explanation is the very Constitution of the Philippines, which restricts or prohibits foreign investments in strategic sectors of the economy. Other reasons are our notoriety for corruption, the high cost of electricity and the generally poor state of infrastructures.

I would like to quote from a good friend who sent me an e-mail after he attended a recent meeting where our government officials made a strong case for investing in the Philippines to a group of visiting European business people. After listening to the glowing remarks of our top government officials, my friend presented me with the following experiences of his as regards investing in the Philippines. I quote from his email: “Just the other evening, I attended a dinner party where, in one table, there sat a Spanish couple who have been doing business in the country over these past five years. Both expressed the feeling of having been welcomed to the country as well as the wonderful people they have met. On the other hand, he has been driven up a wall at one time or another. There were instances that led him to comment that had he been twenty years younger, he would have pulled up stakes and gone to Vietnam—who was offering him the chance to OWN land to set up his business—and all he needed was one thousand square meters!

“With this ‘event’ in mind plus comments from today’s speakers, I asked myself if there was ever an ‘investor’s road map’ of sorts that one could follow as if going down a check-list—and end up with the option of putting up a business or ‘kissing the boys goodbye.’ Would you personally know if any such ‘investment road-map checklist’ exists—a bonafide bureaucratic-less check list that can be followed—and end up at the point of coming to an actual commercial investment decision? There being none, can this thought be materialized as an action program with its proper IRR by September 2011?

“Apropos my comment is the article appearing on page 1 of the Business World dated 29 March 2011 entitled “Philippines snubbed as investment destination.” Ouch!!! It really hurts—even for those who have been in the export business for many years. Let me quote you a few lines—picked off from said article—as follows:

“The country bagged zero votes in the ASEAN-BAC survey on ASEAN competitiveness, which was conducted in July and November last year.

“It involved 355 senior and middle managers of firms in the region, most of whom were based in Thailand and Singapore.

“Of the destinations offering the best investment prospects over the next three years were 48% ASEAN countries; China 29%; USA 6% and India 5%’; Unidentified 12%. Of the 48% ASEAN group, Vietnam was top choice followed by Singapore, Indonesia, Malaysia, Laos, Myanmar and Thailand. None chose the Philippines.”

My friend, who wants to remain anonymous, would like to suggest that our government officials should do some self-examination and probe into questions like how bureaucratic are we in our system for investors and business in general; when can foreigners own land—at least one hectare in a special economic zone; what guarantees exist that laws will not be changed in midstream or changed at all after its IRRs have been declared as legal and operational; how efficient are the infrastructures supporting the export sector as compared to those supporting imports; how can good governance be instituted down the line?

In my many years of trying to promote investments in the Philippines among both local and foreign investors, I have very often heard similar complaints and suggestions. I hope those of my friend will not fall on deaf ears. For one, the Makati Business Club is actively dialoguing with foreign investors as well as local businessmen. Some of us at the CRC and UA&P are organizing business missions to several Asian countries, in collaboration with the Department of Trade and Industry and the Board of Investments to get the pulse of foreign investors about the Philippine investment environment.

In fairness to President Aquino, it must be stated that his economic team is moving heaven and earth to address the major obstacles to a larger amount of FDIs coming to the Philippines. The challenge is to his political team to lay the groundwork for the amendment of the many unreasonable restrictions contained in the Philippine Constitution that discourage the inward flow of foreign direct investments, such as the prohibition against foreign ownership of land; the many restrictions on foreign equity in such strategic sectors as real estate, retailing, media, education, public utilities, etc. If the political team of President Aquino fails to address these issues in the next three years, then there will be valid reasons to criticize his government for failing to match the FDI inflows into comparable countries like Indonesia, Vietnam, India, Thailand and Malaysia. –Dr. Bernardo M. Villegas, Philippine Daily Inquirer

For comments, my e-mail address is bvillegas@uap.edu.ph.