Foreign direct investment low – UNCTAD

FOREIGN direct investment (FDI) in developing Asia set new records in 2010 for both inflows and outflows but the Philippines received the lowest flows compared with its peers, the United Nations Conference on Trade and Development (UNCTAD) said on Tuesday.

The UNCTAD’s World Investment Report 2011 showed that in 2010, FDI inflows to South, East and Southeast Asia rose 24 percent to $300 billion, nearly one fourth of the $1.24-trillion total global FDI.

The agency, however, noted that the performance of the three sub-regions and their major economies varied.

FDI flows to the member-countries of the Association of Southeast Asian nations (Asean), including the Philippines, more than doubled to reach $79 billion in 2010.

The report said that pro-active policy efforts at the country level have contributed to the good performance of the group and “seem likely to do so.”

But FDI inflows into the Philippines only reached $1.713 billion at end-2010 or lower than China’s $106 billion, Hong Kong’s $69 billion, Singapore’s $39 billion, India’s $25 billion, Malaysia’s $9 billion, Vietnam’s $8 billion, Korea’s $7 billion, Thailand’s $6 billion and Iran’s $4 billion.

“It is very difficult to compete with other countries in the region particularly China, Malaysia, Singapore, Indonesia, Thailand and even Vietnam because they are so much ahead of us in terms of infrastructure and ease of doing business in these jurisdictions,” Deputy Governor Diwa Guinigundo of the Bangko Sentral ng Pilipinas told reporters on the sidelines of the UNCTAD economic briefing held at the National Economic and Development Authority.

He said that one of the most difficult challenges for the national government and the private sector was addressing the high cost of power in the country.

Guinigundo added that since the country is an archipelago, power transmission to the Visayas and Mindanao will be difficult.

“Let’s say we have cost-effective power in Luzon, but how can you transmit this to other parts of the country? We are not a landlocked area unlike some other countries with substantial source of power that can almost transmit to all parts of those countries. In our case, that is difficult and that is why the trust toward privatization is a good thing, because competition will bring about lower cost of power and there will be better use of technology in getting the power close to the end users,” he said.

Guinigundo added that he was optimistic that more foreign direct investment will flow into the country since the government is “slowly addressing the issue of good governance.”

He said that good governance is in place, as stressed in President Benigno Aquino 3rd’s State of the Nation Address on Monday.

Guinigundo added that the private-public partnership initiative will address the issue of worthwhile projects.

“It is a matter of time before we finally see the initial launching of the PPP projects. Once these are launched, that should usher in the coming of FDI in a strong way because that should establish the fact that the Philippines is truly capable of conceptualizing big projects with big economic and social impacts,” he said.

According to Guinigundo, financing the PPP projects should not be a problem, with over $1 trillion parked in special deposit accounts (SDAs).

“The banks could easily withdraw from the SDAs. The private sector can always borrow from foreign currency deposit units, the bond and the equities markets. These channels continue to be a good source for corporate funding. However, the projects to be financed should really be defined by the government and once defined the private sector can take it up from there,” he said.

Guinigundo added that macroeconomic fundamentals have been stable, while fiscal position has remained “generally healthy.”

“The building block is infrastructure. Investors are there. They are saying, ‘Tell us where to invest and assure us that policy will not be amended.’ The enforcement of contracts is very important,” he said. -LAILANY P. GOMEZ REPORTER, Manila Times