Philippines among most restrictive in SEA on FDI

MANILA, Philippines – The Philippines is among the more restrictive economies in the Southeast Asian region when it comes to foreign direct investments (FDIs), a recent study by the Economic Research Institute for Asean and East Asia (ERIA) showed.

This was among the findings of the ERIA discussion paper titled “FDI Restrictiveness Index for Asean: Implementation of AEC (ASEAN Economic Integration) Blueprint Measures” authored by Shandre Mugan Thangavelu of the University of Adelaide-Institute of International Trade. It compared the situation between 2010 and 2014.

The paper noted developing economies in the Association of Southeast Asian Nations (Asean) tend to have a more open policy towards foreign investments compared to economies with more developed and mature industries.

“This suggests that economies with developed industries tend to adopt FDI policies to protect their domestic industries,” Thangavelu said.

The developing economies include Cambodia and Vietnam, while the more developed economies are Malaysia, Indonesia, Philippines and Thailand.

The author pointed out Vietnam and Cambodia have adopted key FDI policies to maintain their momentum of economic liberalization and integration in the region.

On the other hand, the more developed Asean economies of Malaysia, Thailand, Indonesia and the Philippines “have not progressed further from their relatively higher investment base and this poses an important challenge for their competitiveness.”

“These countries have to liberalize their services sector as it will become an important component of their growth,” Thangavelu said.

A major drag for the Philippines in terms of attracting FDIs is Executive Order (EO) 98 or the 9th regular Foreign Investment Negative List (FINL), which was signed by President Aquino on October 2012.

“The average score of specific commitments for the Philippines declined because of its Executive Order 98,” the author said, pointing out in particular the closure of its real estate services to foreigners.

Business groups have slammed the 9th FINL as “too negative” and had called on government to open more activities to foreigners.

It had a long list of professions restricted to Filipinos and set a a 49-percent limit to foreign equity in lending companies and a 60-percent cap on the foreign ownership of investment houses and financing companies regulated by the Securities and Exchange Commission.

But with the 10th FINL signed by the President just last month, the Philippines may be up for some improvements in terms of FDI restrictiveness.

The new list removed the foreign ownership restriction on lending firms, investment houses and financing companies and trimmed down the list of professions reserved only for Philippine nationals.

Meanwhile, the policy paper noted that Asean economies are protective in communication and transport sectors such as telecommunication, air, rail, and water transport services sectors.

“First, we observed that transport services are the least open to foreign firms. Of the various transport services, rail and road transport are the most protected by the domestic economy,” the author said.

Across the region, the paper also noted the manufacturing sector is more liberalized for foreign investment compared to the services sector. –Danessa O. Rivera (The Philippine Star)