Economic repercussions

If President Duterte and his officials think their controversial actions and pronouncements here have no serious repercussions on the Philippines’ economic relations with other countries, they should think again. We’re talking of things like the daily murders resulting from the administration’s war on drugs, the killing of a South Korean businessman inside the Philippine National Police headquarters in Quezon City, the arrest of a senator critical of Mr. Duterte, and the move in Congress to revive the death penalty, among others.

Last week, Britain and the European Union warned that the political controversies in the Philippines were turning off some members of the European business community. Two firms—one in information technology and the other in manufacturing—disclosed their plans to the European Chamber of Commerce of the Philippines (ECCP) as early as the latter part of 2016. They were thinking of doubling their investment, but this was around the time when Mr. Duterte insulted members of the international community, including the European Union, for criticizing his administration’s bloody war on drugs. Their headquarters in Europe then decided to put their expansion plans on hold. There was also another company that wanted to increase its investments, but instead decided to expand its operations in Vietnam rather than here. Those expansion plans would have added 5,000 more jobs in the country.

ECCP president Guenter Taus already warned late last year that the growing number of deaths in the administration’s war on drugs had created a sense of uncertainty among European investors. This war, with the body count now exceeding 7,000, has been seen by some investors as a distraction to an otherwise promising growth story of the Philippine economy.

The British business community here has also expressed its concern that a Philippine government willing to breach an international agreement to pass the death penalty would find it “much easier to walk away from a commercial treaty.” British Ambassador Asif Ahmad was referring to moves in Congress to revive the death penalty, which was abolished in 2006.

Ahmad told a media briefing that British investors were likewise raising questions regarding the state of Philippine politics following the death toll in the administration’s bloody war on drugs.

On top of this, the Philippines also risks losing its advantage of being able to export 6,274 products to the European Union at zero tariff because of its eligibility to the Generalized System of Preference Plus. This economic benefit is conditional to the government’s compliance with key international covenants, specifically the ratification and effective implementation of 27 international conventions on human and labor rights, environment and governance principles.

The European Union is one of the Philippines’ most important trading partners. Two-way trade in 2015 amounted to 12.9 billion euros, or 11 percent of the total, making it the Philippines’ fourth-biggest trading partner. In terms of trade, the European Union is the Philippines’ third-largest market, with exports of 5.7 billion euros in 2015. It is a big investor in the Philippines, with 300.16 million euros in foreign direct investment in 2015.

The Philippines has been touted as one of the economic bright spots on the planet given its robust consumer base that is being fueled by the billions of dollars sent home by overseas Filipino workers or earned by the business process outsourcing sector. But there is danger that the political controversies hounding the Duterte administration will impact negatively on the economy, particularly on investment inflow. It’s the series of official statements and political events over the past few months that is causing anxiety outside the country. As ECCP executive director Florian Gottein put it, there is clearly an air of uncertainty.

Capitalists can live with risks, but uncertainty is something difficult to include in business plans.