The Bangko Sentral ng Pilipinas report last week that foreign investments in the Philippines fell by nearly 30 percent in the first 11 months of 2019 came as no surprise to many economists.
In fact, inflows from foreign investors have been weak for many years now. The latest regional data from the 2019 Asean Investment Report placed the Philippines in fifth spot, with the bulk of the rising foreign investments in the region being cornered by Singapore, followed by Indonesia, Vietnam, and Thailand.
There are many reasons — some beyond the government’s control — for the rather anemic interest of foreigners to invest here. Geographically, the Philippines is an archipelago considered as a small market by big multinationals, unlike other Asean neighbors that are connected by land to one another to create a homogeneous market.
Structurally, the Philippines has laws that bar the entry of foreign investors in so-called industries imbued with national interest, although some of these industries such as telecommunications should have been opened to 100-percent foreign ownership a long time ago. The country’s chief economist,
Socioeconomic Planning Secretary Ernesto Pernia, has described the Philippines as the most restrictive country in the region insofar as foreign investments are concerned, and this is why he is pressing Congress to pass bills seeking to amend the Foreign Investment Act, the Retail Trade Act, and the Public Service Act.
But recent developments have also created a quite inhospitable climate for foreign investors.
First is the administration’s move to trim down the number of tax perks given to investors. The rationale to weed out industries that do not deserve incentives makes sense. But in the protracted debate that has followed, many foreign businesses are feeling reluctant to come in, given the uncertainty on what incentives will remain or which sectors will continue to get the perks.
This uncertainty is manifested in the steep slump in investment pledges received by the Philippine Economic Zone Authority in the past two years: 16 percent last year to P117.5 billion, and 41 percent in 2018 to P140 billion.
More worrisome for investors has been the apparent bias of the Duterte administration against big business, as it seemingly targets those that it perceives were allies of the previous regime or unsupportive of the present administration.
In the process, the sanctity of contracts has been disregarded, as in the case of the two concessionaires of the Metropolitan Waterworks and Sewerage System. The government has unilaterally decided to draw up new contracts for Manila Water Co. Inc. and Maynilad Water Services Inc. to remove what it claims were onerous provisions in the old contracts drawn up by previous administrations.
Businessmen who are among the most respected in the country have also been pilloried in public by no less than President Duterte, who has repeatedly ranted against them, called them names and accused them of economic crimes. A major casualty has been the Ayala family, which was recently forced to cede majority interest in Manila Water to ports and casino tycoon Enrique K. Razon Jr., considered an ally of the present administration.
Another looming casualty is the Lopez family’s ABS-CBN television network. Mr. Duterte had on several occasions publicly vowed to block the renewal of the company’s franchise, which will lapse at the end of next month. Congress has not moved on the renewal despite several bills having been filed years back.
The investing public’s dismay in all this has been mirrored in the sharp decline of the stock prices of listed companies targeted by the Duterte administration: Manila Water, ABS-CBN, Metro Pacific
Investments Corp. (controlling owner of Maynilad) and, much earlier, Philweb of businessman Roberto Ongpin.
The administration cannot simply blame the external environment for the dismal performance of the Philippines in attracting foreign investors. There are far more serious concerns it can address to lure foreign capital to our shores.
Failing in this, even local capital may soon go elsewhere and be counted as foreign investments in countries where businessmen feel the governments are more hospitable and reasonable, and can be trusted to keep their word.
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