Doing business in PH

Four government agencies involved in investment promotion have reported a 39-percent jump in investment registrations to P301 billion in the first six months of 2013. The Board of Investments (BOI), Philippine Economic Zone Authority (Peza), Subic Bay Metropolitan Authority, and Clark Development Corp. have all credited this to the improved investor confidence in the Aquino administration. The government is aggressively courting foreign companies to set up shop in the Philippines. The Department of Trade and Industry and its attached agency, the BOI, have recorded 363 companies and organizations that sent representatives to the country in the first half of the year. Peza has also reported an increase in the number of missions visiting its offices.

Given the government’s determined stance to lure foreign investors and the big number of foreign firms sending representatives to case the joint, so to speak, one can expect the level of investments to be surging to record levels. That is not happening, however. Despite the rosy figures, the Philippines is still lagging behind its co-members in the Association of Southeast Asian Nations when it comes to attracting foreign investors.

There are a number of reasons for this, and restriction to entry is one. Once here, some prospective foreign companies find out that many of the industries that they want to invest in are off-limits to them. The Constitution has reserved these so-called strategic sectors for Filipinos, while limiting foreign investors in many other segments of the economy to a minority 40-percent interest. Foreign business groups here lament that reforms allowing more foreign equity participation in restricted sectors of the economy have not been a government priority. They point out that the Philippines is not neck and neck with its neighbors, and is in fact in the bottom third of all countries surveyed by the World Bank in terms of having a regulatory regime favorable to foreign investments. “The only significant change in the Foreign Investment Negative List (which  lists the economic sectors where foreign investors are barred) since limited foreign investment in retail trade was allowed in 2000 was the opening of gambling casinos to majority foreign equity in 2010,” noted a report prepared earlier this year by the Joint Foreign Chambers of the Philippines.

For those prospective foreign companies that manage to find an industry to invest in, a number will realize how hard it is to go through the process of setting up a business here. In the World Bank’s Doing Business 2013 report, the Philippines’ ranking slid to 138th among 185 economies from 136th in 2012. There are a number of reasons why many prospective investors end up as mere prospects. Since 2003, the Asean Regional Business Outlook Survey of American Chambers of Commerce has been identifying areas of concern where member-firms were either “dissatisfied” or “extremely dissatisfied.” For the Philippines, investors were extremely dissatisfied with corruption all throughout the years of the surveys. By 2009, investors were adding the country’s poor infrastructure network to their dissatisfaction.

Since 2006, World Bank affiliate International Finance Corp. has also been ranking economies on factors related to the ease of doing business. Of the top six Asean economies, the Philippines was ranked lowest. A few reasons cited by the Joint Foreign Chambers for this were that minimum wages were much higher here; the Philippines had the biggest number of holidays (21) as of 2010; power and telecommunication costs were higher; dilapidated ports, limited competition and small ships were making ground and inland marine transport inefficient and costly; and finally, the Philippines had a reputation for excessive and corrupt bureaucratic impositions. In the latest World Economic Forum Global Competitiveness Report’s measure of the “burden of government regulation,” the Philippines ranked 113th of 133 countries.

The improved business confidence in the Aquino administration can only do so much. What prospective investors actually see and experience while here to assess the Philippines is the more important aspect in attracting investments. The big numbers reported by government agencies involved in investment promotion are commitments to invest that may or may not happen. Much will depend on how the government will address the various barriers to the entry of investors, as well as the hindrances that make the operations of existing firms here difficult.