The Market Monitor Minding the Nation's Business
Luis Leoncio
Notwithstanding its investment grade from the three chief rating agencies, the Aquino administration failed to deliver on its promise to attract foreign direct investments (FDI) into the country, which many blame for the prevailing paradox of strong growth but widespread poverty, especially in the countryside.
Even the government report of a record $6.2-billion FDI last year did not change the fact that the Philippines is considered the least attractive investment destination in the region; it lags behind its fellow members of the Association of Southeast Asian Nations (Asean) in pulling in foreign capital.
Data provided by former Budget Secretary Benjamin Diokno, now an economics professor at the University of the Philippines School of Economics, showed that although last year’s FDI reached a record high, the Philippines still pales in comparison with those of the other big economies in Asean.
From 2010 to 2013, FDI figures showed the following: $9.6 billion for the Philippines, $47.3 billion for Malaysia, $75.8 billion for Indonesia, $41.6 billion for Thailand and a whopping $220.9 billion for Singapore.
For comparative purposes, the data showed that in the first three quarters in 2014, the Philippines had $4.875 billion FDI; Malaysia had $8.13 billion, Indonesia, $19.219 billion; Thailand, $7.97 billion; and Singapore had $58.202 billion.
The low investments placed in the context of the formalization of the Asean Economic Community (AEC) by the end of the year would put the country at a huge disadvantage in the common market.
The data showed even in the first three quarters of last year, the Philippines came in last in terms of FDI, which in the region was led by Singapore, with $58.2 million; Indonesia, with $19.2 million; Thailand, with $14.06 million; and Malaysia, with $8.13 million.
Diokno said Asean integration is not going to be a walk in the park for the Philippines.
“Policy makers have to address some real problems. First, on the fiscal side, the government has to make the tax system in sync with the rest of the region,” he said.
The Philippines has the highest marginal personal income-tax rates and one of the highest corporate income-tax rates in the region, which are major disincentives for local and foreign investors.
The government also has to address the country’s notoriously poor infrastructure, the high cost of doing business, and poor governance, Diokno said.
“There have been some improvements but the Philippines remains at the bottom of the Asean-5 ranking,” he added.
Diokno said the government has to find ways to reduce the costs of power and, at the same time, make power supply more reliable. Diokno also said tourism has great potential.
“But in order to boost tourism, the country needs world-class airports, seaports, highways and urban transit system. It needs more hotels and facilities in select tourist destinations,” he said.
In addition, the government must ensure the safety of tourists on their way to and from tourist destinations and during their entire stay in the country, he added.
The government also has to continue to invest in human capital—to make sure that the growing labor force is healthy and equipped with the appropriate education and skills that can compete with the rest of the global work force.
“As a corollary, given the social costs of overseas employment, the government should strive to create more high-paying, decent jobs at home,” he said.
Diokno also said the government must address the problems of the agriculture sector.
“Sadly, the sector is not ready for Asean integration. It is not competitive because of the limited arable land (thanks to land reform and its mountainous terrain) and poor public infrastructure to transport agricultural products from the farm to the market,” Diokno said.
He said the local sugar industry cannot compete with that of Thailand, and neither can the Philippines rice industry compete with that Thailand and Cambodia.
“The Philippines mining sector is barely surviving, largely because of the lack of a clear mining policy,” he added.
“To say that we’re ready for the Asean economic integration is like whistling in the dark. Asean integration is not going to happen overnight, but the sooner our policy makers address the country’s limitations—and there are many and hard—the better,” he added.
On a happier note, Diokno said the country’s growth might accelerate because higher demands for local products in the Asean market.
“The increased labor mobility in the Asean market might provide more job opportunities for Filipinos, which might ease up the serious unemployment at home and further increase overseas Filipino workers (OFW) remittances,” he said.
He also noted that, “The Philippines has an advantage is the service sector because of its huge supply of English-speaking workforce and business firms might be attracted to locate in the Philippines because of this big pool of English-speaking labor supply.”
He also said greater Asean integration will result in easy adaptation of cutting-edge technology and best business practices, allowing local firms to adapt to international standards.