Streamlining processes: Reducing bureaucratic obstacles to boost FDI

While the Philippines is one of the fastest-growing economies in South-east Asia, the country lags when it comes to foreign investment, particularly compared to some of its regional neighbours. On July 10, 2013, the Bangko Sentral ng Pilipinas (BSP) released the latest foreign direct investment (FDI) data, showing a net inflow of $202m for April 2013, up 61.6% on the same month in 2012. Net equity capital inflows accounted for $131m of this figure, with the bulk of these investments coming from traditional sources – the UK, Singapore, Hong Kong and the US – and directed towards the financial, insurance, real estate, manufacturing and mining sectors.

The April result was a significant improvement over March 2013, when, for the first time since December 2011, more investments left the country than entered, resulting in a net outflow of $78m. While the positive performance in April boosted the year-to-date total and eased the effect of the March reversal, FDI for the first four months of 2013 was still down 2.8% on the previous year, amounting to $1.51bn.

STAYING HOPEFUL: Nonetheless, the country may still be able to meet the BSP’s 2013 FDI target of $3.2bn, particularly given what the central bank has called a “favourable investment climate on the back of ... sound macroeconomic fundamentals”. The credentials of those fundamentals were given a burnish by the IMF in July 2013, when it upgraded its growth forecast for the Philippines economy, lifting its projection to 7% for 2013, up from an earlier estimate of 6%. According to the fund’s resident representative, with domestic demand driving the economy, the country is relatively insulated against external risk. The Philippines is “one of the few emerging markets that could better cope with current global economic conditions”, said Shanaka Peiris, IMF resident representative in the Philippines.

The projected growth rate for the Philippines is more than twice the 3.1% that the IMF forecast for the global economy for 2013 in its latest outlook report, in which it lowered estimates for many of the leading global economies. The fund downgraded its growth forecasts in South-east Asia from 5.9% to 5.6% this year, leaving the Philippines as the only country in the region to have its outlook raised.

EVEN MORE: Peiris commented that the Philippine economy was performing well, but it needed to attract higher levels of FDI to boost growth. Despite its investment-grade status from ratings agencies Standard & Poor’s, Fitch and Moody’s, the Philippines drew only $2.8bn worth of FDI in 2012, according to a report by the UN Conference on Trade and Development. That, said the June report, placed the Philippines last among the so-called “Asian Six” (Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam), which attracted a combined $111.3bn in 2012. Singapore led the way with $56.7bn, while Vietnam, at $8.3bn, and the Philippines were at the other end of the list.

RIGHT STEPS: The government in Manila acknowledges it should do more to encourage FDI. A spokesperson for President Benigno Aquino said that streamlined investment procedures would make the Philippines more competitive. “We have a big challenge ahead of us because of what we call ... ‘red tape’,” deputy presidential spokesperson Abigail Valte told a press conference at the end of June 2013. “We are encouraging our local government units to streamline processes and cut the number of permits required so that there will be more business in the country.”

Though plans at the local and national level to streamline bureaucratic processes may help the Philippines attract FDI, it will likely be some time before it is able to challenge some of its neighbours as an investment destination. For that to happen, infrastructure would need to be upgraded and the overall business climate improved, the IMF reported in July 2013. Until these reforms are enacted, and the promised cuts to red tape made, FDI inflows are likely to rise but not at the same rates as those seen in other more investment-friendly South-east Asian countries.

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The Report: The Philippines 2014

Trade & Investment chapter from The Report: The Philippines 2014

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