Philippines in bid to boost FDI

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An easing of restrictions and regulatory requirements is expected to boost foreign direct investment (FDI) in the Philippines, as the administration of President Rodrigo Duterte looks to increase the country’s attractiveness as a business destination.

In early July Ramon Lopez, secretary of the department of trade and industry, reiterated the new administration’s focus on FDI, announcing the government’s aim to position the Philippines as one of the top three destinations for FDI inflows in South-east Asia by the end of Duterte’s term in 2022.

Updating the FINL

One of the ways in which the government aims to achieve this is through updating the Foreign Investment Negative List (FINL) – a list that excludes certain sectors from foreign ownership or investment.

The prohibited sectors include mass media, retail trade enterprises with paid up capital of less than $2.5m, cooperatives, private security agencies, small-scale mining, marine resources and nuclear weapons.

In early June the previous administration had lifted some barriers by removing lending firms, investment houses and financing companies from the FINL.

The new government has said it wants to take these reforms further, as part of its programme to increase FDI by 4% this year, bringing the total to $6.3bn.

If achieved, the figure would mark a significant improvement on last year’s performance.

In 2015 the Philippines attracted $5.72bn in FDI, below the government target of $6bn and marginally down on the $5.74bn posted in 2014, according to data issued by the Bangko Sentral ng Pilipinas, the country’s central bank.

In addition to reviewing the FINL, the government is looking to streamline bureaucratic processes and step up investments in infrastructure to improve the business climate, Lopez told local media.

The move to lift FDI restrictions currently in place may take some time, however, as many of the limitations are enshrined in the national constitution, rather than simply on statute books, making amendments a more lengthy process.

Tax reform

Other potential reforms include a reduction in corporate and personal taxes.

The government has said it will lower corporate tax from the current 30% – among the highest in the ASEAN bloc – while also cutting personal income tax, which currently stands at 32%.

Though no firm timetable has been set for reductions, or new rates announced, any cuts in corporate and personal levies could serve as an added incentive to overseas investors, enhancing the Philippines’ competitiveness as an FDI destination among regional rivals.

However, this could be offset by changes to the country’s value-added tax (VAT), which is currently set at 12%, as well as a broadening of the tax base. According to Carlos G. Dominguez, chief of finance, a close review of the scope of the VAT will examine its current exemptions.

Increased appeal

Prior to the new administration taking office, FDI prospects for the Philippines had already been upgraded, according to a newly issued report by the UN Conference on Trade and Development (UNCTAD).

The Philippines is forecasted to be one of the top 15 FDI destinations over the next three years, UNCTAD said in its 2016 World Investment Report.

The report, which was based on a survey of multinational enterprises, said that 5% of executives interviewed would consider investing in the Philippines in the medium term.

In terms of FDI appeal, the Philippines ranked 11th overall, ahead of ASEAN members Vietnam and Myanmar, but behind Indonesia and Malaysia.

The report cited industries such as agriculture, utilities, food and beverage, and ITC as likely targets of increased FDI in the coming years, which are closely linked to a growing, urbanising consumer market in emerging economies.

Though the Philippines will be well-positioned to attract a larger portion of FDI, overall global investment flows are set to dip 10% to 15% on the back of international economic uncertainty this year, before rebounding next year, according to UNCTAD.

Mining uncertainty

One sector that may not see an increase in local and foreign investment is mining.

In early July Regina Lopez, the newly appointed secretary for the department of environment and natural resources, announced a review of all mining activity, after having already raised the prospect of a ban on open cut extraction, according to press reports.

Mining investments fell to a three-year low to below $1bn last year after the Aquino government imposed a ban on issuing new mining licenses and moved to increase the state’s share of industry revenue.

The position taken by Lopez could further discourage foreign mining firms from investing in the Philippines, despite the largely untapped resources on offer.

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