Philippines among least attractive FDI destinations in APAC

The Philippines remains one of the least attractive destinations for foreign direct investment in the Asia Pacific region due to its poor infrastructure. — PHILIPPINE STAR/ MICHAEL VARCAS

By Jenina P. Ibanez, Reporter

THE PHILIPPINES is one of the least attractive destinations for foreign direct investment (FDI) in the Asia-Pacific as the country continues to have poor infrastructure and business environments, Oxford Economics said.

The think tank in a brief released on Monday said the country ranked 13th out of 14 Asia-Pacific (APAC) economies in its FDI attractiveness scorecard, ahead only of Taiwan.

Oxford Economics said the poor ranking adds weight to its forecast that the Philippines will experience deep economic scarring from the coronavirus pandemic.

Under the scorecard, the Philippines had negative scores under the categories of infrastructure and logistics; political and business climate; and market size and potential.

Oxford Economics said the country ranked low in terms of quality of infrastructure and performed worse than its neighboring economies in the 2020 World Bank Ease of Doing Business report.

The Philippines ranked 95th place among 190 economies in the World Bank report that has since been discontinued.

In contrast, the country had positive scores in export structure and labor dynamics.

“Indonesia and the Philippines both score high in terms of their labor dynamics,” Oxford Economics said.

“Ongoing urbanization and a relatively young workforce mean that over the next decade we expect the labor supply in these two economies to rise by 25 million. We also forecast their average annual earnings to be around a third lower than in China in 2029,” it added.

Oxford Economics also noted the country’s efforts to lower the corporate tax rate and its plans to ease mandatory local employment for foreign investors.

John Forbes, senior advisor at the American Chamber of Commerce of the Philippines, said this is one of many similar reports in recent years that show the Philippines lagging in terms of attracting FDI in the region.

However, Mr. Forbes noted that Oxford Economics’ projection that infrastructure spending as a percentage of GDP for Vietnam by 2025 will be at five times the Philippine rate is “hard to believe.”

“And the report does not account for the biggest FDI success of the Philippines in (business process outsourcing) service exports, second in Asia only to India,” he said.

The American Chamber is one of several foreign groups that support amendments to the Public Service Act (PSA), which could change the definition of public utilities to allow more foreign investment in telecommunications and transport.

Economies topping the Oxford Economics FDI attractiveness scorecard are China, Vietnam, and Malaysia.

“We believe prospects for FDI inflows into APAC over the medium term remain strong, even though pandemic-driven supply disruptions and uncertainties over the pace of recovery may see some firms rethink their supply chains,” Oxford Economics said.

“We expect China to remain the top destination for FDI given its rapidly growing domestic market. And as supply chains continue to adjust to higher labor costs in China and trade protectionism, we anticipate Southeast Asia, notably Vietnam, to be the key beneficiary. The region is well established in global supply chains, and its labor dynamics and openness to trade and FDI remain very favorable.”

Oxford Economics in July warned that the Philippine economy faces deep scarring from the pandemic, estimating that the country’s projected gross domestic product (GDP) in 2025 will still be 8.4% lower than its pre-pandemic forecasts.

Economic managers expect GDP to grow by 4-5% this year and by 7-9% in 2022, after a record 9.6% contraction in 2020.