DOF Sees US$10 Billion Annual FDI Within Reach Through Liberalization Laws in the Philippines
Last Friday, March 25, the Department of Finance (DOF) stated that it is possible to attract at least US$10 billion of foreign direct investments (FDIs) annually, due to three key economic liberalization laws and corporate tax reforms now in place.
DOF Chief Economist and Former Undersecretary Gil Beltran noted, “The US$10-billion worth of FDI is a high watermark to beat but it is within reach with the combined effects of CREATE, the ‘Build, Build, Build’ program, and key structural reforms introduced by the amendments to the Retail Trade Liberalization Act, the Foreign Investment Act, and the Public Service Act.”
The Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) aims to attract elephant-sized foreign investments along with lower corporate income taxes plus substantial incentives packages.
The Build, Build, Build (BBB) program strives to address long-standing investor concerns on infrastructure deficiency in the country.
The modifications to the Public Service Act (PSA) and Foreign Investments Act (FIA) signed by the administration, together with the amended Retail Trade Liberalization Act (RTLA) will definitely open sectors that had been previously closed to foreign investors.
Instead of merely altering the 60/40 limit on foreign investment (60% Filipino and 40% foreign) in the 1987 Constitution, the administration has pushed to amend these three antiquated laws.
The Organization for Economic Cooperation and Development (OECD) recognized the Philippines as one of those with the most restrictive economies to foreign investment entry. As a result, it lagged behind most of its ASEAN neighbors in attracting job-generating FDI.
The annual FDI shows that the Philippines breached the US$10-billion level only twice, which happened in 2017 with a $10.3 billion, uplift by Japan Tobacco International’s (JTI) purchase of the cigarette maker Mighty Corp. While the other was reached last year, with a record US$10.5 billion.
Beltran partly credited the highest-ever haul last year to investor confidence due to “a sustained vaccination drive and a prudent and calibrated reopening of the economy.”
Beltran mentioned, “Meaningful inflows of foreign investments bring in more dynamism to the economy and will help hasten the economy’s path to recovery. They provide competition to the big fish in the small pond not only in terms of product or service quality but also in terms of attracting workers.”
In addition, he cited, “Effectively, foreign investments make the pond bigger, widening the pool of employment, and, possibly, offering higher wages in their bid to attract skilled workers.”
Moreover, Beltran expressed, “For a pragmatic household head with a family to feed and children to send to school, he or she would not care if the employer is brown, yellow, or white as long as the paymaster pays well.”
Apart from the reforms supportive of foreign investment generation, Beltran noted, “very important that the ongoing infrastructure projects are completed for the country to benefit from their immediate catalytic effects as they increase the economy’s productive capacity–an unfinished bridge does not reduce travel time by even a minute and, consequently, does not inspire any additional investor confidence.”
For Beltran, “the next administration may need to continue structural reforms in the economy to sustain investor confidence and accelerate FDI inflows.”
