Business World, 13 February 2013


Last November, I wrote about the huge gap between the promise and the reality of foreign direct investments (FDIs) in the Philippines (BW, 14 Nov. 2012, also here). After his Davos appearance, President Aquino boasted that foreign investors were lining up to talk to him about the prospect of investing in the Philippines. Well, nothing has changed. FDIs, the type of investments that may lead to more factories and modern farms, and consequently, more decent-paying jobs have yet to come — almost halfway through Mr. Aquino’s term.


To date, FDI inflows remained puny. In fact, it plunged to $102 million in November 2012 from $366 million in November of the previous year. But the Bangko Sentral ng Pilipinas (BSP) remained upbeat. FDI, according to BSP press statement, “registered net inflows of US$1.2 billion for January-November 2012, slightly higher by 1.1 % than the level posted in the comparable period of the previous year.”

BSP attributed the slight increase in year-to-date FDI to the “encouraging macroeconomic environment” that had attracted foreign investors. Seriously? FDI inflows have been much higher, in the neighborhood of $3 billion, before the global economic crisis; the $1.2-billion inflows was unremarkable.


If foreign direct investors were impressed with the “encouraging macroeconomic environment” how come they have not come to the Philippines in a big way? The United Nations Conference on Trade and Development’s (UNCTAD) Global Investment Trends Monthly [Jan. 23, 2013] predicts that the Philippines will continue to receive a small slice of the total FDI inflows compared to its ASEAN-5 neighbors.

UNCTAD predicts that the Philippines would receive a total FDI inflows of $1.5 billion. This pales in significance when compared with Indonesia’s $19.2 billion, Malaysia’s $10.0 billion, Vietnam’s $8.4 billion, and Thailand’s $8.1 billion.

The comparison is consistent with the FDIs actual inflows into the Philippines during the last 12 years (see table). Despite President Aquino’s brave words that foreign investors are lining up to invest in the Philippines, the numbers just show otherwise. The promised huge wave of FDIs are nowhere to be found.

Assuming that the Philippines achieve its revised FDI target of $1.2 billion this year, the average FDI inflows during Mr. Aquino’s two-year term would be approximately $1.2 billion. That’s pitiful. That’s only a fraction of what our ASEAN-5 neighbors received last year: Malaysia, $10.8 billion; Indonesia, $18.2 billion; Thailand, $9.6 billion; and Vietnam, $7.4 billion.


Why, one might ask, have FDIs not come in a big way? To date, perceptions of corruptions persist. An honest president does not make Philippine bureaucracy corruption-free.

The huge public infrastructure gap remains unaddressed. The grand promise of public-private partnerships in delivering public infrastructure projects has been stranded. After almost three years in office, the first ever PPP project that has been awarded, the Daang Hari project, has yet to take off the ground.

Power supply is getting thinner and unreliable. Power outages are now commonplace in Mindanao and in parts of the Visayas. An epic power shortage is looming in a few years, depending on how slow or how fast the economy performs.

Where progress is expected, there were setbacks. The Philippines continue to perform poorly in the “ease of doing business” department. The Palace spokesman was quick to blame local authorities for bureaucratic delays in setting up businesses in the country. Really?

There’s serious policy uncertainty in the mining sector. In the meantime, mining output has been on a free fall.

Recent developments — the Supreme Court decision on foreign ownership and the issuance of a more protectionist List A by the Board of Investments — have made potential foreign investors think, pause, and ask: Is the Aquino administration serious in its program of attracting FDIs into the country?

The pronouncement from Malacañang that foreign investors are coming in droves is more a positive spin addressed to a gullible domestic audience. It is contradicted by the lukewarm inflows of foreign direct investments, however.

I think our leaders should seriously assess why foreign investors continue to bypass the Philippines. Instead of looking for excuses, they should look for the real constraints to foreign direct investments. Finally, having identified the constraints, the government should address each and every constraint with vigor, focus, and perseverance.