Investment News Analysis

Philippines FDI – potential vs problems

On the surface the decision not to invest in the Philippines seems perplexing.

It has the largest English-speaking population of any country in Southeast Asia and a labour force of 42 million which is both tech-savvy and young (30%+ below the age of 30). Resources-wise, the archipelago has some of the largest deposits of metals, precious metals and minerals of any country in the region; it has long coastlines of white-sand beaches – 2,549 miles of them – and coral reefs with resort potential that is nothing short of fabulous. The soil is fertile, producing tropical fruit in abundance; the oceans that lap its shores teem with fish and seafood while offshore, reserves of oil and natural gas remain largely unmapped.

It seems to have it all. So why wouldn’t inward investment naturally gravitate to this place? And why does it continue to trail behind its regional neighbours as a beneficiary of foreign funds?

From corruption to red tape, inadequate infrastructure to a poor rule of law record, from deficiencies in power output to the lack of any meaningful Internet provision, the problems for anyone wanting to do business in the Philippines are considerable. What makes investors nervous

While all that may make for grim reading, what is also apparent is that if the Philippines enacts serious reform legislation – and then enforces it – this capital-short country will rise quickly in the queue for foreign cash. Certainly, there are many, both in the country’s Congress and its corporations, who are urging such reforms. The outgoing administration of President Benigno “Noynoy” Aquino made a number of bold inroads into these problems.

Here’s a snapshot:

● Government corruption and excesses both at the central and provincial level were dealt with in a number of high-profile cases.

● Restrictions on foreign participation in some sectors (banking, for one) was eased – foreign banks such as Japan’s Sumitomo Mitsui Banking Corp. which entered the market in January will provide a conduit for foreign-fund inflows.

● A number of large much-needed infrastructural projects (among them new highways, airport expansions and power plants) were delivered.

● A government-funded US$32m a year nationwide free Internet service for public areas was given the go ahead, putting pressure on established sector players to become more price competitive.

● Peace in gold- and copper-rich Mindanao moved a step closer under a joint agreement (though yet to be ratified by Congress) between the government and the Moro Islamic Liberation Front.

● And, under Aquino, all three major ratings agencies gave the Philippines investment-grade status and FDI rose from US$1.07bn in 2010, at the start of his term, to US$6.2bn in 2014, confirming that even a modest cleaning out of the stables is encouraging to foreign participants.

What we need to learn now, is what appetite does the new administration have for reforms that will make the Philippines an even more attractive destination for overseas investment? And, ultimately, what guarantees is it prepared to make to the overseas investment community that their money and their assets will be safe?