Government News Analysis

The why of FDI

Today and tomorrow, The Volatilian is running a series of infographics that deals with the subject of foreign direct investment (FDI) which in the Philippines, as elsewhere, is intrinsically linked to economic growth. It’s part of the lifeblood of all economies.

For the Philippines – given the current administration’s plans for tackling the effects of historic underinvestment in infrastructure, for example, and the debilitating knock-on effects that has had on everything from agriculture to tourism – FDI inflows have never been more critical.  And here’s why.

If the Philippines is to attain an annual growth target of, say 7% – it hit 7.1% in the third quarter of 2016 – it would need to invest a large chunk of its gross domestic product to boost that growth; possibly as much as a third of the value of all the goods and services it produces in a year. But while approximately two thirds of that is available from national savings – the sum of public- and private-sector income, less government purchases and consumption – typically there’s a short fall of around 10%. And that’s where FDI comes in.

But this is a highly competitive business; and not least in Southeast Asia where member states of the Association of Southeast Asian Nations (Asean) fiercely vie for foreign dollars. And though the Philippines has shown itself to be more attractive as an FDI destination than it was in the past, it lags well behind fellow Asean members — in order, Singapore, Indonesia, Vietnam, Malaysia and Thailand.

As they say in the lottery game, you have to be in it to win it. But “in it” here means being fully committed to winning the hearts and wallets of foreign investors. In short vulgar terms, it’s a beauty contest in which contestants compete in a host of areas including, wage rates, corporate-tax rates, ease of doing business, labour skill levels, transport costs, level of infrastructure in place, property rights and political stability.

Lack of transparency, poor corporate governance and fabulous amounts of bureaucratic red tape along with the protectionist practices of monopolies, duopolies and the oligarchs have taken a big toll on the Philippines’ economic development for decades. That’s why President Rodrigo Duterte’s administration is now on course to deal with these impediments to growth.

We hope that this series of videos will help to put our coverage of the political, economic and social situation in the Philippines into sharper focus.

[29th January 2016]

Today we conclude our series of infographics dealing with foreign direct investment (FDI) with

PART 4: COMPETING FOR FDI.

As a region, Asia receives more inbound investment than any other, and so competition to attract it is stiff – the more attractive a country can make itself for inward flows of cash, the more cash it will receive relative to its rivals. And few places contest their claims to FDI more than within the 10 states of the Association of Southeast Asian Nations (or, Asean) of which the Philippines is a member.

For the Philippines, presenting that attractiveness has always been the challenge; and as our chart shows, it’s been lagging badly. Now countries are liberalising more – reducing foreign-participation restrictions, for example – which makes it even tougher for those countries that don’t.

We hope our FDI series has been informative and has helped create a clearer understanding of what exactly FDI is and why it’s so critical for the Philippines that it gets a larger share of it.

From time to time we will be making infographic packages on other aspects of the Philippine economy which we offer as a supplement to our usual news-analysis output.

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