Investment News Analysis

What makes investors nervous

Infrastructure. The Philippines came 95th out of 144 countries for its infrastructure quality in a 2015 report by the World Economic Forum. Public Private Partnership (PPP) schemes for large infrastructural projects remain dominated by domestic corporations. The vetting and bidding process can be cumbersome; arbitration mechanisms to handle disputes between parties are time consuming and often end with unsatisfactory resolutions. Ten PPP projects due for completion in 2011 were finally delivered in 2015.

Corruption. Foreign investors are vulnerable to bribery and extortion when applying for licences. Facilitation payments are not covered by anti-corruption regulations. Small-value “gifts” are deemed part of cultural tradition. The Customs Department is plagued by malpractice; fraud is common in the filing of import and export documents. From 168 countries surveyed worldwide, Transparency International placed the Philippines joint 95th with Mexico and Mali in its 2015 Corruption Perception Index.

Rule of law. Foreign corporations fair badly when seeking judicial redress. Courts exercise favouritism and undue influence. Litigation is costly and lengthy. The legal framework for dealing with corruption is complex and ineffectively prosecuted or ignored. Law enforcement is often weak, disinterested or non cooperative. The World Justice Project’s 2015 Rule of Law Index ranked the Philippines 9th out of the 15 nations surveyed across East Asia and Pacific after recording low scores for both civil and criminal justice.

Terrorism. Foreign governments routinely issue travel warnings to parts of the large resources-rich southern island of Mindanao where kidnap for ransom remains a real threat. Three of this region’s terrorist groups now have allegiances to Islamic State. End 2015, the terrorism threat level was raised to Level III (high probability) in 19 areas Out of 39 countries surveyed by the Institute for Economics and Peace for its 2015 Global Terrorism Index, the Philippines came 11th (just 0.2 points behind Libya).

Power grid. Outages and power rotation from area to area, industry to domestic usage are a predictable part of the Philippines summer as the government imposes aggressive energy-conservation measures. Although grid capacity is being added, it continues to fall far short of meeting industrial and domestic demand. In 2015, the country was operating with a 350MW output shortfall.

Internet. Slow and expensive. The Philippines has an average Internet speed of 3.64 megabytes per second (Mbps) comparing unfavourably with its regional neighbours: Thailand, 19.82Mbps; Vietnam, 17.70; Cambodia, 9.04; Malaysia, 7.03; Laos, 6.92; Indonesia, 6.69 and Myanmar, 6.65. A 2015 study by Internet metrics provider, Ookla, ranked the Philippines 176 out of the 202 countries surveyed worldwide. In the whole of Asia, only war-ravaged Afghanistan had lower speeds. But it is also one of the world’s most expensive connections with Internet users in the Philippines paying on average each month US$18.19 per Mbps – 349% more than the average global monthly rate of US$5.21 per Mbps. On costs, the Philippines ranked 161 of the 202 countries in the study. (Phone calls are among the region’s costliest. Inadequate cable infrastructure and lack of real competition in the sector are the root causes).

Mining. Virtually a closed shop. Sec.2, Art XII of the Constitution states that exploration, development and utilisation of natural resources is reserved for Filipinos. Foreign mining corporations can take a maximum 40% stake in a mine, for which they would provide the majority of funding, technological support and management for the joint venture. Meanwhile, government and local miners clash over issues of equity sharing and windfall profits, provincial councils impose their own levies, the Roman Catholic Church along with indigenous groups decry and protest at the desecration of the pastoral landscape. Not surprisingly, the large international mining groups give the Philippines a wide berth. But they would love to be there. The Philippines has an estimated US$1.4 trillion in mineral reserves. It’s vast deposits of copper, nickel, chromite, aluminium and gold, among the largest in the world, cover an estimated nine million hectares – yet mining permits have been issued for less than 2% of this area.

Red tape. There is a massive dislocation between the central and provincial governments – the country’s largest employers. Bureaucratic formalities, quadruplicate filing, signatory requirements of absent officials, misdirection by government staff, inadequately explained regulations and rules combine to choke new business. Of the 189 economies surveyed by the World Bank Group’s 2016 Doing Business report, the Philippines was ranked 103, a drop of five places from the previous year.