Philippine Economy – (Part V) – Revitalizing the Economy with Foreign Direct Investments (FDI)

Amidst economic reforms that promote import competition, the Philippine economy still possesses restrictive stipulations against FDIs. Three reasons can be cited to argue why this should not be the case. First of all, the liberalization of export incentives to attract FDI gave birth to a successful manufacturing export sector through the introduction of export processing zones. Second, the success of the business process outsourcing (BPO) sector exhibits how encouraging fully owned FDIs can put the country in the forefront of an international industry. And third, for a country where nearly a tenth of its labor force holds passports while working in other countries, more Filipinos will be more comfortable staying at home if more FDI is brought in the Philippines.

The worst problems of the domestic market stem from the restrictions against foreign capital. Limiting investments eliminate competition, lessen efficiency, and encourage monopolistic consolidation of economic power. The 60-40 investment rule discourages the infusion of much needed foreign capital. Current investment incentives also hinder the implementation of public-private participation (PPP) projects, which further promotes monopoly. Liberalizing these rules will allow more FDIs in the country and stimulate higher economic growth.

Furthermore, the presence of FDIs is also required to provide stronger linkages between the export industrial sector and the domestic economy. This need is shown by the operation of Japanese FDIs in other ASEAN countries. China and Thailand both have a domestic procurement ratio of export sales of more than fifty percent (60 percent for China and 53 percent for Thailand), while the procurement ratio of export sales of the Philippines lags to only about 26 percent.

Japanese industries that manufacture products that have high commonality like printers, multifunctional peripherals (MFP), projectors, scanners, and digital cameras can migrate in the Philippines in clusters if the investment environment of the country improves. This endeavour requires effort and there is no room for waiting as other countries are also making efforts to welcome these opportunities – most of them even offer better investment incentives.

The major producers of the aforementioned electronic products have linkages to the supply of raw material inputs that are required to manufacture the final product. This leads to the targeting of manufacturers of products like glass and motor, which are not yet based in the country. There are still a number of Japanese companies that are not yet in the country but whose operations can be vital to the needs of electronics makers. As the market expands further, more investors, both Japanese and international, can join in the intermediate stage of manufactures.

Source:

Sicat, Gerardo, “Philippine Economy – (Part V) – Revitalizing the Economy with Foreign Direct Investments,” Crossroads (Toward Philippine Economic and Social Progress), The Philippine Star, April 11, 2012.