WWW.WALLACEBUSINESSFORUM.COMQRT POL JULY 26, 2015 1
Joint Economic Briefing –Impact of the Philippine Elections
on Foreign Investments
Joint Economic Briefing –Impact of the Philippine Elections
on Foreign InvestmentsNew World Hotel, Makati City
Peter WallaceWallace Business Forum
April 18,2016
WWW.WALLACEBUSINESSFORUM.COMJOINTECO BRIEFING CHARTS APRIL 18, 2016 2
PH’s Foreign Direct Investments
0
1
2
3
4
5
620
10
2011
2012
2013
2014
PH net FDI ($B)
$B
0
5
10
15
20
25
30
35
Indo
nesia
Malaysia
Thailand
Vietna
m
Philipp
ines
Net FDI: Selected Asian countries ($B)
2011 2012 2013 2014
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Breakdown of 2014 FDI
Of the $5.7 billion in FDIs in 2014, only $1.6 billion (28%) is equity; debt instruments or loans account for $3.3 billion (57%); while $876 million (15%) is reinvested earnings
Under equity, Financial and Insurance Activities had the biggest share at $889 million (55.64%) compared to Manufacturing at only $209 million (13.08%)
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• FDIs can offset weaknesses of local industries, esp. in technology, branding & global market linkages
• PH can attract more FDIs through: Labor reforms Power reliability and cost Low transport/logistical costs Relax Constitutional restrictions Easier business entry & licensing
rules esp. at local levels – all online Better infrastructure Reduced corruption Consistency of policies
PH Net FDI… 2
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How to promote FDIs:1) Implement Labor reforms
Cancel security of tenure Lengthening of compulsory regularization esp. of young
employees Implementation of productivity‐based wages Simplify labor dispute resolution processes
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How to promote FDIs:… 2
2) Ensure power reliability and reduce cost
Demand is growing faster than new plants are being built. And there’s insufficient reserves.
The Red Tape is jeopardizing the country’s potential growth. 165 signatures are needed to secure the necessary permits to build a plant.
The Philippine power infrastructuresystem in not on par with its neighbor countries
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Country Rank (out of 140 countries)
Singapore 2Malaysia 16Brunei n/aThailand 52Cambodia 83Indonesia 82Vietnam 76
Philippines 103Lao PDR 130Myanmar 123
Latest World Economic Forum (WEF) Rankings (Seaport Infrastructure)
3) Lower transport/logistical costHow to promote FDIs:… 3
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4) Relax Constitutional restrictions
Foreigners cannot own or hold majority ownership of public utilities, media, advertising, utilization of natural resources, colleges franchises and land.
Constitutional restrictions limit PH’s participation in multilateral free trade agreements
Limits capacity to raise funds and technical support abroad for major infrastructure projects
Concentrates infra in too few hands
How to promote FDIs:… 4
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Constitutional barriers to attracting more FDIs:
1. Land Ownership
– Should be allowed for “own use” only very controversial = difficult to attain reciprocity?
2. Ownership of public utilities
– Would allow government to build more, faster. It send a positive message that RP is a truly open economy – in all areas.
3. Educational institutions
– More jobs, better quality of education, and improved employability of graduates.
Constitutional restrictions…
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World Bank’s Doing Business Ranking (ASEAN)
Source: World Bank Group
PHILIPPINES: EASE OF DOING BUSINESS(Out of 189 Economies)
IndicatorDB 2016Rank
DB 2015Rank
Ease of Doing Business (Overall) 103 97
Starting a business 165 157Dealing with construction permits 99 94Getting electricity 19 21Registering property 112 110Getting credit 109 105Protecting minority investors 155 154Paying taxes 126 125Trading across borders 95 94Enforcing contracts 140 139Resolving insolvency 53 50
5) Easier business entry & licensing rulesHow to promote FDIs:… 5
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PH’s poor state and quality of infrastructure has been a major impediment to sustained economic growth.
Allocated public infra spending for 2016 is P766 billion, finally at the World Bank‐recommended 5% of GDP – if it’s spent. But government needs to spend more given that the PH is 10‐20 years behind its ASEAN peers.
6) Improve InfrastructureHow to promote FDIs:… 6
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Infrastructure Expenditure 2000‐2009Country Ave. US$ Bn* % GDP
Malaysia 7.6 5.4Indonesia 10.3 3.4Vietnam 4.9 9.0Thailand 10.8 6.0Philippines 2.6 2.3Sources: ADB, NSCB, Gov’t agency websites of selected ASEAN *WBF estimates
Infrastructure…
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TI’s Anti‐Corruption Rankings (ASEAN‐6)
Country2015
(out of 167)2014
(out of 175)2013
(out of 177)2012
(out of 176)2011
(out of 183)
Singapore 8 7 5 5 5Malaysia 50 50 53 54 60Thailand 76 85 102 78 80Indonesia 88 107 114 110 100Philippines 95
(56%)85
(48%)94
(53%)105(59%)
129(70%)
Vietnam 112 119 116 116 112
Source: Transparency International
7) Reduce corruption
How to promote FDIs:… 7
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8) Consistency of policies
Investors look for stability, consistency and predictability of the business environment. Not change every 6 years –or sooner.
A 2007 APEC study found that “weak enforcement of contracts is among the most pernicious ways of turning off foreign investors.”
PH government’s rules must not be changed on a whim. Bidding rules must not be altered. It scares investors away.
How to promote FDIs:… 8
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WORST FEATURES OF PH AS AN INVESTMENT SITE
1) Dealing with corruption
2) Bureaucratic red tape
3) Transport infrastructure
4) Stability of policies
5) Unfair competition by others paying bribes
6) Government attitude
7) Political stability
8) Economic stability
Summary
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BEST FEATURES OF PH AS AN INVESTMENT SITE
1) English language capabilities
2) Worker educational level
3) Attitude to foreigners by public
4) Quality and quantity of middle management and technology people
5) Comfortable local lifestyle
6) Labor reliability and loyalty
7) Availability of requisite skilled/semi‐skilled labor
8) Labor cost
9) Labor productivity
10) Tax holidays
Summary… 2
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ISSUE BINAY POE ROXAS DUTERTE
Charter Change
In favor of amending the economic provisions of the Constitution
In favor of amending the economic provisions of the Constitution
Amending theeconomicprovisions isnot among hispriorities. “Itwon’t fix theproblem.”
Wants shift to parliamentary federal system. Supports amending the economic provisions
Department of ICT
Has not yet taken a position
Pro.
Particularly forthe establishment of ICT hubs across the country
Against theformation of aDep’t of ICTdespite beingthe “Father ofPH BPO”
Supports creationof a DICT and is promoting for ICT development in Davao city
On issues crucial to attracting FDIs
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ISSUE BINAY POE ROXAS DUTERTE
Mining Supports responsible mining;
Among UNA’s 3 drivers of growth (with agriculture and tourism)
Advocates for “responsible, transparent mining”
May seek new mining code
Lukewarm to mining
No clear stand on mining taxes
Supportsresponsible mining and fair taxes
PPP
Pro; Believes in strong partnership between business and government esp. in power, telecoms, and farm‐to‐market roads.
Pro; seeks more PPPs especially for agriculture
He’s likely to continue PNoy’s flagship infra program
But it suffered delays under his leadership as Secretary of DOTC
Willing to modify earlier PPP contracts signed by the PH gov’t
Pro
Issued PPP ordinance to hasten implementation of projects in Davao city
Stand on key issues 2
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Getting more and better infrastructure built – faster!
Power supply availability Port congestion/logistics issues A new international airport built A greater shift to manufacturing
FDI restrictions removed Revival of mining – competitively taxed Creation of millions of paying jobs
Economic:
Critical economic issues beyond Aquino
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Critical economic issues beyond Aquino… 2
Economic: Reforms in the tax system ‐> toward lower, simpler taxes
(exemption of the small guy) whilst keeping collections high to support infra + anti‐poverty/basic social services spending
Greatly simplifying and computerizing the bureaucracy for business Overcoming PH disadvantages in ASEAN market liberalization Manila traffic
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