Danielle Louise A.

Oscares International Political Economy

AB Foreign Service 302 Sir Jumel G. Estrañero

Philippines Foreign Direct Investment: A Platform of Growth

Foreign Direct Investment (FDI) is an investment made by a company or individual on

one country in business interest in another country, in the form of either establishing business
operations or acquiring business assets in the other country, such as ownership or controlling
interest in a foreign company. Foreign direct investments are distinguished from portfolio
investments in which an investor merely purchases equities of foreign-based companies.
FDI are commonly made in open companies that offer a skilled workforce and above-average
growth prospects for the investor, as opposed to tightly regulated economies. It frequently
involves more than just as capital investment. It may include provisions of management or
technology as well. The key feature of foreign direct investment is that it is an investment made
that establishes either effective control of, or atleast substantial influence over, the decision
making of a foreign business.

In 2016, developing countries received 37 percent of total global FDI. They had 43
percent in 2015. The downturn was due to slower growth in the developed world. The United
States economy only grew 1.5 percent, compared to 2.9 percent in 2015. The UN forecast that an
improving economy in 2017 will increase world FDI to $1.8 trillion.
The developed economies, such as European Union and the United States, also need FDI. Their
companies do it for different reasons. Most of the countries’ investment via mergers and
acquisitions between mature companies. These global corporations’ investments were for either
restructuring or refocusing on core business.

The advantages of FDI, it benefits the global economy, as well as investors and
recipients. Capital goes to the businesses with the best growth prospects, anywhere in the world.
That’s because investors seek the best return with the least risk. This profit motive is color-blind
and doesn’t care about religion or politics.
Individual investors receive the extra benefits of lowered risk. FDI diversifies their holdings
outside of a specific country, industry or political system. Diversification always increases return
without increasing risk.
Recipient businesses receive “best practices” management, accounting or legal guidance from
their investors. They can incorporate the latest technology, operational practices and financing
tools. By adopting these practices, they enhance their employees’ lifestyles. That raises the
standard of living for more people in the recipient country. FDI rewards the best companies in
any country. It reduces the influence of local governments over them.
Recipient countries see their standard of living rise. As the recipient company benefits
from the investment, it can pay higher taxes. Unfortunately, some nations offset this benefit by
offering tax incentives to attract FDI.
Another advantage of FDI is that it offsets the volatility created by “hot money.” That’s when
short-term landers and currency traders create an asset bubble. They invest lots of money all at
once, the sell-their investments just as fast. Foreign direct investments take longer to set up and
has a more permanent footprint in a country.

The disadvantages of FDI, is that countries should not allow foreign ownership of
companies in strategically important industries. That could lower the comparative advantage of
the nation, according to IMF report. Second, foreign investors might strip the business of its
value without adding any. They could sell unprofitable portions of the company to local, less
sophisticated investors. They can use the company’s collateral to get low-cost, local loans.
Instead of reinvesting it, they lend the funds back to the parent company.

In my opinion, I think European countries can be in economic cooperation. And this

country has a lot to offer in the Philippines, so is Philippines to European Countries. Specifically,
in goods, work and other trade goods and services. This would also make EU as a strong ally and
would have a strong relationship with another powerful country.
One major challenge of FDI stability in the Philippines is keeping a good relationship
with investors in the country, since investors continue to view Philippines as a favorable
investment destination on the back of the country’s sound macroeconomic fundamentals and
growth prospect. President Duterte is indeed a strong leader and is really aiming for the best in
the country. Another challenge is how he will keep the good relations with international
investors while presenting to the public how “strong” he is as a leader. It will be challenging to
the part of the Philippines that the foreign investors might misunderstand Pres. Duterte especially
on how the way he talks. But looking closely to the positive side, I think a lot of investors would
be interested on what the PH can offer and how both parties would benefit from innovations.
Thirty-six countries, including Philippines, have implemented critical investment policy
measures within the year, all aimed at further easing the entry of foreign investments in their
respective economies. This was according to the latest Investment Policy Monito by the UN
Conference on Trade and Development (UNCTAD), which noted a total of 53 policy measures
implemented from May 1 to October 15 this year according to Philippine Daily Inquirer. These
policies, which aimed at further liberalizing the investment climate of a particular country or
territory, were deemed significant, as boosting “foreign investments were seen as an important
means of reviving a stagnant global economy.” The UNCTAD said.
 The Philippines, along with 23 other countries, was found to have adopted new policy
measures relating to the entry and establishment of foreign investors. The Philippines, was noted
for allowing 100 percent foreign ownership in insurance adjustment companies, lending
companies, financing companies and investment houses. The current administration was seen
heading toward the same direction with Trade Secretary Ramon Lopez earlier announcing that
the Department of Trade and Industry (DTI) would be pushing for a more liberalized Philippine
economy to allow the entry of more players in industries where foreign ownership or
participation is currently restricted.

One way to attract FDIs is by reducing corporate income tax rate and aligning with other
Asian economies. The corporate tax in the Philippines is 30 percent rate, above the average in
Asia of 23 percent. It is also higher than Singapore (17 percent); Thailand (20 percent) and
Malaysia (25 percent). The government should reduce the personal income tax rate from 32
percent to 25 percent; and increase the value-added tax rate from 12 percent to 15 percent.
Our government should also invest in infrastructure, poor public infrastructure which
includes unreliable and costly power is another reason why investors turn away from the
Philippines. The government should increase its spending for infrastructure projects; increase
planned budget deficit by 1 percentage point; and use higher deficit to finance additional p 130
billion for public infrastructure.
Philippines should also settle political issues, showing the world that we cannot settle
simple issues would less likely to attract foreign investors and would think that Philippines is not
a good country to invent in since we cannot resolve issues inside the country. Our administration
is making everything possible to increase our economy.
Duterte administration welcomes foreign investors not just to improve relations and ties
but also to improve PH’s economy and accept innovation.
 References:
https://www.rappler.com/business/193342-philippines-foreign-direct-investments-
october-2017
http://business.inquirer.net/218576/ph-takes-key-steps-attract-fdi
https://www.economicshelp.org/blog/15736/economics/factors-that-affect-foreign-direct-
investment-fdi/