Clytemestra Miaflor Juan International Political Economy

AB Foreign Service 302 Mr. . Jumel G. Estrañero

Philippine FDI’s Underlying Issues and Recommendation for Growth and Stability

Foreign Direct Investment or shortly called as FDI, is an investment in the form of establishing
business operations or acquiring some business assets in the other country. This typically made by an
individual such as investor from another country for which the foreign investor has a power to control
over the company purchased. The Organization of Economic Cooperation or OECD define its control as
owning 10 percent or more of a specific business and if in case that an investor owns less than 10 percent,
the International Monetary Fund will serve it as part of his or her stock portfolio. However this type of
investment has both advantages and disadvantages to our economy. First lets scrutinize its possible effect,
by the use of FDI it benefits the global economy, as well as investors and recipient. Aside from that, the
pros of it is the improvement of the capital flows, the technology transfer would be a lot easier and there
would have been a possible developments on several regions thus the increase of employment
opportunities and competition among aspects would benefit our country’s economy too. All of those
positive effects and the benefits accruing from foreign direct investment can lead to overall improvements
or enhancement in the standard of living of a country, as well as increasing its access to and
competitiveness in global markets, while the disadvantages and cons of having FDI is that, there would be
a possibilty that those foreign investors might decrease the business of its value without adding any. They
could not only sell unprofitable portions of the company to local, less worthy investors but they can also
use the company's collateral in order to get low-cost and local loans. Instead of reinvesting it, they will
just lend the funds back to the parent company. In addition, it also lowers the levels of research and
development while it increase the capital outflows and causes the stifling of domestic competition and
entrepreneurship. The disruption of domestic business practices could also be one of the negative impact
of FDI to our economy.

First there’s a lot of reason why some of the foreign countries want to have economic negotiation
with our country, and that is because Philippines is undoubtedly a place of natural wonders. We’re rich
with natural resources and boasting of staggering landscapes. Our country does not disappoint those
foreigners who go the extra mile and exerted effort to reach and visit it and for your information,
the economy of the Philippines has been named as one of the Tiger Cub Economies together
with Indonesia and also considered the world's 34th largest economy by nominal GDP according to the
2017 estimate of the International Monetary Fund's statistics, it is also the 13th largest economy in Asia,
while ranked as the 3rd largest economy in the ASEAN after Indonesia and Thailand. But if were to
choose what other states wherein Philippines can directly engage with as part of economic cooperation is
China although we know for a fact that our country and China were already having a negotiations, thats a
good start, we should continue dealing with them because it will surely benefit our economy if we
engage to them in terms of having business and trading negotiations. By 2030 China is expected to be the
world’s largest economy and this is undoubtedly possible since China is currently among the largest
providers and receivers of foreign direct investment (FDI) and also has a substantive bearing on global
economic performance. Moreover, it’s the world’s largest exporter and second-largest importer of
merchandise goods, as well as the fifth largest exporter and third largest importer of commercial services
since the year of 2010. My another option of picking an ideal country that our Philippines should engage
with regards to economic cooperation is Germany. Apparently, Germany is Europe’s largest and strongest
economy. On the world scale, it now ranks as the fourth largest economy in terms of nominal GDP.
Germany’s economy is the Europe’s largest and strongest economy. Its already considered as fifth largest
economy in the world in Purchasing Power Parity (PPP) terms and their country is known for being a top
leading exporter of machinery, vehicles, chemicals, and household equipment and one of their advantages
is the benefits they’re receiving from a highly skilled labour force and because of that if we happened to
deal and have economic ties with Germany their special skill in creating and building machineries and
many other materials will have a positive outcome to our country if they could support and provide us
some several products and outputs that will definitely be essential and effective for our country in terms
of military equipment and many other things concerning economic development.

Based on my research, Philippines is ranked as the 3rd country who has the highest corporate tax rate
among ASEAN countries and its currently at 30% and I believe that this increasing of tax in our country
can affect our negotiations among foreign investors. Way back in 2016, FDI inflows in the Philippines hit
USD 8 billion, a multi-decade high. Japan and the US are the main investors, while inflows are
concentrated in the manufacturing and the finance industry. However, FDI inflow into the Philippines
remains relatively weak, considering the country’s comparative advantages, such as an English-speaking
and well-skilled workforce, a strong cultural proximity to the U.S. and a geographical location in a
dynamic region and I also believe that factors such as corruption, instability, and inadequate
infrastructure, high power costs, lack of juridical security, tax regulations and foreign ownership
restriction discourages an investment. All of these factors would definitely have an negative impact to the
stability of FDI in our country. Also national issues could also affect the FDI of a specific countries
because it will obviously result to political discriminations that will tend the investors to be less attracted
in negotiating or trading and in order to maintain the stability and For the economy to sustain robust
economic growth, it needs a steady injection and support of foreign investments that could lead to more
jobs and production. However, most of the country’s neighbors in Southeast Asia are attracting increasing
amounts of investment inflows, and analysts are projecting that the region will continue to be a major
destination for investments in the coming years.
My recommendation regarding this is for our country to have an effective investment promotion and
facilitation measures because that two factors play a significant role in enhacing the investment climate in
the Philippines. Second, the best way of attracting FDIs is by reducing corporate income tax rate and
aligning it with other Asian economies, the 20 percent final tax on interest income should be reduced to
change the current tax system that penalizes savers, third is to take “immediate steps” for us to lift or ease
restrictions on foreign direct investment (FDI) in the Philippines to foster economic growth next is
that, FDI flows should enhance Philippine competitiveness over time. Otherwise, those foreign
investments may benefit foreign companies and their investors but not the standards of living in our
country and lastly is to have an objective that FDI should not be to attract investors with subsidized input
costs, but with higher productivity and also the goal should not be to improve the quality of the location
in ways that benefit just investors, but multiple companies and industries.