Ma. Krishia P.

Galili October 14, 2021

BSBA Major in Marketing Management Service Management

FOREIGN INVESTMENT

Legal Factor: FOREIGN INVESTMENT ACT OF 1991

Republic Act No. 7042, also known as the Foreign Investments Act of 1991, is an act to
promote foreign investments, prescribe the procedures for registering enterprises doing
business in the Philippines and for other purposes.

Foreign Investment Goals

Section II of RA No. 7024: Foreign investments shall be encouraged in enterprises

that significantly expand livelihood and employment opportunities for Filipinos; enhance

the economic value of farm products; promote the welfare of Filipino consumers; expand

the scope, quality, and volume of exports and their access to foreign markets; and transfer

relevant technologies in agriculture, industry and support services. Foreign investments

shall be welcome to supplement Filipino capital and technology in those enterprises

serving mainly the domestic market.

As a general rule, there are no restrictions on the extent of foreign ownership of

export enterprises. In domestic market enterprises, foreigners can invest as much as one

hundred percent (100%) equity except in areas included in the negative list.

The term “Foreign Investments Negative List” or “Negative List” shall mean a list of areas

of economic activity whose foreign ownership is limited to a maximum of forty percent

(40%) of the equity capital of the enterprises engaged therein.

Section VIII -The Foreign Investment Negative List stated below:

a. List A shall enumerate the areas of activities reserved to Philippine nationals by

mandate of the Constitution and specific laws.

b. List B shall contain the areas of activities and enterprises regulated pursuant to law:

1. which are defense-related activities, requiring prior clearance and authorization from

Department of National Defense (DND) to engage in such activity, such as the

manufacture, repair, storage and/or distribution of firearms, ammunition, lethal

weapons, military ordinance, explosives, pyrotechnics and similar materials; unless such

manufacturing or repair activity is specifically authorized, with a substantial export

component, to a non-Philippine national by the Secretary of National Defense; or

2. which have implications on public health and morals, such as the manufacture and

distribution of dangerous drugs; all forms of gambling; nightclubs, bars, beerhouses,

dance halls; sauna and steam bathhouses and massage clinics.

Foreign Investment Economic Contributions

Foreign investment boosts the capital flows from one country to another by giving

foreign investors permission for extensive ownership of domestic companies and assets.

The capital from investors will be used for funding their expansion and operation in the

Philippines. The establishment of new businesses opens more opportunities and creates

a more substantial purchasing power among locals. In return, new jobs are created, and

taxes are paid while they operate in the country, contributing to a more robust economy.
 Foreign Investment Trends

According to the latest data released by Bangko Sentral ng Pilipinas, the Foreign

Direct Investment (FDI) flows to the Philippines fell by around 10% to $5.255 billion in

the first ten months of 2020. Foreign direct investment (FDI) to the Philippines rose by

almost a third in 2020, a stark contrast with the collapse in global FDI amid the

coronavirus disease 2019 (COVID-19) pandemic, according to preliminary estimates by

the United Nations Conference on Trade and Development (UNCTAD

In its latest investment trends monitor released on Monday, UNCTAD said that the

Philippines bucked the trend as FDI flows increased 29% to $6.4 billion in 2020 from $5

billion in 2019.

In contrast, global FDI plunged by 42% to around $859 billion last year, primarily

due to investment declines among developed countries. FDI in Southeast Asia last year

declined by 31% to $107 billion after flows to the largest recipients, Singapore and

Indonesia, shrank.

The Philippines is among the world’s most restrictive countries to foreign direct

investments. Foreign investment reacts positively to liberalizing foreign restrictions.

“Hence, many economists and business aristocrats urge the Philippine

government to keep the momentum going through the passage of key economic reforms,”

he said, noting amendments to the Public Services Act, Foreign Investments Act, and

Retail Trade Liberalization Act.

In the report, UNCTAD said the outlook for global FDI is expected to remain weak

this year. However, FDI does have the capacity to impact positively on economic growth

in the Philippines.
 Foreign investment Services

Trivia: The United States is among the Philippines' top trading partners, and it
traditionally has been the Philippines' largest foreign investor.

Many foreigners from countries like Singapore, China, and the USA look into the

prospect of investing in the Philippines. Some of the reasons behind this include the

country's strategic business location, skilled and educated workforce, and expanding

infrastructure.

There are three main types of foreign investments services in the Philippines.

1. Horizontal - In this type of foreign direct investment, the investor expands by

establishing their exact same business in another country.
2. Vertical - In this type of foreign direct investment, an investor establishes a business
related to their existing business in a foreign country.
3. Conglomerate - Unlike the first two types, in this type of investment, investors establish
a business in another country unrelated to the scope of their business in their homeland.
Top Industries for Foreign Direct Investment
a. Tourism - this industry allows 40% equity in terms of private land ownership and
exploration of natural land resources.
b. Manufacturing - this industry also allows 40% equity for certain products such as
textile, food, beverage, etc.
c. Real estate - also allows 40% equity for foreign investors for private land and
condominium ownership and exploration of natural land resources. (e.g., CitiGlobal)
d. Construction - 40% equity to foreign investments is allowed to contract materials and
equipment from government-owned and controlled companies.
e. IT, BPO, & Business Services - as a premier destination for BPOs, the Philippines offers
a friendly climate for these industries at it allows 100% ownership to foreign investors.
Figure 1 - Foreign direct investment inflows, global and by group of economies, 2007–
2020
(Billions of dollars and per cent)

Source: UNCTAD, World Investment Report 2021

References:

https://www.kwm.com/en/de/knowledge/insights/fdi-philippines-20200724

https://www.bworldonline.com/philippines-bucks-global-decline-in-fdi/

https://www.lawphil.net/statutes/repacts/ra1991/ra_7042_1991.html

https://unctad.org/news/global-foreign-direct-investment-fell-42-2020-outlook-
remains-weak

https://citiglobal.com.ph/blog/questions-foreign-investment-philippines-answered/

https://www.google.com/search?q=economic+contribution+of+foreign+investment+to
+philippines&rlz=1C1CHWL_enPH971PH971&oq=Economic+Contribution+of+Foreig
n++Investment+to+Ph&aqs=chrome.1.69i57j33i22i29i30.21336j0j7&sourceid=chrome
&ie=UTF-8

https://www.unescap.org/sites/default/d8files/knowledge-
products/APTIT%20FDI.pdf

https://dfa.gov.ph/162-independence-day-press-releases/3224-upward-trajectory-of-
phl-us-relations-highlighted-in-phl-embassy-independence-day-commemoration