Social Science 5 - Nazarea, Row 5

Members: Sontousidad, Galapon, Bautista, Samares, Tangpos

Foreign Investments to the Philippine Market

Foreign direct investment, net inflows (BoP, current US$) - Philippines

Foreign direct investment (FDI) inflows serve as a key indicator of a country's globalization
and economic integration, reflecting its appeal to foreign investors. In recent years, the
Philippines has experienced substantial growth in FDI inflows, playing a pivotal role in the
nation's economic development.
● [2020 - 2021] FDI inflows to the Philippines increased from USD 6.8 billion in 2020 to
USD 11.9 billion in 2021, remaining above the full-year target of USD 8 billion set by
the Central Bank of the Philippines.
● [2021 - 2022] FDI inflows decreased to USD 9.2 billion in 2022, a 23% drop from the
previous year. This is because the Philippines has struggled to attract as much
foreign investment as its regional neighbors in the Association of Southeast Asian
Nations (ASEAN) since 2010 due to poor infrastructure, high power costs, slow
internet, regulatory issues, bureaucratic hurdles, corruption, traffic in cities, and
congestion at ports.

Approved Foreign Investments Reached PhP 27.30 Billion in the Third Quarter of 2023
● [2023] In terms of total foreign investments (FI) for 2023, as reported by the
Philippine Statistics Authority, it reached PhP 27.30 billion in the third quarter,
marking a significant increase from the previous year. In the second quarter of 2023,
approved foreign investments reached PhP 59.09 billion, reflecting a 27.8 percent
increase from the same quarter in 2022.
These investments targeted various sectors such as manufacturing, information and
communications technology (ICT), financial services, real estate, and wholesale and retail
trade services.

2023 Investment Climate Statements: Philippines

Top Investors:
● The United States, China, the United Kingdom, Singapore, and Japan are among the
top investors in the country.
● These countries have made significant investments in the Philippines, contributing to
the country's economic growth and development. The Philippines has also made
regulatory changes to attract more foreign investment, particularly in critical
industries, and has seen an increase in foreign direct investment inflows in recent
years.
Positive Impacts to the Philippine Economy

Foreign funds return strongly

This notable increase in foreign investments in the current year signals renewed
confidence from international investors. These investments could gradually help increase the
country’s economic growth, human capital development, technology, exports, capital flow
and in creating a competitive market. Specifically the:

● Large amount of inflows from foreign investment is contributing to the positive outlook
● Bring in capital, create job opportunities, stimulate economic activity
● Foreign investments can potentially contribute to declining inflation by boosting
economic growth while minimizing excessive inflation
● Central banks such as Bangko Sentral ng Pilipinas (BSP) may implement monetary
policy easing which lowers interest rates to stimulate economic activity and
investment.
● Allows for resource transfers and the exchanges of knowledge, technologies, and
skills.
● Expanding the renewable energy
● The entry of foreign businesses and investors, opens up for a more competitive
market, eliminating local domestic monopolies. Customers would be able to have a
wider variety of priced products to choose from, while allowing the different
businesses compete in pushing different new innovations and product offerings.

All of these factors making the country competitive in the world market.

Govt. Initiatives and Strategies to Promote Foreign Investment

Foreign investments to boost growth

This article highlights the Philippines’ efforts, particularly under the Marcos
administration, to attract foreign investments as a crucial strategy for economic growth. The
key government policies and initiatives include:
1. Philippine Economic Zone Authority (PEZA):
a. PEZA, an agency under the Department of Trade and Industry, plays an
important role in promoting investments, providing assistance, granting
incentives to and facilitating the business operations of investors in
export-oriented manufacturing and service facilities inside selected areas
throughout the country proclaimed by the President as PEZA Special
Economic Zones.
2. Special Economic Zone Act of 1995:
a. This legislation embodies the creation of PEZA and the development of
Special Economic Zones throughout the country. This also outlines
competitive incentives to attract investments within PEZA Economic Zones.
b. The goal is to promote viable and sustainable economic zones and to bring in
targeted investments to generate jobs, exports, and economic opportunities
3. Global Outreach and Investment Promotion:
 a. The government, through PEZA, is actively reaching out to electronics
manufacturing service firms and semiconductor manufacturing service
companies in the United States and Japan.
b. The agency sent a delegation to Las Vegas, Nevada to participate in the
Consumer Electronics Show 2024 to attract more foreign tech investors to the
Philippines.
c. Moreover, PEZA is actively seeking investments in such industries as
electronics, metal fabrication, electric vehicles, plastic polymers, and data
centers.

Additional Information:
● PEZA-approved investments stood at PhP 69.30 billion in 2021, PhP 95.03 billion in
2020, PhP 117.54 billion in 2019, and PhP 140.2 billion in 2018.
● Investments approved by the agency reached PhP 160.44 billion in 2023, breaching
the investment promotion agency’s full-year target as it grew by 14% from 2022.
● The agency is also working to increase the number of economic zones in the country,
currently at 422, to further ramp up economic growth.

2023 Investment Climate Statements: Philippines

In 2023, the Philippines made progress in addressing foreign ownership limitations

that constrained investment in many sectors. The following initiatives collectively aim to
attract more foreign investment, enhance competitiveness, and stimulate economic growth
by removing barriers and providing tax incentives for businesses in the Philippines:

1. Amendments to the Public Services Act (PSA):

a. Opened previously closed sectors of the economy to 100 percent foreign
investment.
b. Maintains foreign ownership restrictions in six “public utilities”: (1) distribution
of electricity, (2) transmission of electricity, (3) water and wastewater pipeline
distribution systems, including sewerage, (4) petroleum/m and petroleum
products pipeline transmission systems, (5) seaports, and (6) public utility
vehicles.
2. The Retail Trade Liberalization Act (RTLA):
a. Reduced the minimum per-store investment requirement for foreign-owned
retail trade businesses, from USD 830,000 to USD 200,000
b. Lowered the quantity of locally manufactured products required to be carried
by foreign-owned stores.
3. Amendments to Foreign Investment Act (FIA):
a. Eliminated restrictions on foreign ownership of export enterprises
b. Opened up most areas for foreign investment, except those outlined in the
Constitution and the Foreign Investment Negative List (FINL).
4. 2021 Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act:
a. Reduced the corporate income tax from 30 percent to 25 percent for large
firms, and 20 percent for small firms.
b. Gradual reduction of the corporate income tax rate for large firms to 20
percent by 2025.
 c. Mandated performance-based and time-bound fiscal incentives.
d. Increased authority to the Bureau of Internal Revenue (BIR).
e. Narrowed eligibility for Value Added Tax (VAT) exemptions

Challenges in Promoting Foreign Investments in the PH

Issues on Current Foreign Relations -

South China Sea Dispute as of Jan. 2024

● Summary: This article emphasizes the still ongoing territorial disagreement between
China and the Philippines regarding the South China Sea.
● Context: Tensions have been rising so fast in the waters between Beijing and
Manila, given the recent events, such as the laser pointers blinding Philippine sailors
or collisions at sea near military outposts. It has gotten so bad in the recent months,
to the point that senior Chinese and Philippine officials agreed to “further improve
maritime communication and properly manage their differences through consultation
to better deal with urgent situations at sea.”
● By bolstering the country’s defense capabilities as well as deepening defense ties
with the U.S. and like-minded countries such as Japan and Australia, Philippine
President Ferdinand Marcos Jr. has taken a tough stance on territorial disputes with
China and he is backing this up with bold moves. In other words, more naval forces
in the disputed waters, along with the development of Philippine-controlled islands.
● But while the moves are intended to deter Beijing, they are also increasing the
chances of an incident exploding into a wider conflict, experts say, with some viewing
the steps as indications that the window for diplomacy may be closing.
● Zachary Abuza, a professor of the U.S. National War College, analyzes this under
the context of President Marcos to have vowed that the Philippines will “never lose
an inch” of territory to China, would recommend even greater deterrence efforts.
● Analysis: The harm in the Marcos Administration’s attempts to prioritize attracting
foreign investments, including China, would mean carrying a burden to maintain
healthy diplomatic relations with its prospective investors. Most especially with
countries like China, an emerging world superpower with a strategic proximity to the
Philippines.
● Best case scenario: the govt. would first have to settle, or at least mitigate a dispute
DECADES LONG, along with the fact that this dispute is HIGHLY militarized and
volatile.
● Worst case scenario: tensions would continue to escalate to a point wherein
diplomacy would not be an option, thus greatly hindering Chinese investor outlets.

Conclusion
Foreign investments in the Philippines are an indicator of globalization that plays a crucial
role in the country's economic development. This is essential for the country as it increases
economic growth, capital, job opportunities, technology, and the like. Given the benefits
foreign investments bring to the country, the Marcos Administration puts in effort to try and
attract foreign investors. With the aid of policies enacted by previous administrations, the
government inaugurated programs that will help reach out to foreign firms and companies.
They also made amendments to acts about foreign ownership limitations to minimize the
constraints on investments. This initiative by the administration is an indication that they are
determined to acquire more foreign investors in the Philippines.

However, investors are not easy to attract in other countries. China is hardly on diplomatic
terms with the Philippines, given the ongoing territorial dispute. Therefore, if the Marcos
Administration chooses to continue prioritizing foreign investments, they would have to try
and mitigate the conflict to ensure diplomacy between the countries. Otherwise, it is difficult
to acquire Chinese investors. This shows that foreign relations can also be a key factor in
foreign investments.

Looking at the effects of foreign investments on the Philippines, it is safe to assume that
prioritizing foreign relations and diplomatic relations is beneficial for the country's economy.
There may be challenges to be faced in promoting foreign investments, but once successful,
it can boost the development of the economy, making the Philippines more competitive in the
world market.
References

Approved investment | Philippine Statistics Authority | Republic of the Philippines. (2023,

November 14). https://psa.gov.ph/statistics/foreign-investments
Dominguez, G. (2024, January 21). Manila gets tough in the South China Sea as a
showdown looms. The Japan Times.
https://www.japantimes.co.jp/news/2024/01/21/asia-pacific/politics/philippines-south-c
hina-sea/
Hilario, E. M. (2024, January 18). Foreign investments to boost growth - Manila Standard.
Manila Standard.
https://manilastandard.net/opinion/314408284/foreign-investments-to-boost-growth.ht
ml
Philippines - United States Department of State. (2023, December 7). United States
Department of State.
https://www.state.gov/reports/2023-investment-climate-statements/the-philippines/#:~
:text=The%20Philippines%20has%20bilateral%20investment,%2C%20Mongolia%2C
%20Myanmar%2C%20Netherlands%2C
Sy, W. (2024, January 14). Foreign funds return strongly. Philstar.com.
https://www.philstar.com/business/2024/01/15/2325808/foreign-funds-return-strongly
World Bank Open Data. (n.d.). World Bank Open Data.
https://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD?locations=PH