Joint Economic Briefing Impact of the Philippine Elections on Foreign Investments New World Hotel, Makati City Peter Wallace Wallace Business Forum April 18,2016 QRT POL JULY 26, 2015 1
PH s Foreign Direct Investments PH net FDI ($B) Net FDI: Selected Asian countries ($B) 6 35 5 30 25 4 20 3 15 2 10 5 1 0 0 2010 2011 2012 2013 2014 Indonesia Malaysia Thailand Vietnam Philippines $B 2011 2012 2013 2014 JOINTECO BRIEFING CHARTS APRIL 18, 2016 2
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 Breakdown of 2014 FDI Under equity, Financial and Insurance Activities had the biggest share at $889 million (55.64%) compared to Manufacturing at only $209 million (13.08%) JOINTECO BRIEFING CHARTS APRIL 18, 2016 3
PH Net FDI 2 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 JOINTECO BRIEFING CHARTS APRIL 18, 2016 4
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 JOINTECO BRIEFING CHARTS APRIL 18, 2016 5
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 infrastructure system in not on par with its neighbor countries JOINTECO BRIEFING CHARTS APRIL 18, 2016 6
How to promote FDIs: 3 3) Lower transport/logistical cost Latest World Economic Forum (WEF) Rankings (Seaport Infrastructure) Country Rank (out of 140 countries) Singapore 2 Malaysia 16 Brunei n/a Thailand 52 Cambodia 83 Indonesia 82 Vietnam 76 Philippines 103 Lao PDR 130 Myanmar 123 JOINTECO BRIEFING CHARTS APRIL 18, 2016 7
How to promote FDIs: 4 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 JOINTECO BRIEFING CHARTS APRIL 18, 2016 8
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 Constitutional restrictions More jobs, better quality of education, and improved employability of graduates. JOINTECO BRIEFING CHARTS APRIL 18, 2016 9
How to promote FDIs: 5 5) Easier business entry & licensing rules World Bank s Doing Business Ranking (ASEAN) PHILIPPINES: EASE OF DOING BUSINESS (Out of 189 Economies) DB 2016 DB 2015 Indicator Rank Rank Ease of Doing Business (Overall) 103 97 Starting a business 165 157 Dealing with construction permits 99 94 Getting electricity 19 21 Registering property 112 110 Getting credit 109 105 Protecting minority investors 155 154 Paying taxes 126 125 Trading across borders 95 94 Enforcing contracts 140 139 Resolving insolvency 53 50 Source: World Bank Group JOINTECO BRIEFING CHARTS APRIL 18, 2016 10
How to promote FDIs: 6 6) Improve Infrastructure 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. JOINTECO BRIEFING CHARTS APRIL 18, 2016 11
Infrastructure Infrastructure Expenditure 2000 2009 Country Ave. US$ Bn* % GDP Malaysia 7.6 5.4 Indonesia 10.3 3.4 Vietnam 4.9 9.0 Thailand 10.8 6.0 Philippines 2.6 2.3 Sources: ADB, NSCB, Gov t agency websites of selected ASEAN *WBF estimates JOINTECO BRIEFING CHARTS APRIL 18, 2016 12
How to promote FDIs: 7 7) Reduce corruption TI s Anti Corruption Rankings (ASEAN 6) Country 2015 (out of 167) 2014 (out of 175) 2013 (out of 177) 2012 (out of 176) 2011 (out of 183) Singapore 8 7 5 5 5 Malaysia 50 50 53 54 60 Thailand 76 85 102 78 80 Indonesia 88 107 114 110 100 Philippines 95 (56%) 85 (48%) 94 (53%) 105 (59%) 129 (70%) Vietnam 112 119 116 116 112 Source: Transparency International JOINTECO BRIEFING CHARTS APRIL 18, 2016 13
How to promote FDIs: 8 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. JOINTECO BRIEFING CHARTS APRIL 18, 2016 14
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 JOINTECO BRIEFING CHARTS APRIL 18, 2016 15
Summary 2 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 JOINTECO BRIEFING CHARTS APRIL 18, 2016 16
On issues crucial to attracting FDIs 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 the economic provisions is not among his priorities. It won t fix the problem. Wants shift to parliamentary federal system. Supports amending the economic provisions Department of ICT Has not yet taken a position Pro. Particularly for the establishment of ICT hubs across the country Against the formation of a Dep t of ICT despite being the Father of PH BPO Supports creation of a DICT and is promoting for ICT development in Davao city JOINTECO BRIEFING CHARTS APRIL 18, 2016 17
Stand on key issues 2 ISSUE BINAY POE ROXAS DUTERTE Mining PPP Supports responsible mining; Among UNA s 3 drivers of growth (with agriculture and tourism) Pro; Believes in strong partnership between business and government esp. in power, telecoms, and farm to market roads. Advocates for responsible, transparent mining May seek new mining code Pro; seeks more PPPs especially for agriculture Lukewarm to mining No clear stand on mining taxes 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 Supports responsible mining and fair taxes JOINTECO BRIEFING CHARTS APRIL 18, 2016 18 Pro Issued PPP ordinance to hasten implementation of projects in Davao city
Critical economic issues beyond Aquino Economic: 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 JOINTECO BRIEFING CHARTS APRIL 18, 2016 19
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 JOINTECO BRIEFING CHARTS APRIL 18, 2016 20
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