FDIs to RP, Asia less affected by financial crisis
by JUDITH BALEA, abs-cbnNEWS.com | 09/26/2008 6:53 PM
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Foreign direct investments (FDIs) to and from the Philippines and its peers in Asia remain promising despite concerns about the impact of the global financial and economic turmoil.
According to Jovi Dacanay, an economist at the University of Asia and the Pacific, the crisis is expected to bite into global FDI flows in 2008, with transnational corporations (TNCs) being more cautious in their expenditures, but the impact will be less in developing countries.
"Economic growth in the region is resilient and our credit markets are strong because of what we learned from the Asian financial crisis over a decade ago. We have a more favorable business climate right now and there are a lot of new investment opportunities," she said.
While outflows from the United States, Asia's major source of investments in the past year, could decline, "those from European countries and Asia itself may offset the negative impact," Dacanay noted.
Data from the World Investment Report 2008 of the United Nations Conference on Trade and Development (UNCTAD) showed that in 2007, developing countries contributed nearly a third or $500 billion of the world's total FDI flows, which reached an all-time high of $1.83 trillion.
Both inward and outward investments in many countries in Asia--particularly in South and East Asia and Southeast Asia-- hit their peaks as intraregional flows, apart from those coming in from developed economies, significantly improved.
The Philippines alone, for the first time, had multi-billion investment outflows, amounting to $3.44 billion from only $103 million. Among 141 economies, the country jumped in ranking to 49th in 2007 from 67th in the year before as a source of FDIs.
"Many of our companies are expanding to become regional and global players," Dacanay said.
The UNCTAD report cited food and beverage giant San Miguel Corp. and port operator International Container Terminal Services Inc. as among the leading TNCs in developing countries in terms of size of foreign assets.
Less FDI inflows
If the Philippines' outward FDIs were remarkably high last year, inflows inched only a tad higher from $2.92 billion to $2.93 billion.
Jesse Ang, the International Finance Corp.'s resident representative, said however, FDI inflows into the country have the potential to further improve.
What the country needs are sound government policies that will promote friendly business conditions for prospective investors.
He noted that these policies "should go beyond the usual fiscal incentives given to certain investors."
One good move in the past, Ang said, was the creation of the Wholesale Electricity Spot Market (WESM), which allows transparent alignment of electricity prices and tariff costs in relation to current demand in the energy sector.
He said this encouraged local and overseas companies to participate in the privatization of the government's power assets.
"It (WESM) provided a clear and transparent framework by which tariffs are set, it's because of this that a lot of FDIs into the power sector came in. If only we can employ similar policies in the other sectors," he said.
Another major concern that the Philippine government must address is the lack of infrastructure.
"We are lagging in terms of quality of infrastructure. This is what we need to lure more foreign companies to invest here," he said.
More infrastructure spending
Reza Baqir, resident representative of the International Monetary Fund, echoed what Ang discussed, saying "inadequate infrastructure is one of the most problematic factors for doing business in the Philippines."
Therefore, Baqir said, both the government and private sector should boost spending in infrastructure projects.
He pointed out that the government has crimped its spending in major sectors including social services and public infrastructure in response to shortfalls in revenue collection.
"The Philippines has to raise its tax efforts, it's the sustainable way to increase infrastructure development. Borrowing could only worsen the fiscal situation," he said.
Baqir said the government should address the following issues:
- growing incidence of tax evasion;
- narrow tax base and low tariffs on sin products such as tobacco and liquor; and,
- the need to rationalize the set of fiscal and non-fiscal incentives given to investors in favor of those who really need them (e.g. export companies).
