Philippines faces stiff competition for German investments

MANILA, Philippines — Attracting new German businesses to invest in the Philippines is a challenge amid concerns on the proposed rationalization of fiscal incentives and government’s review of contracts, as well as lack of information on opportunities available in the country.

German Ambassador Anke Reiffenstuel said the Philippines has strong competitors in Southeast Asia in attracting investments.

“Everybody is talking about Vietnam, how they are opening up to the world for investment. Vietnam is very strong. Malaysia, Singapore, have always been strong,” she said noting these countries have advantages in terms of steps being taken to attract foreign investors.

In particular, Reiffenstuel said the countries provide a one-stop shop for smooth registration processes, as well as attractive incentives like income tax holidays.

While two thirds of German companies with operations in the country expect growth over the next 12 months along with increase in workforce and planned expansion, she said there are challenges in the horizon with concerns over the government’s planned tax reform, and review of contracts with water concessionaires.

As the government is planning to gradually reduce the corporate income tax rate to 20 percent from 30 percent, and rationalize fiscal incentives under the Corporate Income Tax and Incentives Rationalization Act (CITIRA) bill, Reiffenstuel said German firms are concerned about what would happen to incentives being given to investors.

CITIRA has been approved on third and final reading at the House of Representatives, but still needs to be tackled at the Senate.

German Philippine Chamber of Commerce and Industry executive director Martin Henkelmann said German businesses are concerned about when the CITIRA bill would be approved and what would be its final form.

“I do understand it takes process in the democracy to get the law passed. But at the same time, for investors, it’s difficult to decide because they’re not sure how it will be. They know the corporate income tax will certainly be lower, but all the other issues, the incentives, how long does it take, what will they get? It’s a little bit unsure,” he said.

Apart from the proposed CITIRA, Reiffenstuel said the government’s review of contracts with water concessionaires Maynilad Water Services Inc. and Manila Water Co. Inc., is also a concern for German businesses.

“This is something that makes investors think what happens. What are the circumstances and environment I am investing in?” she said.

Henkelmann said the sanctity of contracts is an important issue for investors.

“When we do our surveys, sanctity of contract, legal framework, visibility, stability, predictability, all these are important,” he said.

Rieffenstuel said there is also a lack of information on the conditions and opportunities available for German businesses in the Philippines.

She said it would be important for the two countries to work together to promote opportunities in the Philippines to German firms.