MANILA, Philippines — Economic scars left by the coronavirus pandemic would make the Philippines among the least attractive destinations for foreign direct investments in Asia Pacific over the next decade, according to a new report released Monday.
Out of 14 Asia Pacific economies tracked by UK-based Oxford Economics, the Philippines ranked 13th in terms of ability to attract FDIs, which come in the form of investments from multinational companies opening up shop here and boosting local employment.
This is because pandemic scars run deep in the country. Oxford Economics gave the Philippines an “overall scarring” score of -0.4, matching the score of Taiwan which emerged as the least appealing Asia-Pacific economy for FDIs over the next 10 years.
“This adds further weight to our forecast that the extent of economic scarring caused by the pandemic will be especially large in the Philippines,” the think tank said.
Oxford Economics’ FDI attractiveness scorecard examined an economy’s appeal to foreign investments based on five indicators, namely labor dynamics, quality of infrastructure and logistics, political and business climate, market size and growth prospects, and export structure.
Under labor dynamics, the Philippines scored 0.3, among highest in the region, because of its relatively young workforce and cheap labor costs. The country likewise bagged good scores in terms of market size and export structure.
However, the country got a score of -1.3 in terms of quality of infrastructure and logistics despite the Duterte administration’s hefty investments in the past five years under its “Build, Build, Build” program. In its report, Oxford Economics forecasts infrastructure investment in the Philippines to account for 2.3% of gross domestic product by 2025, among the lowest in the region.
The Philippines also scored poorly in political and business climate with a rating of -0.8 due to its protectionist Constitution that limits foreign investments and persistent difficulties in opening up a business in the country.
Overall, Taiwan emerged as the least attractive Asia-Pacific economy to FDIs in the next 10 years after the pandemic and US-China tensions led to some reshoring of manufacturing by Taiwanese multinationals.
China, meanwhile, remains the top destination for FDI given its “rapidly growing domestic market” and investment liberalization efforts over recent years. Oxford Economics projects inflows to China to account for over 9% of global FDI over the next decade.
FDI reaches 19-month high
Latest data from the Bangko Sentral ng Pilipinas showed FDIs to the Philippines posted a net inflow of $1.3 billion in July, the largest in 19 months. Year-on-year, FDIs grew 52% in July.
That brought the seven-month net inflows to $5.6 billion, up 43.1% compared with the same period last year. For this year, the BSP sees FDIs posting a net inflow of $7 billion.
Driving the surge in FDIs in July was the rebound in economic production everywhere back then, said Nicholas Antonio Mapa, senior economist at ING Bank in Manila. This was a month before the hyper-contagious Delta variant triggered another hard lockdown in August.
“The pickup in July FDI is an important and welcome development. The overall improvement in real sector activity compared to last year, both in the Philippines and globally contributed to the rebound in direct investment flows,” Mapa said in an email exchange.
“Should the recovery continue, we can look forward to a modest recovery in direct investments, which will help bolster the recovery efforts further,” he added.