Transparency is top consideration to entice foreign investors

MANILA, Philippines - More than anything else, transparency is the best strategy that developing countries like the Philippines can adopt to attract foreign capital.

“Transparency is key to overcoming foreigners’ disadvantages when investing in a host country,” noted the National Trade Policy for Export Success, a publication of the International Trade Centre, the joint agency of the World Trade Organization (WTO) and United Nations that provides trade-related technical assistance to developing economies.

“Transparent information on how governments implement and change rules and regulations concerning investment is a decisive factor in the investment decision,” it added.

Transparent policy environments work to attract foreign investors in many ways. They compensate for what overseas investors may consider the disadvantage of investing in a country with very different regulatory system, culture, and administrative framework, the paper said.

They enable businesses to evaluate the potential investment opportunities on a more informed and timely basis, reducing the period before the investment becomes productive.

Transparency is also related to higher flows and quality of investment. A 2007 study by the Organization for Economic Cooperation and Development (OECD) shows the strong relationship between international investment flows and the quality of governance.

Transparency conditions have been endorsed in almost all recent international investment agreements, including regional agreements, bilateral investment treaties, and various agreements.

Emerging countries like the Philippines can emphasize their commitment to transparency by signing such agreements, said the paper.

While transparency improves overall governance standards, some countries may not want it because of the desire to protect “concentrated benefits at the expense of broader wellbeing,” the document added.

A further obstacle is that transparency reform entails technological, financial, and human resources, and requires administrative costs.

It involves creating registers, websites, plain-language texts, and other mechanisms that will make accessible to interested parties any legal and regulatory codes, new regulations, or changes to guidelines.

A lack of transparency also protects government officials from accountability. Participants – both inside and outside the public sector – can have a stake in non-transparent practices, the OECD said.

This is why, despite the apparent agreement in principle about their benefits, actual implementation of transparency reforms is likely to be painful, especially in highly opaque policy environments, not just due to lack of resources but also to corruption, the OECD said.