Philippine share of FDI in 1H trails Asean neighbors - UNCTAD means BUSINESS

MANILA – (UPDATED 6:50 p.m.) The Philippine share of foreign direct investment going into Asean in the first half of the year was among the smallest, the UN Conference on Trade and Development said on Wednesday.

In a report, UNCTAD said FDI flows into the Philippines rose 10.6 percent to $0.9 billion this year from $0.8 billion last year. Cambodia received the same amount, but enjoyed a faster 166 percent year-on-year growth in inflows.

Singapore topped the region with FDI inflows of $27.4 billion, albeit 1.9 percent lower than a year ago. Indonesia came in second with $8.2 billion in inflows, down 20.6 percent year-on-year.

Thailand placed third with an FDI haul of $5.6 billion but registered the second-fastest growth at 62.1 percent. Malaysia cornered $4.4 billion, down by 36.6 percent year-on-year.

"Investment leads economic growth but the current trends of investment flows to developing countries, particularly to Asia, are worrisome and the challenge for channeling FDI into key development sectors such as infrastructure, agriculture and the green economy remains daunting," said Dr. Supachai Panitchpakdi, secretary-general of UNCTAD.

The report said global FDI flows declined by 8 percent in the first half of 2012, as the economic recovery suffered new setbacks in the second quarter of the year.

UNCTAD projects FDI flows will, at best, level off in 2012, at slightly below $1.6 trillion.

"The slow and bumpy recovery of the global economy, weak global demand and elevated risks related to regulatory policy changes continue to reinforce the wait-and-see attitude of many transnational companies toward investment abroad. UNCTAD's longer term projections still show a moderate rise," the UN agency said.

However, the risk of further macroeconomic shocks in 2013 can impact FDI inflows negatively.

Outlook dim

Benjamin Diokno, economics professor at the University of the Philippines, said the outlook for FDI flows to the Philippines was "dim" given the global slowdown.

The economist said the year-to-date FDI flows of P1.025 billion "would appear that the Philippines would hit its revised forecast" of $1.2 billion, a downward revision of the Bangko Sentral ng Pilipinas.

"But the revised forecast is not good enough - in fact, pathetic - compared with how much FDIs our Asean-5 neighbors have attracted in the last 10 years,  and even compared with previous peaks in FDI inflows to the Philippines in recent years - $2.9 billion in 2006 and 2007," Diokno said.

"FDI inflows in the first three quarters of the year is not consistent with the image that the Philippine government is trying to project. Foreign investors remain unimpressed. As far as foreign direct investors are concerned, the Aquino administration has a serious credibility problem," the economist said.

"The situation is distressing because the Philippines needs to attract much higher levels of FDI in order to achieve its goal of sustained, inclusive high growth rates. Yet FDI inflows to the Philippines continue to lag behind its Asean-5 neighbor," Diokno said, citing last year when FDI flows to Indonesia, Malaysia, Thailand and Vietnam reached $18.1 billion, $10.8 billion, $9.6 billion, and $7.4 billion, respectively. In contrast, the Philippines attracted $1.3 billion.

"Foreign investors remain unimpressed with the reforms - or lack of them - by the Aquino administration," said Diokno, a former budget secretary during the Estrada administration.

The UP economist cited a recent report of the World Bank showing the Philippines failed to improve its standing in the lender's Ease of Doing Business, a ranking of 185 economies.

"The Philippines lost another two ranks on the ease of doing business - from 136 among 183 countries in 2012, the country declined to 138 out of 185 countries in 2013. The decline reflects lower scores from seven indicators, the most serious of which is the decrease in Getting Credit Indicator, where the Philippines lost 10 spots," Diokno said.

"The study reported that the process of resolving insolvency in the Philippines is one of the slowest and expensive in the world. The Philippines ranked 165 out of 185. It ranked the fourth most difficult based on recovery rate, that is, how many cents of the dollar creditors recover from an insolvent firm. It ranked the most expensive with costs reaching 38% of the estate value," he added.