HSBC: More FDIs may flow to Asean, except Philippines

Despite its favorable demographics, the Philippines continues to miss out on a greater share of foreign direct investments (FDIs) due to a “restrictive” foreign ownership policy and “uncompetitive” business environment, British banking giant HSBC said.

“We believe the country has great potential to attract investment but significant reforms are needed to make it happen,” HSBC economist Trinh Nguyen said in a research paper.

But the economist said that with the prevailing political conditions, any such reform would not likely take place until 2016, the year President Aquino leaves office.

“As such, we believe FDI will only increase marginally in the Philippines,” she said.

In a Jan. 9 research titled “The Great Migration: How FDI is moving to Asean (Association of Southeast Asian Nations) and India,” Nguyen said China received the most FDIs in the developing world since 1993, thanks to a surplus of labor, a large market and favorable policy. But rising costs from increasing wages, an appreciating renminbi and a shrinking working population have been pushing multinationals to relocate from the mainland. As a result, countries with large pools of labor, strong domestic demand and low costs have become attractive destinations, the analyst said.

The 10-member Asean comprises Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei Darussalam, Vietnam, Lao PDR, Myanmar and Cambodia.

In the past two years, she noted, investors have been going back to Asean for the growth potential while they hope to take advantage of lower costs. Now, the Asean accounts for 7.6 percent of the world’s investment flows while that of China stands at 8.1 percent.

The report noted that Indonesia and Vietnam are keen to attract more FDIs, while the Philippines and India—which both have a large labor supply and consumer market—are “more reluctant.”

FDIs to the Philippines may have increased from a low base, HSBC said, but its “restrictive” policy and “uncompetitive” business environment have hindered its growth potential. The Philippines has the worst competitiveness ranking in the Asean, according to the World Bank.

The Philippine Constitution prescribes the 40-percent foreign ownership restriction in mass media and advertising, educational institutions, land ownership, public utilities, and the exploitation of natural resources, except as provided by law.

“But it doesn’t have to be this way, the analyst said. “Consumption is robust and growth in the working population will be the highest in the region over the next three decades.