Greater FDIs required to boost growth

The government is on the right track to implementing reforms that attract more foreign investors willing to stay onshore for the long run, but much still needs to be done if the country is to catch up to regional rivals.

One of the country’s top banks said the recent improvement in foreign direct investment (FDI) was encouraging, but Southeast Asian peers have been more aggressive.

FDIs, which are foreign investments that lead to higher quality jobs, are sorely needed if the Philippines is to sustain recent growth rates that can cut poverty in the long run, Metropolitan Bank & Trust Co. said.

“The need for higher FDIs cannot be [over]emphasized especially when we look at the FDI flows of our [Southeast Asian] peers,” the bank said in a note to investors.

Last week, the Bangko Sentral ng Pilipinas (BSP) reported that a net inflow of $473 million in FDIs was recorded in May. For the first five months of the year, the total reached $2.9 billion, which is well-above the country’s 12-year average of $2 billion annually.

The country, however, remained behind most major rivals in the region. In the first quarter, Indonesia, the region’s largest economy, attracted $4.52 billion in FDIs. Thailand got $2.88 billion, while Vietnam received $2.45 billion.

Robust investments have supported job creation and economic growth in other Southeast Asian countries, while the Philippines still relies on the strength of its domestic economy for output expansion.

The difference between the two approaches, Metrobank said, was that the former results in much-needed employment, higher incomes and the “deepening of technologies” that result in higher productivity levels per capita.

“The lack of infrastructure and the failure to attract FDIs have long been seen as a critical growth constraint to the domestic economy but the government has been firm in its commitment to improve and develop the country’s infrastructure system,” the bank said.