The Philippine government should further ease foreign direct investment restrictions, harmonize its incentive regime and enact a new Magna Carta for small and medium scale enterprises, if it wants to accelerate the country’s economic growth, the Organization for Economic Cooperation and Development (OECD) said.
Based on the first Investment Policy Review of the Philippines, the OECD noted that the Philippines had great potential to attract foreign direct investment, but has been hampered by the legacy of nationalist policies from the 1980s and earlier.
To date, the country remained “one of the countries with the most statutory restrictions on foreign investment,” based on the OECD.
“Nationalist provisions restricting investment arose in an era when the Philippine government was keen to assert its economic sovereignty. They are now considered by many as outdated and damaging protectionist measures that discourage foreign investments and facilitate rent-seeking by local oligopolists,” the OECD report stated.
“In a more conducive policy environment, the Philippines offers tremendous advantages to potential investors which are well known: Its location in East Asia, which is the world’s most dynamic region, a large and fast growing market, knowledge of English, abundant natural resources, a young population, and political stability,” it added.
It thus recommended the lifting of major restrictions on FDI.
These include the high minimum capital requirement for foreign investors as contained in the Foreign Investment Act and the Retail Trade Liberalization Act, which would therefore need to be amended.
The OECD likewise urged the Philippines to harmonize investment promotion, noting that the “proliferation of investment promotion agencies (IPAs) and the many laws underpinning them makes effective promotion difficult.”
“In spite of efforts undertaken to bring together 17 IPAs under a coherent investment promotion system, foreign investors are still not provided with a single counterpart. This creates confusion and fatigue among investors and also puts a strain on public resources that have to ensure complementarity of activities and avoid unnecessary duplication,” the OECD said.
According to the OECD, the large number of laws covering the incentives regime also added to complexity and has undermined transparency, thus straining the public administration and confusing investors.
It further encouraged the enactment of a new Magna Carta for SMEs.