PH logistics sector to receive investment boost with lower entry barriers – OECD

MANILA, Philippines — The Organization for Economic Cooperation and Development (OECD) is urging the Philippines and its neighbors in Southeast Asia to lower entry barriers in logistics to increase competitiveness and aid in economic recovery during the pandemic.

This would also boost foreign direct investments (FDI) that were crucial to supporting growth, according to a series of reports released by the OECD on logistics competitiveness and regulatory regimes within the Association of Southeast Asian Nations or Asean.

This also came as Asean’s total freight and logistics sector, accounting for 5 percent of jobs in the region, remained resilient and was on track to return to pre-crisis levels by the end of this year, the OECD said.

“The reports provide a near-zero-cost roadmap for forward-looking, growth-focused regulation that can help boost the logistics sector and bring about a sure-footed post-pandemic economic recovery among ASEAN’s member states,” Ruben Maximiano, OECD senior competition expert, said in an emailed statement to the Inquirer.

Key recommendations in the report included the gradual increase in foreign ownership limits, which the Philippines caps at 40 percent for public utilities.

“Member states should enhance liberalization efforts in the logistics sector, which remains partly off limits to foreign investors, holding back potential economy-wide productivity gains,” OECD said.

The Philippines also prevents foreigners from taking part in certain maritime professions, such as deck and engine officers.

Such barriers limit the inflow of FDIs into the Philippine economy, which received 3 percent of direct investments in 2019, similar to Thailand and Myanmar but smaller than Vietnam’s 10 perfect and Indonesia’s 15 percent.

“These restrictions on FDI in the logistics sector may limit market entry, increase consumer prices with spill-over effects across the economy, reduce economic growth, job creation, transfer of know-how, and innovation,” OECD said in the report.

Other barriers were in place for freight forwarders in the form of minimum capital deposits.

According to the OECD, international freight forwarders need to show a minimum capital of P2 million while the amount for domestic firms as P250,000.

Moreover, foreign investors in the Philippines needed to deposit minimum capital requirements of $200,000 or about P10 million.

OECD said this created an uneven playing field between domestic and foreign operators “which reinforces the effect of any FDI restrictions.”

“Smarter regulation that ensures a level playing field in the logistics sector will produce numerous benefits across the economies of individual ASEAN countries and in the region as a whole which as a consequence will help to usher in a virtuous cycle of broad-based economic growth and prosperity,” Maximiano said.

According to the OECD, sector-wide revenues were estimated to have declined 12 percent to $316.54 billion in 2020 as the COVID-19 pandemic roiled global trade.

It added that freight-transport within cities and last-mile parcel delivery services likely grew by 20 percent last year “as a result of the changing consume behaviours during the lockdown.”