Boosting job generating firms, big and small, is top priority
Attracting investments that will support job generation and bring in more quality service for the Filipino consumers has been a priority for the government, especially during the pandemic, just as the country’s badly hit economy is regaining lost ground.
With the previous administration greasing the wheels through measures liberalizing the economy, this tall order looks surmountable moving forward, according to economists. Nonetheless, the new set of government officials are urged to sweeten the pot to invite more investors into the country.
“We are expecting, indeed, foreign investments to rise with the liberalization measures. This reform law enhances the attractiveness of the Philippines as an investment destination,” Union Bank of the Philippines chief economist Ruben Carlo Asuncion tells the Inquirer.
The Marcos Jr. administration has inherited three major economic policies that seek to bring in more foreign investments in the country.
First, with the measure revising the Public Services Act, telecommunications and some segments of the transport sector have been opened up to full foreign ownership.
The amendments limited the industries tagged as public utilities, which remain subject to the 40-percent foreign ownership restriction, to distribution or transmission of electricity; petroleum and petroleum products pipeline transmission; water pipeline distribution systems and wastewater pipelines systems; airports; seaports; public utility vehicles; and expressways and tollways.
Amending the Foreign Investment Act, meanwhile, meant foreign firms only need to hire 15 Filipino employees from the previous requirement of 50.
Lastly, the amended Retail Trade Liberalization Act brought down the minimum paid-up capital for foreign retailers to just P25 million from $2.5 million or P125 million.
ING Bank Manila senior economist Nicholas Mapa, in an interview with the Inquirer, says these reforms were a “good start” in improving the country’s investment landscape.
“However, at this point it would be difficult to estimate whether this will translate to a sharp increase in investments just yet as the decision to do so would also involve other factors,” he warns, noting that investors look at the general economic outlook and the state of infrastructure, among others.
CREATE, trade deals
Apart from the economic liberalization reforms, Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort notes that the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act is seen helping the country rake in more investments.
This is evidenced by foreign direct investment net inflows reaching an all-time high of $10.5 billion last year despite the pandemic wreaking havoc at all fronts, he says. This figure exceeded the previous high of $10.3 billion in 2017.
Signed in March last year, CREATE law aims to reduce corporate income tax to 20 percent from 30 percent, which means less expenses for companies.
“These reform measures that would help entice more foreign investments into the country have aligned the country’s regulations with the other countries in Asean (Association of Southeast Asian Nations)/Asia, thereby would help catch up with the rest of the region in terms of attracting more foreign locators into the country,” Ricafort tells the Inquirer.
Along with this, Department of Trade and Industry Secretary Alfredo Pascual says he would push for the ratification of the Regional Comprehensive Economic Partnership (RCEP) to allow greater participation of the local companies outside the country.
Representing 30 percent of the global gross domestic product, RCEP is a free trade agreement (FTA) among Asean countries and Australia, China, Japan, New Zealand and South Korea.
He stresses that FTAs would “diversify the country’s exports in terms of products and services and country destinations, and enhance the country’s attractiveness to foreign investments.”
Zooming in on agri
Ricafort and Asuncion expect President Marcos, who appointed himself as the head of the Department of Agriculture, to focus on investments supporting the country’s agriculture sector.
“Agriculture is one of the priorities of the new administration and one of the beneficiaries in terms of attracting more local and foreign investments into the agriculture sector, which accounts for many jobs in the countryside,” the RCBC economist says.
“Attracting more investments into the agricultural sector would help increase the output and productivity in agriculture and also further help the attainment of the food security objective, while also reducing reliance on importation of agricultural products as one of the policy priorities,” he adds.
William Dar, former Agriculture Secretary, advises the new administration to prioritize the food supply given the anticipated global food crisis by the last quarter of this year due to the pandemic and the logistics disruptions due to Russia’s war on Ukraine.
In a recent study by Oxford Business Group and Reyes Tacandong & Co., agriculture is also cited as one of the top investment areas that could boost economic resiliency.
“Food insecurity in the Philippines posed a standout risk in the early stages of the pandemic, with limitations including a lack of public transport and food stores, as well as financial constraints,” the study notes.
Other expected investment priorities cited by the economists include telecommunications amid the rapid shift to digitalization and infrastructure projects.
“We hope the new administration would pursue investments across the board but with these provisions in mind to ensure job creation for Filipinos while at the same time ensuring that investments benefit the level of technical expertise in the country,” Mapa stresses.
Regaining momentum
Along with the bright prospects for big ticket investments, the so-called backbone of the economy or the micro, small and medium enterprise (MSMEs) sector is seen to be recovering as well.
Ricafort says that the MSMEs are being supported by the easing of mobility restrictions prompting the return of tourism activities, which have boosted customer foot traffic.
“MSMEs would also benefit with the resumption of in-person or face-to-face schooling that was disrupted for nearly two years and would help the recovery of many related businesses and industries, especially MSMEs, that have been hit hard for more than two years already,” he adds.
Go Negosyo founder Joey Concepcion also says that MSMEs are seeing much better cash inflows as the economy reopens, noting that return of restrictive lockdowns will halt the sector’s momentum.
United Nations Industrial Development Organization country representative Teddy Monroy, in a recent webinar hosted by Inquirer, says the situation was different when severe lockdown measures were imposed.
“During the height of the pandemic, we saw most of the MSMEs struggle with issues around supply chain management, availability of human resources and cash flow issues. In attempts to stay afloat, MSMEs almost moved heaven and earth,” he says.
To survive, Monroy says MSMEs implemented much-needed health protocols, shifted to digital platforms, set up alternative work arrangement for employees, sought more suppliers and secured loans to finance operations.
“We expect that health and safety protocols will increasingly be instituted in work settings while the evolving business landscape also sees the fast expanding digital space that can at the same time boost productivity, competitiveness and resiliency for future shocks,” he adds.
Top priority
For the new Trade chief, MSMEs are the number one priority.
“We carry an immense responsibility on our shoulders defined in numbers by 99.5 percent of business establishments in the Philippines, employing 63 percent of the country’s workforce, and accounting for almost half of the nation’s gross domestic product,” Pascual says, referring to MSMEs.
He wants MSMEs to be “driven by science, technology and innovation to meet changing market demands for quality and new products with effect.”
“We want them to embrace digital transformation so that they can improve operating efficiency, reduce cost, and earn profits even as they make their products more affordable to the consumers,” he adds.
Pascual says the department aims to integrate MSMEs to both local and global value chains to grow their businesses.
Unionbank’s Asuncion concludes: “Preserving and supporting MSMEs will greatly help the labor sector and provide opportunities to more Filipinos.” INQ
