Philippines-United States economic ties enter ‘golden spot’

Amid the reinvigorated alliance between the Philippines and the United States, economic ties between the two countries have now reached a “golden spot,’’ according to New York Consul General Senen Mangalile.

“We’re really in that golden spot,” Mangalile said in a recent press briefing at the Philippine Center in New York.

This developed as Philippine companies are expanding in the US while American private equity firms and other funding institutions are on the lookout for investment opportunities in Manila.

Benedict Uy, trade commissioner and head of the Philippine Trade and Investment Center in New York, said that a Philippine-listed manufacturing company is in the process of setting up a distribution hub in the US so that it can reach more companies across America.

“They want to be more aggressive in that, so they’re setting up their distribution center here. They’ve been working on that since last year,” Uy told visiting Filipino journalists who are part of the US State Department’s inaugural Friends, Allies, Partners program.

The Philippine company is engaged in the production of raw materials for a wide array of consumer products, including coconut-related products used for higher value applications such as consumer goods and personal care products such as cosmetics.

Uy, however, declined to name the company as it has not made an official announcement yet on its planned distribution hub, which may be completed as early as this year.

There are other Philippine companies that are also expanding their operations in the US including Jollibee Foods Corp., Century Pacific Food Inc. and Armscor Global Defense Inc., Trade Undersecretary Ceferino Rodolfo said in the same briefing.

Jollibee Foods has been aggressively expanding in North America while Century Pacific’s plant-based product unMeat has been successfully growing its presence in US groceries and supermarkets since it entered the market last year, Rodolfo said.

Armscor, which manufactures firearms, is not new in the US, but remains a strong presence in the American firearms industry, he also said.

Philippine startups and other local ventures, meanwhile, have caught the interest of New York-headquartered private equity firms and other funding institutions either as their potential angel investors or funders, Uy said.

“There are also a number of projects that are locally initiated and are happening in the Philippines but are getting a lot of interest from the funding institutions here in New York such as private equity firms and financial institutions. They are investing in these projects,” Uy said.

Mangalile said that the Philippines’ economic relations with the US are indeed “more open, deeper and expanded” and this is seen helping the country’s growth in the years to come.

He said President Marcos’ visit to New York in 2022 has started a string of different events that have significantly improved the relationship between the two nations, Mangalile also said.

“Some US big players have been visiting the Philippines.”

Mangalile said the present situation is ideal, compared to the previous administration when the perception was that it was not very open to deepening relations with the US.

Source: Business World

Weak evidence seen for liberal foreign ownership boosting FDI

Lifting foreign ownership restrictions does not necessarily lead to increased foreign direct investment (FDI) or boost economic growth, according to a discussion paper published by the University of the Philippines School of Economics (UPSE).

“Our objective was to address the assertion that lifting foreign ownership restrictions in the Constitution is a necessary condition for improving economic performance and catching up with Vietnam and other ASEAN neighbors. We have discussed the available empirical evidence which in our view provides only weak support for such an assertion,” it said.

The paper was written by UPSE faculty members Toby C. Monsod, Aleli D. Kraft, Cielo D. Magno, Jan Carlo Punongbayan, Orville Jose C. Solon, Elizabeth Tan; UP Los Baños College of Public Affairs and Development faculty member Agustin L. Arcenas; and Florian Alburo and Emmanuel S. de Dios, both UPSE Professor Emeriti.

In March, a bill seeking to lift foreign ownership limits in the 1987 Philippine Constitution was approved on third and final reading by the House of Representatives.

The paper noted earlier arguments for economic charter change, such as the notion that restrictions have resulted in the Philippines lagging its neighbors in terms of FDI.

“The reasoning seems to be that since the Philippines is the only country in the region with foreign equity restrictions in its Constitution, and since it has (subsequently) been receiving the smallest portion of FDI into the ASEAN, then the former must have caused the latter — an obvious post hoc fallacy,” it said.

The restrictions alone were not the main reason behind the distribution of FDIs across the region, the paper said.

“Improvements in the business regulatory environment, combined with improvements in infrastructure, have effects on FDI that dwarf the size of those coming from any change in foreign equity restrictions.”

In 2022, the Philippines posted FDI inflows of $9.2 billion, behind Singapore ($141.2 billion), Indonesia ($22 billion), Vietnam ($17.9 billion), Malaysia ($17.1 billion) and Thailand ($9.9 billion), according to the ASEAN Investment Report.

Cambodia led the laggards at $3.6 billion. Myanmar had $3 billion, Laos $600 million, and Brunei, which had a $300-million net outflow.

“Differences in foreign equity restrictions may help explain some of the observed distribution of FDI from source countries to the ASEAN-5 since 2009, but they cannot be considered as the main explanatory factor and can hardly be called necessary,” the paper said.

“If economic charter change is premised on the necessity of lifting equity restrictions as a condition for improved economic performance, then this could be considered as evidence against it,” it added.

It also cited another paper that showed that improving perceptions of public sector corruption has a much stronger effect on FDIs than just lifting restrictions.

Meanwhile, the paper also cautioned against the assumptions that FDIs are immediately “good for national development and have a net contribution to economic welfare and efficiency.”

“Moreover, there might not be a direct causal relationship between FDI and economic growth per se. The observed relationship may be, simply, that the determinants of FDI happen to be the determinants of GDP growth,” it said.

It also noted that in some cases, FDI could be “counterproductive, even hurting resource allocation and slowing growth.” FDI may be growth-enhancing only when “certain local conditions or absorptive capacities are present.”

“The macro-empirical literature, which focuses on identifying a causal relationship between FDI flows or stocks and aggregate economic growth, finds no or only weak support for the claim that FDI per se accelerates economic growth,” the paper said.

“FDI has on average a detrimental effect on long-term income levels in developing countries, with the ‘growth-limiting effects of FDI exceed[ing] growth-enhancing effects’ in most countries, including the Philippines,” it added.

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Source: Business World

Q1 investment pledges hit P172.7B

Foreign Investment pledges surged in the first quarter, amid the Marcos administration’s efforts to boost the country’s profile as an attractive investment destination, analysts said.

The value of foreign commitments approved by the country’s investment promotion agencies soared to P172.7 billion in January to March, preliminary data from the Philippine Statistics Authority (PSA) showed.

This was nearly 20 times higher than P8.98 billion in the first quarter of 2022, but slightly lower than the P173.61 billion in the previous quarter.

Germany was the biggest source of approved investment pledges at P156.96 billion (90.9% share), followed by Japan and the Netherlands with commitments worth P3.82 billion (2.2%) and P2.65 billion (1.5%), respectively.

“The Philippines is viewed as one of the most attractive investment destinations in the region, with growth projections expected to outperform if not be the one on top, due to a number of factors, including the country’s strong economic fundamentals and its competitive labor costs,” Robert Dan J. Roces, chief economist at Security Bank Corp., said.

Recent economic reforms, coupled with the economic managers’ international roadshows, have also helped attract new investments, he added.

Structural reforms pushed by the previous and current administrations are now yielding tangible results, said Domini S. Velasquez, chief economist at China Banking Corp.

These include the passage of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, as well as amendments to the Retail Trade Liberalization Act, Public Service Act and Foreign Investment Act.

In a Viber message, Ms. Velasquez said these reforms would continue to drive investments into the country.

“When the amendment to the Public Service Act finally gains traction, we expect investments to improve even further,” she said.

Four agencies, namely the Board of Investments (BoI), Clark Development Corp. (CDC), Philippine Economic Zone Authority (PEZA) and Subic Bay Metropolitan Authority (SBMA), approved the investment pledges in the first quarter.

The BoI accounted for 95.7% of total foreign investment pledges with P165.36 billion.

The PEZA approved P4.59 billion worth of commitments, accounting for 2.7% of the total. SBMA and CDC approved P2.59 billion and P161 million worth of pledges.

About 90.9% or P156.96 billion of the approved foreign investments will go to the energy industry, while P10.49 billion will go to the manufacturing sector. The administrative and support service sector will get P3.59 billion worth of pledges.

More than half (68%) of the foreign investment commitments or P117.38 billion will be for projects in Western Visayas.

Calabarzon (Cavite, Laguna, Batangas, Rizal, Quezon) will get P47.47 billion worth of investment commitments, while Central Luzon cornered P3.28 billion.

Should these foreign commitments materialize, these projects are expected to generate 19,412 jobs, double the 9,655 projected jobs a year earlier.

Meanwhile, total investment commitments from foreign and Filipino nationals soared by 141.8% to P480.36 billion in January to March.

Investment pledges by Filipinos stood at P307.66 billion in the first quarter, accounting for 64% of the total.

The Authority of the Freeport Area of Bataan, BoI-Bangsamoro Autonomous Region in Muslim Mindanao, Cagayan Economic Zone Authority, Poro Point Management Corp., Tourism Infrastructure and Enterprise Zone Authority, and Clark International Airport Corp. did not approve any investment pledges during the period.

“Timely monetary policy, prudent fiscal policy and sound macroeconomic management will provide the necessary assurance to investors that their investments will thrive in the Philippines,” Ms. Velasquez said.

Mr. Roces also kept a positive outlook for foreign investment pledges for the second quarter, citing expectations of strong economic growth.

“However, there are some risks to the outlook, such as the global economic slowdown, geopolitical tension and El Niño feeding into inflation, which could sour sentiment,” he said.

The Philippine economy expanded by 6.4% in the first quarter, the slowest growth rate since the 3.8% contraction in the first quarter of 2021. The government is targeting 6-7% growth this year.

PSA data on foreign investment commitments, which may materialize in the near future, differ from actual foreign direct investments (FDI) tracked by the Bangko Sentral ng Pilipinas (BSP) for the balance of payments. The central bank’s monitoring goes beyond the projects and includes other items such as reinvested earnings and lending to Philippine units via their debt instruments.

Source: Business World