It’s called a “fairy tale economic revival” by some. Others, like Canadian Prime Minister Stephen Harper, sees the Philippine economy as “an emerging Asian tiger.” While the Philippines has the strongest economic growth in Southeast Asia and one of the world’s best-performing stock markets, its shortcomings are being laid bare. Stubborn problems have already started to undermine its economic renaissance.
While foreign funds poured into Philippine assets in 2012, driving the main stock index PSI up around 30 percent to a succession of record highs and lifting the peso currency about 7 percent, foreign direct investment (FDI) remains embarrassingly low.
Total FDI was on course to hit around $1.5 billion in 2012– about half its level in 2007 and less than the average $1.7 billion received every month in remittances from Filipinos overseas.
That is only about 3 percent of the total that flowed last year to a group of five peer economies including the Philippines in the 10-member Association of Southeast Asian Nations (ASEAN.)
So what are the problems?
1. In the World Bank’s “Ease of Doing Business” index, the Philippines slipped two notches to 138 out of 185 countries, near Tajikistan and Sudan. “It’s a lousy neighborhood. I do not want to live with that ranking.” said Guillermo Luz, head of the Philippines’ National Competitiveness Council.
2. The Philippines has a low ranking in a range of categories, from “paying taxes” (143rd), to “starting a business” (161st) and “resolving insolvency” (165th.)
3. The Constitution and current rules allow foreign investors to own no more than 40 percent in most industries and bars foreigners entirely in areas such as media and the practice of licensed professions such as engineering, law and medicine.
4. Calls by congressional leaders to loosen constitutional restrictions on foreign ownership have met with a lukewarm response from President Aquino.
5. “I do not believe that foreigners would be that foolish to come here and put their money in business,” Juan Ponce Enrile, the Senate president who is calling for the Constitution to be revised, “They are at the mercy of local people who are not quite familiar to them. That is to me the reason why we lag in investment attractiveness in Asia.”
6. The Philippines has one of the highest jobless rates in Southeast Asia at around 7 percent, and over 19% under-employed, helping to fuel an exodus of about 10 million Filipino workers in total that has yet to reverse course or even slow significantly.
7. The Philippines’ volatile political and legal systems regularly throw up unpleasant surprises for foreigners. Aquino’s government has halted new mining projects, stalling development of an estimated $850 billion in mineral reserves, until Congress approves a mining tax reform – a vote that is unlikely to take place before May 2013 mid-term elections.
8. Last October, Manila added to restrictions on ownership of real estate, lending firms and professions.
9. When companies try to tap the domestic market in the Philippines they run a gauntlet of heavy bureaucracy, local government corruption and sometimes troublesome partnerships with Filipino firms.
Companies have to go through 16 separate procedures to start a business in the Philippines, compared with three in Singapore and nine in Indonesia, according to a World Bank report.
10. While service sectors such as call centers, retail and tourism are growing strongly, the manufacturing sector struggles to compete with neighbors and attract investment. Ford Motor Co (F.N) announced last June it was closing its Philippine production factory, citing an inadequate supply network and a lack of economies of scale.
Economic fairy tale or emerging Asian tiger? The absence of foreign direct investments is a missing link that raises doubts over how much has really changed in this nation of 96 million people, where many an investor has been stung by copious red tape, unpredictable policymaking and graft.