Supply Chains: Philippines
Since the early 2000s, the Philippines’ economy has made significant progress and is in the process of moving from a lower-middle-income to an upper-middle-income country in the near future. It is also currently the third largest economy in ASEAN. As a means of furthering economic development, the Philippines has worked to encourage foreign direct investment (FDI) and improve its investment climate by reforming its negative investment list and tax code. In 2020, it received US$6.5 billion of inbound FDI versus US$4.4 billion five years earlier, an increase of 48 percent. Due to the COVID-19 pandemic and economic fallout, real GDP growth in 2020 decreased by 9.6 percent.
The Philippines’ relatively large domestic market, low existing capital stock, proximity to major economies in the region, and young and well-skilled workforce make it a potentially attractive destination for investors; however, foreign firms face several challenges in this market in part due to legal constraints on foreign investment: the constitution limits foreign investment to a non-majority ownership. Additionally, the Philippines has focused on developing its services sector, which requires less capital investment, rather than goods trade. Restrictions on foreign employment, weak infrastructure, high power costs, complex regulations, and political instability have also made the Philippines less attractive to potential investors. The Philippines currently ranks 42 out of 146 in economic complexity.
The government’s 2020 Investment Priorities Plan focuses on domestically driven growth, including encouraging domestic innovation and easing regulations for local firms, rather than on supply chain relocation. However, some initiatives to improve ease of doing business in the Philippines are being introduced. In 2019, the Ease of Doing Business and Efficient Government Service Delivery law was signed, which aims to create a more streamlined, one-stop-shop application process for new businesses. In recent years, the Philippines’ top foreign sources of investment have been Singapore, China, and South Korea.
Recent Investment/Supply Chain Policies
- On March 26, 2021, President Rodrigo Duterte signed into law the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act to "attract more investments and maintain fiscal prudence and stability." According to the Department of Finance, the bill lowers the corporate income tax rate from 30 percent to 25 percent (retroactive to July 1, 2020) and enables the president to "grant a combination of fiscal and non-fiscal incentives, which will be critical as the country competes internationally for high-value investments."
On March 5, 2020, House lawmakers approved House Bill 59, which seeks to amend the Retail Trade Liberalization Act of 2000, and on May 19, 2021, the Senate unanimously voted to pass their version of the bill, SBN 1840. According to House legislation documents, the goal of the bill is “to promote consumer welfare in attracting, promoting, and welcoming productive investment that will bring down prices.” The Senate bill seeks to accomplish this by substantially lowering the required minimum capital for foreign retail investors to “₱50 million (US$994,000) from the current US$2.5 million.” The bill now awaits presidential approval.
On February 20, 2020, House lawmakers approved House Bill 78, or the New Public Service Act, which amends the Public Service Act of 1936. The bill aims to lower consumer prices and improve the quality of public utilities in the country by clarifying the definition of "public utilities” and eliminating foreign ownership restrictions of various nonpublic utilities, including transportation and telecommunications. According to a mid-March 2021 Nikkei report, the Senate is preparing its own version of this bill.
On September 19, 2019, House lawmakers approved House Bill 300, which amends two provisions of the Foreign Investments Act of 1991, with the goal of attracting more foreign investment into the country. The bill amends (1) the Foreign Investment Negative List and (2) requirements for local hires by foreign investors (reduced from 50 to 15). According to a mid-March 2021 Nikkei report, the Senate is preparing its own version of this bill.
- On November 24, 2020, the Board of Investments (BOI) announced the launch of "Make It Happen in the Philippines," an international promotional campaign aimed at attracting investment to the Philippines "by highlighting its potential as an ideal business destination in Asia."
Information and Communication Technology
SPECIAL ECONOMIC ZONES
- On June 10, 2020, the Philippine Economic Zone Authority (PEZA) announced the approval of 12 new economic zones, including nine information technology (IT) Centers, two manufacturing ecozones, and one IT Park. According to PEZA Director General Charito Plaza, this initiative will attract approximately ₱6.4 billion of investment to the Philippines.
- On January 20, 2020, the Department of Finance, the Securities and Exchange Commission, and the Bureau of Internal Revenue amended the Real Estate Investment Trust (REIT) Act of 2009 to ease restrictive ownership and taxation requirements. For example, the Minimum Public Ownership (MPO) requirement has been lowered from 40 percent to 33 percent.
- On October 20, 2020, Energy Secretary Alfonso G. Cusi announced that the Department of Energy (DOE) would allow foreign investors 100 percent ownership of large-scale geothermal projects. According to a DOE statement released on October 30, 2020, relevant investments "should be large-scale, with a minimum investment cost of about US$50 million."