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 2021, the Philippines received US$10.5 billion of inbound FDI versus US$8.2 billion five years earlier, an increase of 28 percent, and real GDP grew by 5.5 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. Several economic reform measures have also been put into place to attract foreign investors including, amendments to the Foreign Investments Act, the Retail Trade Liberalization Act, and Public Service Act. In recent years, the Philippines’ top foreign sources of investment have been Singapore, Japan, the United States, and the Netherlands.
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 1) lowers foreign companies' corporate income tax (CIT) rate by one percent per year starting in 2022 to 20 percent in 2027 for foreign companies; 2) reduces the number of local hires required by foreign employers from 50 to 15; and 3) 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 4, 2022, President Rodrigo Duterte signed and released Republic Act (RA) 11647, which amends the Foreign Investments Act of 1991. This amendment allows for qualified international investors to set up small and medium-sized businesses and hold 100 percent equity in firms in sectors not governed by existing special laws. Previously, foreign investors could only invest in small businesses with the requirement that they hire a minimum of 50 Filipino workers. In addition, the law halves the minimum capital required to set up a business to US$100,000, as long as investors hire a minimum of 15 local workers and introduce advanced technology.
On December 15, 2021, the Senate passed the Public Service Act, which lifts foreign ownership restrictions on certain public services, including telecommunications, air carriers, domestic shipping, railways and subways (previously capped at 40 percent). However, public services identified as “critical infrastructure” are excluded, unless the other country accords reciprocity to Philippine nationals. According to the Senate, the act would “open up the Philippines to more foreign investors” and “improve its standing in mobilizing more foreign capital to the country.”
On December 10, 2021, the House of Representatives approved amendments to the Retail Trade Liberalization Act of 2000. This measure lowers the required minimum paid-up capital for foreign retail investors to US$500,000. Foreign retailers that want to open more than one physical store must invest a minimum of PHP 10 million (US$200,000) per store, which is reduced from the previous requirement of US$830,000 per store.
On November 19, 2021, the Philippines Economic Zone Authority (PEZA) introduced a new work visa for foreigners who are sponsored to work in the Philippines by companies registered with PEZA. The new visa will take only 10 days to process instead of one month.
- 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."
- On July 27, 2021, the Board of Investments (BOI) and the Province of Laguna signed a memorandum of agreement (MOA) to promote investments in the region by expediting updates to existing investment assistance programs and “ease of doing business” programs. The MOA also directs the Investments Assistance Service to conduct “capacity-building training sessions” so that local officers can better understand investment laws. Laguna province is considered one of the country’s most important economic hubs due to its investment-friendly policies, special economic zones, and large-scale manufacturing.
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."