Foreign direct investment (FDI) into the Philippines fell by 4.4 percent last year to $9.8 bn – the first drop in FDI since 2015, according to the country’s central bank, and below the $10.4 bn target it had set.
The news comes as President Rodrigo Duterte continues a program of tax reforms that analysts say could be making investors wary. Last year a bill to overhaul the country’s corporate tax rates and fiscal incentives was approved by the House of Representatives. It aims to reduce corporate income tax rates to 20 percent in 10 years – down from the current 30 percent, one of the highest levels of corporate tax among the 10 members of the Association of Southeast Asian Nations.
The government is also considering new measures designed to benefit investors including tax holidays for new industries like robotics and artificial intelligence.
But foreign ownership restrictions in certain sectors pose a barrier to investment, while the Philippine economy also saw a slowdown last year – when economic growth feel to a three-year low – that could also account for a drop in FDI.
Duterte’s first two years in office saw record levels of FDI: $7.9 bn in 2016, the year he took the presidency, and $10.3 bn in 2017. In fact, FDI levels almost doubled between 2015 and 2017 – from $5.5 bn to $10.3 bn – before falling last year.
The country’s central bank – the Bangko Sentral ng Pilipinas – says last year the majority of equity capital placements from foreign investors came from Singapore, the US, Hong Kong, Japan and China. In terms of sector, investments were channeled primarily to manufacturing, finance and insurance, real estate, electricity, gas, steam and air-conditioning supply, and arts, entertainment and recreation industries.
On a monthly basis, looking at December 2018, the bank says there was a 4.8 percent drop in year-on-year FDI to $677 mn. ‘The decline in FDI was due largely to the 57.6 percent drop in net investments of equity capital,’ it says in a statement announcing the numbers.
Despite the record highs in recent years, the Philippines lags well behind neighboring countries on FDI. In Vietnam for example, received $35.5 bn in FDI last year.