Vietnam has earned a name as the chief haven for multinationals hoping to avoid the Sino-U.S. trade dispute of 2018. The Philippines, another Southeast Asian country that has pushed to pick up foreign investment, aims to follow suit.
The Philippines boasts young workers skilled in English, quick infrastructure upgrades and a tax system overhaul – though fuel prices and periodic political unrest may check progress, people familiar with the country say.
The government approved $17.2 billion in investments, up 47 percent over 2017, the Board of Investments announced on December 24. Those figures “blew past expectations,” the board said.
“We do have a market, a growing middle class and qualified workers, but there are economic and political factors that affect the level of confidence among investors, particularly foreign investors,” said Maria Ela Atienza, political science professor at University of the Philippines Diliman.
Perks in the Philippines
The Philippines would attract foreign investment in part because of its $169 billion infrastructure renewal, Atienza said. The rebuilding is set to run through 2022 and get funding partly by money from China and Japan.
“I’m sure the additional financing they’ve been offered is very helpful for them to develop their economy, and the Philippines knows it very much needs infrastructure development to become more competitive,” said Rajiv Biswas, Asia-Pacific chief economist at IHS Markit.
Though too early to say, new infrastructure might help develop energy sources and lower electricity prices that otherwise deter investors, the professor said.
Multinationals also consider the English language ability and other skills among workers, she said. Another sought-after skill: training in healthcare. Minimum wages for most manufacturers as well as in the service sectors will rise to $9.50 per day, on par with some of China’s lower pay.
“The workforce is still young, so whatever the needs of the new economy will be, the Philippines can provide, given its young workforce,” said Jonathan Ravelas, chief market strategist with Banco de Oro UniBank in Metro.
A tax reform bill, if implemented in Manila, will lead to an “influx” of investment in manufacturing, he said. He was referring to part two of the Tax Reform for Acceleration and Inclusion, which would cut corporate income tax.
The Philippine Economic Zone Authority further helps secure investment by offering “facilitation,” said Carl Baker, director of programs with Pacific Forum CSIS in Honolulu.
China, Japan try it out
China topped the list of foreign investors in the Philippines in 2018 with $927 million worth of commitments, up from just $10 million a year ago, the government board said. Like multinationals, companies in China are looking to other countries as an export base that will not trip U.S. tariffs.
Japanese companies also expressed particular interest in the past year, Ravelas said.
In 2017, Seiko Epson opened a $143 million plant south of Manila. The plant will make projectors and inkjet printers. Around the same time, Shin-Etsu Magnetic Philippines, which produces magnets for electronic devices, opened its eighth plant in the country.
Foreign investors that produce exports in China face U.S. import tariffs on $250 billion worth of goods, one result of a trade dispute that consumed the past year. U.S. President Donald Trump regards China as an unfair trading partner.
Philippine officials have been drumming up support for foreign investment over the past half-decade as manufacturing costs rise in China.
Deterrents to investment
Investors have kept away from the Philippines because of its archipelagic location – hard for transport – limits on foreign ownership, and utility rates.
Electricity prices, a reflection of underlying energy costs, deter some investors as they top the rest of Southeast Asia except Singapore at $0.11 per kilowatt hour. Government officials are trying to develop new energy sources, including renewables, Ravelas noted. Foreign investors can own no more than 40% cap of land parcels, Philippine-based corporations or public utilities.
Philippine workers are more likely to be unionized than in other Asian countries, Atienza said. They tend to be “more vocal” in demands for higher pay compared to other Southeast Asian countries, she added.
Localized violence that may erupt ahead of midterm elections in May as well as the government’s struggle against Communist rebels in the countryside could put off hopeful investors, she said.
Among south and Southeast Asian countries, the Philippines will “gain the least” from the Sino-U.S. trade dispute, investment bank Natixis said in a research report December 4. It cites “expensive” electricity and “weak” business infrastructure.
Vietnam has earned a name through cheap land and labor, government openness to foreign investment and a growing list of free trade agreements. “There is significant competition from other ASEAN countries for attracting investors looking for an alternative to China-based manufacturing,” Baker said.