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Special Report: US, Korea investments falter in 2017, as China-Japan rise

January 16, 2018 News

After registering P495.15 million in approved pledges in 2003, Korean investments in PEZA picked up and even reached a record-high of P13.85 billion in 2015.

BOI registered Korean investments in 2017, meanwhile, dropped 99.72 percent to P18.15 million from P6.42 billion in 2016.

“Trade and investment climate in Philippines (for 2017), I am not satisfied,” Korean Chamber of Commerce of the Philippines (KCCP) president Ho Ik Lee told The STAR.

“Compared with other ASEAN countries, Philippines still has some restriction and limitation on foreign investment in several areas. As a businessman in the Philippines and as president of KCCP, I am sorry to say that the majority of Korean investment are going to Vietnam, not Philippines,” Lee said.

Reasons cited by Lee as to why Korean companies choose Vietnam over the Philippines include high quality of labor, better government incentives, low taxation, low electricity, water and telecommunication costs, no labor union, and high security.

 US investors, likewise, headed the same direction as their Korean counterparts did in 2017, with the value of its registered projects in PEZA reaching a 13-year low. 

Data showed PEZA-approved investment pledges from American investors declined 69.31 percent to P7.74 billion from P25.32 billion in 2016. It is the lowest since the P5.73 billion level registered in 2003.

American investments registered with the BOI also deteriorated by 73.43 percent last year to P582.82 million from P2.19 billion in 2016.

American Chamber of Commerce of the Philippines senior advisor John Forbes attributed the decline to many factors, one of which is the shortage of new PEZA zones.

PEZA reported that some P72.4-billion worth of economic zone development projects have remained unapproved as of end 2017, putting on hold more investments that await the presidential proclamations of ecozone sites before starting construction and operation. 

Forbes said American investors who are new to the Philippines may have also been influenced by the rhetoric of President Duterte against Americans as well those of President Donald Trump against offshoring.

He also cited other issues such as business costs, which are lower in several competing regional economies, as well as restrictions in major sectors like agribusiness, mining, and utilities, and government reducing or ending fiscal incentives which competing regional countries continue to offer.

“Traffic and airport congestion in Manila and Cebu are also discouraging some new and expansion investments,” Forbes said.

“We are hopeful this trend will reverse and American foreign direct investments will increase in 2018. We strongly welcome the Duterte administration initiatives to remove legal impediments to foreign investments which should lead to billions of dollars of new investment,” he added.

But while investment pledges from the two economic powerhouses have significantly declined last year, two other economic giants are picking up the slack.

The renewed ties between the Philippines and China show fruitful signs as reflected by the increase in the value of investment pledges coming from the world’s second largest economy.

Combined approved projects from China by the PEZA and BOI grew 15 percent in 2017 to P1.61 billion from P1.40 billion in 2016.

A significant jump in particular was seen in PEZA, where investments from China surged 134.3 percent to P1.03 billion from only P440 million the previous year.

The 2017 value was the second highest amount of investment approval from China in PEZA’s history, next only to the P1.16 billion recorded in 2012.

The strong increase in PEZA approval, however, was dragged down by the decline in China investments registered with the BOI which stood at P575.84 million in 2017, 40.15 percent lower than 2016’s P962.20 million.

Renewing the country’s ties with China, which was fractured by territorial disputes over the West Philippines Sea, has been a priority of the Duterte administration since day one.

Meanwhile, Japan has remained a steady partner for the Philippines amid changes and adjustments in the first full year of the Duterte administration.

Japanese investment pledges in PEZA and BOI soared 23.79 percent to P31.48 billion last year from P25.43 billion in 2016.

For PEZA alone, the projects registered were valued at P22.61 billion, up 21.61 percent from P18.6 billion in 2016.

Japanese investments approved by the BOI, meanwhile, rose 29.74 percent to P8.87 billion in 2017 from P6.83 billion the previous year.

Japan Chamber of Commerce and Industry of the Philippines president Hiroshi Shiraishi earlier said the Philippines continues to be an attractive investment destination for Japanese companies, especially the small and medium-sized ones.

 Shiraishi said various factors such as labor cost, easy communication in the English language, competitive incentives, and rules of the domestic market continue to draw Japanese investors to the country. 

Security was a major concern for foreign in­ Turn to investors in the Philippines last year, with Korean US, Korea businessmen getting particularly worried, thus resulting in a big drop in their investment pledges. "We strongly believe in the importance of the rule of law, due process and respect of human rights in all countries, including the Philippines. Security is the issue investors are most concerned with when they decide and choose a place or coun­ try. To be frank with you, to date, it shows that the Philippines is not a safe country. Government should tighten gun control. This is not the US, it's the Philippines," KCCP's Lee said. Last year, reports surfaced that high­ranking po­lice officials were behind the kidnap­-slay of Korean businessman Jee Ick­joo at the police headquarters in Camp Crame in October 2016.

The incident prompted the Joint Foreign Cham­bers (JFC) of the Philippines to issue a statement in February, doubting the ability of local authorities to ensure their safety.

"We promote trade and investment between their respective countries and regions in both di­ rections, but can only succeed in their mission if peace and order and safety can be guaranteed by the authorities. The kidnapping and brutal killing of Jee Ick­joo puts these expected guarantees in question," the JFC had said.

Foreign business leaders, including Lee, said while prospects for the Philippine business and investment climate remain positive, security issues have weakened the country's image abroad.

AmCham's Forbes said the country's reputa­tion for violence and high murder rate is "unfortu­nate and contrasts with the reputation of Filipinos as friendly, helpful, smiling people."

American investment pledges to the Philip­ pines were also a casualty of this bad reputationin 2017.

Forbes, however, pointed out that most Ameri­can investors his group knows have not experi­enced security challenges in the Philippines so far.

"The continued news about human rights abuses, a potential authoritarian revolutionary government, and the extension of martial lawin Mindanao do not contribute to investor confi­dence in the Philippines, but rather the opposite," said Bo Lundqvist, president of Nordic Chamber

Lundqvist said the safety and security situation in the Phil­ippines, just like in any other nation, is important to foreign investors as well as local businesses.

"The resolute handling of the situation in Marawi last year, despite the tragic loss of life, spoke well of the Philippines' ability to deal with serious threats to its internal security. Despite that, security continues to be an unfortunate concern and obstacle for direct foreign invest­ment. While we do understand the many complexities of the various conflicts that still are ongoing, we believe continued peace talks paired with reforms aimed at eradicating poverty is the only longterm path towards lasting stability," he said.

Marawi City was besieged by the ISIS ­inspired terror group Maute in May 23 last year. This has prompted President Duterte to declare martial law in Mindanao following an armed con­frontation between government forces and the Maute group.

The President in October declared Marawi City as liberated from the terrorist influence, marking the start of its rehabilitation.He, however, requested to extend martial law in Mindanao for one more year or until the end of 2018, which was approved by the Senate and the House of Representatives last month."We are also concerned with the extension of martial law in Mindanao despite being cleared two months ago. We fear that this sends the wrong message to the international community and may deter potential investors from not only going into Mindanao but the Philippines as well," European Chamber of Commerce of the Philippines president Guenter Taus said.

BOI chairman and Trade Secretary Ramon Lopez admitted that the Marawi conflict indeed forced some investors to hold back on their planned investments to the Philippines. He noted, however, that some also pursued their plans as a reflection of their continuing confidence to the Philippinegovernment and the country's growing economy. With the Marawi conflict over, Lopez said he expects the share of foreign investments in BOI's approved investment pledges to increase this year. 

As for Korean and American businessmen, they see change is coming amid the various challenges they are encountering, and they have expressed willingness to continue betting big on the Philippines. "Actually, we (Korean) are very much interested in this market. It's really an emerging market and has a bright future. That's why I mentioned the Philippines need to be more open to foreign investors," Lee said. "While we do not see many new US investors, the large number of existing US investors involved in the domestic market and export continue to be a major contributor to the Philippine economy," Forbes said.

This article was originally published on June 16, 2018 on The Philippine Star (print)

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