Want more FDI? Be constant

OUR foreign direct investment (FDI) grew impressively in the first half of 2012.

In June, there was jubilation that Philippine FDI from January to March 2012 increased by $850 million or about 72 percent over the same period in 2011. 

Then last September, the 2nd Quarter 2012 FDI Report of the National Statistics Coordinating Board said the increase in total FDI approved by the government’s seven investment promotion agencies was the highest level reached since 1996: 9.4 percent, P 44.1 billion more than the P40.3 billion recorded in the same period in 2011. Total approved FDI for the first six months of 2012 reached P 62.6 billion, up slightly by 0.4 percent from last year’s P62.3 billion.

But we should be getting more foreign direct investments.

Vietnam suffered a decline of almost 1 percent (actually 0.8 percent) in FDI in Q1 2012. But the reduced amount still came to $2.5 billion or three times that of the Philippines.

Indonesia enjoyed a 30 percent increase, which made its Q1 FDI $5.6 billion. Indonesia’s FDI is seven times ours.

Malaysia increased by 5.38 percent bringing its Q1 FDI to $2.3 billion. This is a little less than three times ours.

Thailand’s FDI 2012 1Q was 106 percent more than same period in 2011. That is $7.3 billion, which is something like nine times ours.

What makes foreigners like sinking a lot more of their money in projects in Vietnam, Indonesia, Malaysia and Thailand than in the Philippines?

It’s more fun to live here than in any of those other countries, survey after survey of foreigners doing business in Southeast Asia show. But why don’t they like investing in the Philippines?

The one word reply is: constancy.

There is a perception—not exactly opposed to reality—that Philippine government agencies and officials duly assigned to regulate businesses and industries do not stick to their own rules and do not abide by contracts they sign with foreign investors.

What foreign investors who are already here tell prospective investors is that the duly authorized national agency may have approved a project but when it is being implemented the officials of a local government unit (a province, a town or even a barangay) could interpose themselves into the works. Armed with a real law, or a quirky interpretation of an ambiguous law, or a local ordinance, the local authorities could stop the project or make it difficult for progress to be made.

Some of the foreign investors and operators are willing to include bribes in the cost of the project but even when bribes are paid the officials tend to behave like blackmailers who never stop collecting, Or, in some cases, the officials with whom “special” arrangements have been made turn out to be incapable of making the agreement stick in the face of a higher and more powerful authority who also wants to be placated.

Then there are local officials who will not countenance being bribed. They are truly honest and protective of the environment or the Indigenous People affected by the project. They will not stop until the project is totally declared illegal and scuttled by order of the courts.

Foreign investors also encounter corruption in the four countries we have decided to compare ours with. But there, in general, what has been agreed will happen. The public interest will be served. The investors will recover their capital and make a good profit after a period of time. And they will be happy to invest in other projects.

Our inconstancy is the biggest barrier to the steady inflow of massive foreign direct investments. But there are also other negatives—foremost of which is the very high cost of electric power.

The administration must work on making our legal and operating system constant and consistent.