Melanie Rose B.

Juantala International Political Economy

AB in Foreign Service 301 Sir. Jumel G. Estrañero

Exploring the Ways for Economic Sustainability through Foreign Direct Investments
in the Philippine Context

Foreign Direct Investment (FDI) is a type of financing in the category of cross-border market with
an associate residence in one economy having control or significant degree of influence in terms of
managing the enterprise that is resident in another economy. It is a by-product of globalization and thus
become its major driver which connect states through negotiation, promotes cultural diversity, and
increase trading capacity among nations. FDI flows record the value of transactions that occur between
companies in different countries related to direct investment during a given period of time, usually a
quarter or a year (OECD, n.d). It consists of outward and inward flows which plays the matrix of equity
transaction, reinvestment of earnings, and intercompany debt transactions. FDI inflows are the inward
direct investment made by non-resident investors in the reporting economy while FDI outflows are the
value of outward direct investment made by the residents of the reporting economy to external economies
(World Bank, n.d). Through this, businesses creates stable and long-lasting links between economies in a
global scale. As it becomes rampant in today’s realm, one should weigh down the pros and cons of this
investment style to further assess and analyze its positive and negative effect on both the home and the
host country.
It is contested whether it leads to economic growth and development or it destroys local
capabilities without compensating poor countries. Scrutinizing its positive impact, it helps a state through
economic growth, employment effect, resource transfer effect, increasing knowledge, and improving
balance payment (Amiratulhusniah, 2013). However, due to its wide range of expansion, it becomes more
complex and risky. It produces disequilibrium in the market system as domestic business practices are
disrupted. Competition will also be evident as well as economic non-viablity and expropriation which leads
to a modern-day economic colonialism (Economic, n.d).
As Economics always points out, people have unlimited wants and needs while the resources are
only limited. More often than not, business also depends on those ‘limited resources’. Because of such,
capital infusion becomes necessary as it refers to the cross-subsidization of divisions within a firm. If one
division is not doing well, the infusion of new funds from the more successful divisions will be its back up.
There are two ways that can take place during this infusion; equity route, investor has a share in liue of his
capital investment, and debt route in which company may issue debentures (Premnarayan, 2017).

In the Philippine context, an act regarded as the R.A no 7042 also known as the “Foreign Investment
Act of 1991” (FIA). Under this law, foreign investors are allowed to invest 100% equity in company
businesses but, it is still subject for certain restrictions as provided in the Foreign Investments Negative List
(FINL). In a press statement, BSP Gov. Nestor Espenilla Jr. said foreign direct investment (FDI) inflows
reached a record high of $10 billion in 2017, up by 21.4 percent from the year-ago level (Lucas, 2018). Thus,
equity capital placement of Singapore, Japan, Netherlands, Hongkong, and United States which leads
towards to gas, steam, air conditioning supply, manufacturing and construction generates the increase of
FDI in the said state. Aside from the aforementioned states above, China can also be a strategic partner of
the Philippines to directly engaeg in economic cooperation. Given the fact that a large number of Chinese
businessman is seen in the Philippines makes no doubt that Phil-China relationship is deepening. How
people do trade in Binondo, Manila is also a proof that the Philippines recognizes its growing geoeconomic
profile. China has become more involved in Philippine domestic and socio-economic agenda for the past
year and commercial and corporate diplomacy was viewed in full swing. Also, Philippines-China Trade and
Investment Forum and the Joint Commission on Economic and Trade Cooperation (JCETC) have been
reinstituted in which restrictions on import demands have been lifted. Lastly, domestic public goods
partnership was strenghtened (Rabena, 2017). With Thailand’s growing economy, it is also a prospect
country to continuously become a partner for prosperity. Considering geography, it is nearer compared to
Japan, US and other stated countries which concludes that financial aid and FDI are more convenient in
terms of transportation of resources and the likes. Russia-Philippines partnership is also growing as Russian
business leaders see opportunities for a better trade partnership with Manila. The synergy between the
presidents of the two counries; Vladimir Putin (Russia) and Rodrigo Duterte (Philippines) brought military
aids from Russia to the Philippines as they secure the Moscow-Manila partnership (Ramani, 2017). China,
Thailand, and Russia will all bring forth equity capital infusion through having diplomatic talks that will foster
the developments of their country as they benefit economically to one another.

There are major challenges that Philippines might encounter in the FDI’s stability and instability.
Focusing on the former, having a stable FDI is indeed alluring and dangerous. GDP will increase as it brings
new products, builds new infrastructure, and generates employment that will stimulates growth and
development. It also builds trust to those partnering states and thus creates bilateral agreement for future
investments. However, domestic businesses and products will be at risk as Filipinos tend to patronize more
of these goods and services. The equivocal meaning of this implies that increase in imports of basic food
products will be necessary as inadequate increase of native agricultural production might not be leveled to
the fast speed of urban development. On the other hand, the latter part that talks about instability
challenges is a lot more complicated in the long run. Connections and globalization will not be evident in
an unstable FDI. Innovation will be in a slow pace as it adversely produce brain drain and economic crisis.
There will never be an issue if FINL’s laws are not violated. Because Philippines is still a developing country,
FDI’s stability is essential.

In order to stabilize FDI in the Philippines, government as well as economists should invest to
improve its laws for better partnership gains. First, encouraging investments through the quality of local
services and improving infrastructure will attract foreign investors. Second, strenghtening diplomatic
relationship between the country will gain their trust. Show that ‘they need you rather than showing that
we need them’. Principle of reciprocity should be seen to establish camaraderie even among their
nationalities. Third, make slogans to promote their businesses in a manner that will balance with the local
ones. Society at large must be educated enough to the benefits that it will bring, Fourth, support their
advocacies that is also applicable for the betterment of the Philippines. Lastly, accept and understand the
diversity of attitude and behavior without losing Filipino pride, dignity, and integrity. Cultural differences is
inevitable and therefore, should be treated with respect. Those things will also maintain a surge investment
climate in the Philippines that will be a factor for economic sustainability.