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Katrine Joy D.

Azuelo International Political Economy

AB Foreign Service 302 Sir. Jumel G. Estrañero

Foreign Direct Investment (FDI): Prospects and Issues in the Philippines

Foreign direct investment refers to investment in a foreign country where the investor
retains control over the investment. It can be in the form of ownership or controlling an interest
in the country where one invests. Usually, foreign investors prefer to operate on countries where
there are less barriers and where there are less tariffs, taxes, licensing requirements, subsidies,
unionization and any other regulations or practices that interfere with the natural functioning of
the free market. Investors also prefer on markets where there is a promising growth. It is one of
the factors brought by the globalization. FDI can be a major stimulus to development of a state.
It boosts the economy of a state. It can be a source of modernization, income growth and
employment. It can trigger growth more than what domestic investment provides.

Just like other things existed, FDI has its advantages and disadvantages. First, let us
enumerate some of its advantages. (1) It can encourage the domestic firms to develop in order to
invite more FDIs in the country. (2) International trade will be much easier. (3) There will be
increase in employments since foreign investors will open up new firms and they will be needing
people for the operation. (4) Employees of a country where there is FDI can be exposed in a kind
of work which can be globally valued. Therefore, there will be increase in training and skills
development which will lead to development in the human resources of the host country. (5)
There will be resource transfers, increase in productivity and income. (6) There will also be
advancements in technology as FDI paves the way in introducing technologies especially to a
developing country. A part of the technology transfers is the dissemination of good
environmental practices. (7) FDI can also increase competition, and with that, developments in
domestic economies will occur since they want to be competitive as well. And now at the other
hand, FDI can also instill pessimism. (1) Some might find the FDI more profitable, causing
domestic investments to slow down. (2) It also imposes skepticism as some may view it as a
modern-day colonialism, whereas the foreign investors might use it as a first move, and later,
will attempt to hold full control over the economic sphere of the state. (3) Another problem
arising here is the gradual environmental degradation of a state. Like in the Philippines,
liberalization of trade and FDIs enable foreign entities to take a grip to the production in the
country. They also increased competition which resulted to negativities. Agricultural lands were
turned into industrial factories and such. This then contributed to the increase in pollution and
land degradations. (4) Another one is that the culture of the host country might be eroded
because of the influences brought by the foreign investors.
Despite being slow on catching up with other ASEAN countries, the Philippines’ FDIs,
based on recent report surged up during the first full year of President Duterte. This is probably
due to the strong points of the Philippines and foreseeable potential of the Philippines to generate
growth in favor of the investors. However, there are challenges facing the prospected persistent
growth of the FDI in the country. One is the insurgency. This is one of the problems when it
comes to attracting FDIs. Insurgents tend to extract money from businesses and in some
instances, foreign investors are not exemption to it. Another is the dispute between China and the
Philippines. Some foreign investors do not find it conducive because if there will be escalation of
the conflict, they know their investments will be affected. Another one is from the Foreign
Investment Act of 1991, the 60/40 rule. Investors find it heavily burdensome and restricting.
Other challenges are poverty, corruption, political instability, and the like.

The origin or source of the equity capital infusions are from other states, to wit,
Singapore, Japan, the Netherlands, the United States and Luxembourg. In my perspective,
Philippines can as well advance it direct investments in states such as South Korea and Germany.
South Korea’s economy is one of the fastest growing nowadays. Its economy specializes in the
electronics. If they invest in the Philippines, the country will acquire their technological
knowledge. Another point is that SK requires high-skilled workers in their firms. Thus, upon
investing in the Philippines, they will hire workers and train them. Filipino workers will then
acquire new skills which can also contribute to the development of human resources in the
country. Nowadays, it is evident that the South Korean culture, products, and services are in
demand in the Philippines. South Korea has also no violation records in cases of FDI. China can
be a candidate considering its “heating” ties with the Philippines, however, this will also inflict
further uncertainties together with the throbbing disputes. Like what Mr. Roilo Golez reiterated
on an interview regarding the plans of China Telecom to operate in the Philippines; according to
him, it can be a national security threat because the Chinese companies are all under the control
of the Chinese government. Giving them a place in telco in Philippines might harm the security
of the RP. Also, if we became more open with Chinese investments, they might later advance
their agendas in the Philippines. This might pave a way to their further access to the territories of
the country. Another country to look out is Germany. Upon having direct engagement with
Germany, it can pave the way on the access of the Philippines to the European market. Their
specializations in development in infrastructures will be a benefit in the Philippines as well. This
will be very helpful since the Philippines need further knowledge and innovations in such areas.
Their expertise and advancement in technology will be as well helpful in the Philippines.

Globalization really changed the way of living of people. It is one of the driving factors
which pushes a developing country like the Philippines. One of its takeaways is the increases in
FDI among countries. Because of globalization, human needs and demands multiplied. Due to
that, countries need to make innovations and advancements such as attracting FDI in the country
to fulfill the desires and necessities of its people. FDI will be a great driving force of
development in the Philippines, however, the Philippines should not be dependent on the growth
it has been contributing to the country. It should learn how to be independent at first, so even
though without these foreign investments, it can still sustain itself and be competitive in the
global arena. On the other hand, in order to attract more FDIs, the Philippines should address
national security issues such as terrorism and insurgency, since this is some of the factors which
are feared by the external investors. It should maintain political stability. Political stability
promises less civil conflicts, hence there will be less hindrances on the economic growth. It
should impose more investment policies which are possible for the equal advantage for both the
foreign investors and the Philippines, since one of the threats to the economy of the country is
the surge of outflows. The Philippines should advance research and development, should
enhance capacity-building and should be cautious in opening investments as well.