Lim, Cherie Ann R. Sir. Jumel G.

Estrañero

AB Foreign Service, FS 302 March 14, 2018

International Political Economy

FDI: The continuing Philippines despite global uncertainties

For the past decades, the world economy has maintained its integration notwithstanding
the face of the global financial crisis. A huge part of this globalization has been driven by flows
of capital of what we called Foreign Direct Investment (FDI). It has been seen by developing
countries, emerging countries as well as countries in transition as a source of economic
development and modernization, income growth and employment. Foreign Direct Investment
(FDI) can be defined as an investment that involves a long-term relationship and reflects an
enduring interest that enables the residents of one country to directly invest their fund in another
country and acquire ownership of assets and control in terms of distribution, management,
production, employment, etc. FDI is also a means of creating foreign resource accessible to a
developing nation, where such investments can take place including take advantage of cheaper
wages, special investment privileges like exceptions in tax that is offered by the nation.

It can be recognized that FDI as a powerful engine for economic boost contributes to
many things. It empowers countries who are capital-poor to develop physical capital, solving the
problem of unemployment by creating job opportunities, create productive capacity, improve
aptitudes of local labor by means of transfer of technology and help integrate the local economy
with the global economy. In the economies of a host state, FDI is of great importance to that it
would impose positive effects that will not only benefit the investors and recipients but as well as
the countries by making more resources available and with that is the increasing rate of
investment especially in developing the export sector that is urgently needed in developing
countries. The benefits can lead to an increase national income as FDI contributes to increase the
competitiveness in world markets, the productivity and production that will help improve the
average per capita income as well as improving the standard of living in the host country.

But for some there is a risk, allowing investments from foreign investors gives rise to
fears of interference and dominance, where FDI is a means to result as a modern day
colonialism, exposing host countries and leaving them and their resources vulnerable to
exploitations, drain the abundant wealth of the developing countries, and that investors may
bring it with what isn’t in the conditions of the developing countries that is dominated by
unemployment and that in this kind of innovations they prefer to invest more in machinery and
intellectual property, wherein developing host countries are based on the intensive use of capital
works which will intensify the problem of unemployment. FDI also tries to monopolize the local
markets that will result into an increasing dependence of developing countries onto developed
countries as well as to take over the high profitable sectors.

Recently, according to Rappler, the Philippines has set a new record for foreign
investments from overseas reaching at $10 billion that is 21.4% higher compared to the 2016
record. Bangko Sentral ng Pilipinas (BSP) said in a statement that the Philippines has been
viewed as a favorable investment destination on the back of the country’s sound macroeconomic
fundamentals and growth prospects. Since 2013, the country has been reporting record-breaking
levels of inward and in 2017, growth was substantially lower compared to 2016.

Since 2016, new foreign investments and reinvestments are coming into the Philippines.
Bangko Sentral ng Pilipinas (BSP) said that most of the investments came from countries like
Hong Kong, Japan, United States, Netherlands and Singapore. According to Stephen Fortescue,
in the recent years, Russia declared a priority interest in developing its economic relationship
within Asia Pacific Region. An example of this is when Russia and the Philippines held
discussions to create and strengthen their economic cooperation and strengthen two-way bilateral
trade and investment relations. And as mentioned on ASEAN Briefing site, with China, who was
the Philippines’ second largest trading partner has resulted into massive trade benefits for the
Philippines as well as securing investments and credit line pledges. Philippines’ trade and
economic relations with Russia and China is a great importance since both of these countries
resources can have transformative impact on the PH economy and society in particular to the
fields of energy, mining, infrastructure, education and industry, in terms of technologies and
expertise. Both countries can also serve as investors in Philippine infrastructure, industry,
agriculture and may provide markets for major Philippine exports.

However, as the Philippines’ economy continues to develop in a wide margin and is

poised for further growth, the country is still left behind its Southeast Asian neighbors in
attracting foreign direct investments. There are barriers and challenges that hinders foreign
investors to start business and enter the market within the country. And these difficulties lies
within the (1) complicated legal process, where it takes a long process of setting up businesses,
procedures are long and expensive; (2) security and safety, investors will question the safety of
environment where the business would be set-up and therefore, they would not risk something
for their business in unsafe environment (3) government corruption, lack of policies that remove
the influence of corrupt officials in the judicial system; (4) lack of freedom in investments, lack
of push for greater reforms and policies that will benefit individuals and achieve growth. If the
following three areas of concerns has been given enough attention, therefore the Philippines can
sustain fast economic growth that will allow to attract investments, to create job employments
and boost incomes.

Globalization as the predominant feature of the 21st century, manifests all spheres of life
in terms of social, political and even in economic aspect. And with this manifestations of
globalization in economic, therefore globalization does affect FDI inflow and outflow. The
Philippines, as one of the developing countries has a great economic potential. The country has
abundant resources and labor. Globalization as expected, is to provide organizations with
competitive positions by having lower operating costs and to increase the numbers of consumers
as well as the products and services. And to gain these goals, there must be a diversification of
resources, development of new investment opportunities to open up markets and access to new
materials and resources. With globalization, there is industrialization that is essential to attract
investors and foreign capital. With modernization and developments, it has help to attract more
foreign investors to start business here in the Philippines. On the other side of this, there will be a
competitive nature between the small local business and large multinational corporations or
companies.

The Philippines as a developing country and a place of opportunity for investors, must
have an (1) effective and stable political setting, where the government has the capability to
support the investing climate of the country as well as to make relations that beneficial for
country in the part of economy like trade agreements; (2) implementations of economic reforms
that will improve conditions for doing businesses; (3) better enforceability of laws and
regulations (4) improve tax reforms for foreign firms as well as for locals; (5) quality of
infrastructures must be improve; (6) educate and training of the workforce to that they are
essential to business; (7) and to maintain or enhance the economic capability of the country,
because chances are if the country’s economy went downhill, investors would therefore pull-out
their businesses.