Bouncing back from the brink after a disruptive pandemic triggered a food and energy crisis, Philippines is resisting the global recessionary headwinds, cushioned by strong fundamentals, prudent fiscal management and reforms in key sectors. The pent-up domestic demand following the removal of pandemic restrictions propped up economic growth last year and continues supporting consumer spending this year. The Philippine economy’s growth relies on the micro, small and medium enterprises in the country – much like other ASEAN members. Cognizant of its limiting factors like poor infrastructure, high power costs, slow broadband connections and regulatory inconsistencies, the government has undertaken focused policy decisions to catch up with the ASEAN-5 peers Indonesia, Malaysia, Singapore and Thailand.
Its large, relatively low-cost English-speaking workforce, coupled with the benefits of free trade zones, special economic zones and targeted business incentives, make Philippines an attractive destination for investors. While majority of FDI inflows are in manufacturing, energy, financial services and real estate sectors, the country’s start-up ecosystem is at an inflection point and emerging as a Southeast Asian hot spot for investors seeking solid returns from young tech companies. Another area with much potential is green infrastructure, with the Philippine government committed to achieving its carbon targets by ensuring access to climate finance, supporting technology development and transfer, providing capacity building, and implementing circular economy and sustainable consumption and production practices.
Responding to the need for reforms to attract more foreign investments, the Philippines has addressed the issue of foreign ownership limitations to a large extent, through amendments to the Public Services Act, the Retail Trade Liberalization Act and Foreign Investment Act in 2022, opening all but six previously closed sectors of the economy to 100% FDI. While the newly approved Retail Trade Liberalization Act reduces the minimum per-store investment requirement for foreign-owned retail trade businesses from USD 830,000 to USD 200,000, the Foreign Investment Act eases restrictions on foreigners practicing their professions in the Philippines and grants them access to investment areas that were previously reserved for Philippine nationals, particularly in the education, technology and retail sectors. Moreover, the corporate income tax has been cut from ASEAN’s highest rate of 30 per cent to 25 per cent for large firms, and 20 per cent for small firms.
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Keen to attract foreign investment as a key driver of economic growth, Philippines has installed an incentive regime across its 14 investment promotion agencies (IPAs). The Board of Investments (BOI) and Philippine Economic Zone Authority (PEZA) continue to be the country’s lead IPAs, granting fiscal and non-fiscal incentives to foreign investors. The incentives are currently being prioritised in areas of COVID-19 mitigation, manufacturing, agriculture, fishery and forestry, knowledge-based services, charging infrastructure for EVs, industrial waste treatment, telecommunications, engineering, procurement and construction, healthcare, mass housing, infrastructure and logistics, energy and environment. PEZA operates 415 ecozones, primarily in manufacturing, IT, tourism, medical tourism, logistics/warehousing and agro-industrial sectors, maintaining a clear and reliable investment environment within the zones of their authority.
With the objective of improving the Ease of Doing Business, the government has standardized deadlines for government transactions with a single business application form, a one-stop-shop to issue or renew permits and licenses, automation of business permits processing, a zero-contact policy and a central business databank. Even as the Philippines has jumped 29 notches in the World Bank’s Doing Business Report, the government has recently created green lanes for strategic investments that will facilitate ease of doing business and further increase the country’s attractiveness as an investment destination.
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