In their latest issue of VISTA, property real estate consulting services firm Pinnacle discussed foreign direct investment (FDI) and how it relates to local real estate. According to Pinnacle, while there are argument s as to the negative impact of foreign investments such as the ‘crowding out’ and the ‘balance of payment’ effects, FDI should be seen as generally a good thing as it helps an economy progress through increased employment, availability of capital, global standards of governance, increased competition, and technological transfer, all of which lead to long-term growth.
Although the Philippines is displaying a robust economy and immense growth compared to neighboring nations, one area the country is lagging is in FDI. When classifying the country’s 2014 net FDI of $ 6.2 bb into three, debt for 2014 is at 54% (3,347), reinvestment of earnings is at 13% (819), and equity is at 33% (2035). FDI for 2014 came mostly from North America at 5%, Asia at 23%, Europe at 9%, the ASEAN at 4%, and Australasia at 3%.
But where does the FDI go? In the Philippines, FDI is said to be driven by finance and insurance at 65%, followed by manufacturing at 10% due mainly to low labor and overhead costs. Real estate, on the other hand, is only at fourth place at 8%, after mining at 10%. The most probably cause of this, says Pinnacle, is the restrictiveness of policies regarding ownership of properties in the Philippines. It’s this obstacle, the firm said, that will continue to impede further investment in real estate.
Pinnacle points out that while FDI is a good thing, the country needs to catch up to its ASEAN neighbors, as the country is currently at the bottom when pitted against other ASEAN countries. They echo other studies saying the Philippines presents many opportunities as an FDI destination, but its Southeast Asian neighbors are still tiers above it.
Pinnacle believes that while the country’s economy is currently steady and has positive fundamentals, it’s important to constantly monitor the developments surrounding FDI and the ASEAN Integration, which will drive the future growth of the country.
There is a need to improve policies regarding foreign investment, as seen in current numbers. For instance, the Philippines tops the list when it comes to regulatory restrictiveness in SEA. Also, the country ranks low with regard to the ease of doing business. On the other hand, the Philippines is doing well when ranked against other countries in Corruption Perceptions Index and Country Credit Ratings.
They also touch on the importance of having an effective new administration come election, saying, “We are entering the new election cycle so the current administration needs to keep the ship straight and finish strong and the new administration will need to focus on midterm strategies towards improving FDI by taking measures such as easing restrictiveness, improving the ease of doing business, expanding PPP and other critical infrastructure programs, and working with ASEAN and global trading partners to increase cross border flows and investments.”
To read the whole report, click here.