HSBC: Ownership caps holding back investments
The Philippines must address constitutionally-mandated ownership restrictions if it wants take advantage of an Asean foreign direct investments (FDI) boom, banking giant HSBC said.
“Asean has seen a bounty of foreign direct investment in recent years, thanks in large part to the region’s tremendous economic potential,” it said in a recently released report.
The 2008-2009 global financial crisis (GFC) was a prime catalyst, HSBC said, as multinationals looking for investment opportunities turned their sights to fast-growing economies such as those comprising the 10-member Association of Southeast Asian Nations.
Total FDI to the Asean-6 (the Philippines, Indonesia, Thailand, Malaysia, Singapore and Vietnam), in particular, has averaged nearly $117 billion per year since 2010 or about three times more than its $41 billion average from the previous decade.
Rounding out the regional bloc are Myanmar, Cambodia, Laos and Brunei.
Also, net FDI to Asean-6 is averaging nearly $50 billion a year since 2010, about 3.5 times the average from the previous decade.
Looking ahead, HSBC believes the post-global crisis trend will likely persist in the near to medium term, provided that Asean’s growth outlook and economic fundamentals remained sound.
Structural issues like the rule of law, strength of institutions, demographics and investment incentives will all play a key part in attracting FDI to the region, it pointed out.
In particular, the bank said “the Philippines, Vietnam, and Indonesia have seen the biggest improvements in those measures in recent years, which speaks to economic and political reforms that those countries have implemented, including: improving infrastructure, reducing corruption, easing investment restrictions, and better fiscal management, just to name a few.”
However, HSBC highlighted that not all Asean countries had benefitted equally.
“Much of the flows since the GFC have predominantly gone to Singapore, while the Philippines and Indonesia still receive a relatively small part of inflows, despite constituting almost half of the region’s population,” it said.
FDI as a percentage of gross domestic product in Singapore, on average, has increased to over 20 percent since 2010 while the Philippines and Indonesia’s share remain below their regional peers.
The Philippines, in particular, receives the least amount FDI from its Asean peers, averaging just $200 million since 2010.
“This may be partly due to the country’s onerous restrictions on foreign ownership of certain key industries, as protected by its constitution,” a situation that the government “must address to take larger part in the broader region’s FDI windfall.”
Net FDI flows hit a seven-month high of $1.645 billion in May based on latest data, bringing the year-to-date net to $4.847 billion.
HSBC, lastly, stressed that many countries in the region should also continue to find ways to remain competitive in the long term.
“For instance, the sustainability of investment incentives may be in question for countries with reduced fiscal space, such as Vietnam, while the Philippines is also considering amending its incentives to corporations and investments in the second phase of tax reforms,” it noted.
The Duterte administration is currently pushing for lower corporate income taxes and the rationalization of incentives via the proposed Tax Reform for Attracting Better and High-quality Opportunities (Trabaho) Act.
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