5 Ways the Philippines is Attracting International Trade
December 18, 2017
The Philippines is on the rise. The archipelago nation is an emerging market riding the coattails of a soaring GDP and increased foreign investment. This has made the Philippines a target for international businesses large and small.
But, why such an improvement? Quietly, the Philippines has become one of the world’s fastest growing economies in the past five years. The recent spike in performance is due to the gradual improvement of many sectors.
Yet, many businesses shy away from the Philippines. It’s known for imposing many foreign ownership limitations. These limitations stop businesses abroad from investing in certain Philippine sectors.
But, all isn’t lost.
The Philippine economy is opening, and opportunities for foreign investors are multiplying. We’ve compiled a list of the 5 ways the Philippines is attracting foreign investment to curb the anxiety. Businesses looking to get their money’s worth should get in while the potential for investment is still high.
1. Programs and Organizations
There are many government and non-government organizations that promote foreign investment and exporting. These organizations do everything from developing programs to making lists of registered exporters. This helps foreign businesses navigate the Philippine market.
The Philippine Exporters Confederation, the Bureau of Export Trade Promotion, and the Philippine International Trading Corporation are the most popular of these groups. The Philippine government is ramping up these organizations. By doing so, they hope to to sell their country as a destination for foreign investment and exporting.
The Philippines also works with US-based organizations to ease the international trade process. Some examples include the Millennium Challenge Corporation. The MCC works with many partner countries, including the Philippines, to identify key risk and constraints to investment by analyzing the nation’s private and public sectors.
Businesses in both countries have everything to gain as both nations invest in their trade relationships. These groups also help to negotiate trade agreements which would open the floodgates for exports and imports.
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2. Trade Agreements
The Philippines has a history of establishing fruitful trade agreements. They were one of the founding nations of the World Trade Organization (WTO) in 1995, and have reaped the benefits of the Association of South East Asian Nations (ASEAN) since 1967. This trade agreement makes its member nations attractive to Philippine exporters. It’s no wonder why Japan is the nation’s largest trading partner.
Though healthy, the US and the Philippines have yet to establish a trade agreement that outshines these.
TIFA, the Trade and Investment Framework Agreement between the two nations works to create fair and balanced trade between international suppliers and US businesses.
But, so far, nothing has been established in the way of free trade. However, things may be changing.
The US and the Philippines are reportedly working towards an FTA. Such a deal would skyrocket the already healthy trade relationship between the two countries. The US hopes to outdo the benefits of ASEAN with this proposed agreement. Though it’s still in its early stages, a future agreement between the Philippines and the US would create opportunities for businesses and investors.
3. Relaxing Foreign Ownership Limitations
We mentioned the Philippines’ well-known foreign ownership limitations as a major issue. These limitations look to bolster domestic innovation. However, they forbid international businesses from conducting operations from a remote location. For example, a US-based business in the Philippines cannot be managed from the US in some sectors.
The upside is that newly elected President Rodrigo Duterte is relaxing these limitations. The Philippine Constitution currently caps foreign investment in key sectors at 40%. Though foreign leaders have urged the nation to ease these limits, the government has only recently moved on this issue. The effort would increase the nation’s competitiveness in the global market.
Relieving these barriers may even be the first steps in establishing a new agreement with the US. The opening of the Philippine economy reveals previously unreachable markets. Whether you’re looking to set up a business there, or simply find a supplier, the future is bright.
4. Monetary and Tax Incentives
Though this entire list falls under the umbrella of “incentives,” we haven’t talked about the direct benefits.
The Asia Development Bank (ABD) offers financing to businesses looking to invest in the Philippines. Depending on the sector, US companies can apply to the bank to help fund specific projects.
The Philippines also boasts 326 “ecozones,” which are composed of export processing zones, free trade zones, and certain industrial estates. Doing business with companies in these zones gives you preferential tax treatment. “Ecozones” are outside customs territory and can import goods free of customs duties. Some taxes and other import restrictions are also exempt.
Businesses can also avoid local taxes, duties on event materials, and travel fees. This all depends on the circumstances, though.
The Philippines uses these incentives to attract investment from foreign nations.
Maybe the biggest development for international businesses is Philippine privatization. President Duterte plans to move many publicly-funded companies into the private sector. This would allow domestic businesses and investors to contribute to previously unavailable industries.
The process started with the country’s water and energy industries and has recently expanded to airports. The plan is that shifting from an insular to an international economy will create investment opportunities.
There are domestic concerns, however. Philippine people fear that privatizing these industries allows companies to exercise unchecked power. But, a hike in pricing may increase innovation. Along with attracting foreign investment, this seems to be the goal of this process.
However, the privatization of the Philippines will still benefit international businesses. Though these issues are concerning, it shouldn’t stop international businesses from taking advantage.
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