October 12, 2017 9:41 pm JST

Foreign investors grow wary of committing to Philippines

Poor infrastructure and disruption to order turning off investors

MIKHAIL FLORES, Nikkei staff writer

A Philippine soldier stands guard in front of damaged buildings in Marawi City on Sept. 4. © Reuters

MANILA -- Foreign investors are increasingly watchful over the investment climate in the Philippines, as the latest foreign direct investment figures announced this week showed inflows had reached a 13-month low. Some businessmen have flagged the country's decrepit infrastructure and its deteriorating peace and order as chief concerns that could dent sentiment toward the country.  

FDI reached $307 million in July, declining by 38% from the same month a year ago. In the first seven months of 2017, FDI inflows dropped by 17% on the year to $3.9 billion. Foreign investments reached a record $8 billion in 2016, including a $2.2 billion surge in April 2016, ahead of the presidential elections.

Guenter Taus, president of the European Chamber of Commerce in the Philippines, said concerns over the conflict in Marawi City in the country's south and President Rodrigo Duterte's brutal war on drugs were forcing investors to put their plans on hold.

"It's the peace and order situation. You cannot bring investors to a country which has a problem with peace and order," Taus told the Nikkei Asian Review.

Duterte in May declared martial law in the entire Mindanao region after Islamic State-linked terrorists occupied Marawi City. More than 1,000 people have died since the conflict began in May, including 811 militants from the Maute insurgent group, 160 soldiers and policemen and 47 civilians.

Government security forces are in their final stages of liberating Marawi City and they expect the siege to end by the end of this week.

The country's human rights situation is also unsettling investors. Duterte's bloody war on drugs has resulted in the deaths of 4,000 suspected drug offenders since he took office last year, according to the national police. Human Rights Watch has reported that more than 12,000 individuals have been killed in the last 15 months in relation to the anti-drug campaign.

Foreigners' views on the country's investment climate are mixed. Takashi Ishihara, executive director of the Japan External Trade Organization in Manila, said Japanese businessmen were "observing the situation [in Marawi] objectively", and more than two-thirds remained optimistic that their interests in the country would remain profitable.

However, most are concerned with the quality of employees, the availability of raw materials and parts and difficulties in quality control. "Also, many Japanese companies are concerned about insufficient infrastructure in the Philippines," Ishihara said.

Duterte's adviser on entrepreneurship, Jose Concepcion, said prospective investors were weighing their options before betting on the Philippines.

"For the newcomers who are first-time investors, of course, they are more sensitive to what is happening and I guess that's why the pace maybe is a bit slower," Concepcion said.

Investor confidence, he said, would eventually build over time. "There are always delays," he said.

To entice more investors, some of Duterte's economic managers are currently in the U.S. to pitch business opportunities for them.

"Foreign investors, including those from the United States, are very much welcome to explore income opportunities in our business-friendly country and be part of our exciting growth story over the medium to long term," Finance Secretary Carlos Dominguez said.

Socioeconomic Planning Secretary Ernesto Pernia said the Philippines would allow full foreign ownership in nearly all industries by 2019, when Duterte plans to start amending the constitution to open up most sectors to foreign ownership. He said easing industry restrictions could double investment inflows in the country.

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