00:00 Let's now get the insights of UP Los Banos Senior Economics Lecturer Enrico Villanueva.
00:05 Enrico, welcome to the program.
00:07 Good evening, Menchie.
00:10 Well, we just heard our correspondence report on the economic team's first ever briefing
00:15 in Dubai.
00:17 What is your take on this strategy to court investors from the Middle East?
00:22 Okay, looking at the data from the FDI, from the FDI website, we would notice that the
00:31 foreign direct investments from the Middle East are actually quite low.
00:34 In terms of getting new investors, that's good.
00:38 Hopefully the cabinet has done their pre-hoop work, such that they've actually explored
00:45 potential investments in this country.
00:47 So we welcome the diversification of FDI sources by the government, because traditionally we're
00:54 very much reliant on Japan, Singapore, and US.
00:58 So this new foray is good.
01:01 Now on one hand that's good, the flip side would be, is it the right time to do it?
01:07 So there's still some very conservative outlook about growth.
01:15 So we may not have a hard landing globally, but we may have a soft landing.
01:22 But still, there's still no talk, let's say for instance, of lowering cost of borrowing
01:30 in terms of rates, etc.
01:32 So not sure if this is the perfect timing.
01:34 So the direction is okay in terms of diversification of sources.
01:39 Not sure if this is the right time to do it now.
01:43 Well, you mentioned FDIs, foreign investments.
01:48 Definitely the economic team needs to ramp up investment promotion efforts.
01:52 So the latest Banco Central data show that foreign direct investments net inflows plunged
01:58 by over 20% in the first half of 2023.
02:01 So what key factors led to this decline?
02:07 The main factor would probably be the outlook, the economic outlook.
02:10 As you said, there is still inflation threatening the whole global economy.
02:19 And because of the inflation threat, several banks around the world have been raising rates.
02:24 And that has a dampening effect on investments and aggregate demand in general.
02:32 So with high cost of funds, it may be difficult for new investments to be financed.
02:44 We also noticed, for instance, that for the first half of the year from January to July,
02:55 in an 18-month period or one and a half year period, beginning January 2022 to June 2023,
03:02 the lowest levels of FDI were actually seen this year in January, May and June.
03:08 Yes, and the BSP itself flagged investor concerns over weak growth prospects and global uncertainties,
03:17 as you mentioned.
03:19 So how can the Philippine government and/or the private sector allay these doubts that
03:25 may discourage more investments?
03:35 One factor would be, look at their selling points.
03:37 So there has to be, to be honest, right now, there are more negative points than actual
03:43 selling points.
03:44 I would have wanted personally, for instance, that the government focus first on fixing
03:51 the good things that need to be fixed, like infrastructure, for instance.
03:57 Many empirical studies have shown that infrastructure is one of the main determinants of foreign
04:02 direct investment.
04:03 Well, you said that there's a lot of negatives that need to be fixed.
04:07 But Japan, Germany, the US and Singapore are the top sources of equity capital placements
04:13 in the first six months of the year.
04:15 So what do you think is attracting these countries to do business in our country?
04:21 What do they see in us?
04:27 What I'm saying is that these are the traditional sources of the FDI, but there's also a decline
04:32 in these traditional sources.
04:35 For the US, for instance, in this first half of the year, there's a noticeable decline.
04:41 So meaning they're holding back.
04:43 So the outlook itself is a preventive factor or a factor that's causing them to maybe delay
04:53 their investments, for instance, at this point.
04:56 Well, manufacturing is the top industry benefiting from foreign capital placements, followed
05:02 by financial and real estate sectors.
05:05 So how will these investments boost local industries and in turn the Philippine economy?
05:13 Of course, any form of foreign direct investment would normally bring in jobs and also income.
05:20 And generally, it's a plus for the economy.
05:24 What we're just saying is that there's a decline in this inflow, but still, there are still
05:30 inflows coming from Japan, Japan is the biggest one for this month, for instance, followed
05:36 by Singapore.
05:39 So yeah, still good in terms of jobs and hopefully it will help in arresting the slowdown in
05:48 growth for the Philippines.
05:49 We've seen slowdown in growth in both consumption and government spending.
05:54 Well the government has enacted reforms seeking to court investments like amendments to the
05:59 Public Services Act, Foreign Investments Act, and Retail Trade Liberalization Act.
06:05 Just recently, President Marco signed the Maharlika Investment Fund into law.
06:09 So what other measures must the government enact to better attract investors?
06:17 I've said earlier about infrastructure.
06:20 If you look at the empirical literature in factors that affect or attract foreign direct
06:26 investors, it's repeated in many studies in various countries, the infrastructure.
06:31 So infrastructure would come in the form of infrastructure and services aligned with it
06:38 to enable business.
06:39 That would also include things like electricity.
06:42 So government has certain projects in terms of infrastructure, that's good, but it also
06:51 has to have more activities in terms of lowering or bringing down the cost of electricity because
06:57 that's a major factor or a deterrent for foreign investors.
07:02 Within Asia, for instance, we have one of the highest costs of electricity.
07:07 So I think the government has to spend more effort in trying to bring down the cost of
07:13 business.
07:14 All right.
07:15 Thank you for joining us, UP Los Baños Senior Economics Lecturer Enrico Villanueva.
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