The Philippines remains committed to improving its overall investment climate and sustaining economic growth. While potential challenges from global economic headwinds would impact the economy, sovereign credit ratings remain at investment grade, supported by the country’s sound macroeconomic fundamentals. Despite increased public debt and rising inflation, Philippine gross domestic product (GDP) grew by 7.6 percent in 2022. The Philippines is a net commodity importer and Russia’s invasion of Ukraine elevated fuel and food prices to record levels in 2022. Foreign direct investment (FDI) inflows shrank to USD 9.2 billion in 2022, down 23 percent from USD 11.9 billion in 2021. Since 2010, the Philippines has lagged regional peers in the Association of Southeast Asian Nations (ASEAN) in attracting foreign investment. The majority of FDI equity investments in 2022 targeted the manufacturing, information and communications technology (ICT), financial services, and real estate sectors.
Poor infrastructure, high power costs, slow broadband connections, regulatory inconsistencies, a cumbersome bureaucracy, and corruption remain disincentives to investment. The Philippines’ complex, slow, redundant, and sometimes corrupt judicial system inhibits the timely and fair resolution of commercial disputes. Traffic in major cities and congestion in the ports remain barriers to doing business.
The Philippines made progress this year in addressing foreign ownership limitations that constrained investment in many sectors. Amendments to the Public Services Act (PSA) opened previously closed sectors of the economy to 100 percent foreign investment. The PSA maintains foreign ownership restrictions in six “public utilities:” (1) distribution of electricity, (2) transmission of electricity, (3) water and wastewater pipeline distribution systems, including sewerage, (4) petroleum/m and petroleum products pipeline transmission systems, (5) seaports, and (6) public utility vehicles. The Retail Trade Liberalization Act (RTLA) reduced the minimum per-store investment requirement for foreign-owned retail trade businesses, from USD 830,000 to USD 200,000, and the quantity of locally manufactured products foreign-owned stores are required to carry. The amendments to Foreign Investment Act (FIA) eliminated restrictions of foreign ownership of export enterprises and opened up most areas except those subject to nationality requirements outlined in the Constitution and in the Philippines’ Foreign Investment Negative List (FINL).
In addition, the 2021 Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act reduced the corporate income tax from 30 percent to 25 percent for large firms, and 20 percent for small firms. The rate for large firms will be gradually lowered to 20 percent by 2025. CREATE also mandated fiscal incentives to be performance-based and time-bound and granted more authority to the Bureau of Internal Revenue (BIR), which narrowed eligibility for Value Added Tax (VAT) exemptions.
While the Philippine bureaucracy can be slow and opaque, the business environment has been notably better in special economic zones, particularly those available for export businesses operated by the Philippine Economic Zone Authority (PEZA). PEZA has received positive feedback for its regulatory transparency, no red-tape policy, and one-stop shop services for investors. Finally, the Marcos Administration, under its “Build, Better, More” infrastructure agenda, committed to maintain infrastructure spending to 5-6 percent of GDP and to encourage more public-private partnerships in infrastructure development.
Country Links
Anti-Money Laundering Council (AMLC)
Philippine Securities and Exchange Commission (SEC)
Central Bank of the Philippines (Bangko Sentral ng Pilipinas)
