The U.S. Department of State’s Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world.  They analyze a variety of economies that are or could be markets for U.S. businesses.  The Investment Climate Statements are also references for working with partner governments to create enabling business environments that are not only economically sound, but address issues of labor, human rights, responsible business conduct, and steps taken to combat corruption.  The reports cover topics including Openness to Investment, Legal and Regulatory Systems, Protection of Real and Intellectual Property Rights, Financial Sector, State-Owned Enterprises, Responsible Business Conduct, and Corruption. 

Executive Summary 

The Philippines remains committed to improving its overall investment climate and recovering from the COVID-19 pandemic. Sovereign credit ratings remain at investment grade based on the country’s historically sound macroeconomic fundamentals, but one credit rating agency has updated its ratings with a negative outlook indicating a possible downgrade within the next year due to increasing public debt and inflationary pressures on the economy. Foreign direct investment (FDI) inflows rebounded to USD 10.5 billion, up 54 percent from USD 6.8 billion in 2020 and surpassing the previous high of USD 10.3 billion in 2017, according to the Bangko Sentral ng Pilipinas (the Philippine Central Bank). While 2021 was a record year for inward FDI, since 2010 the Philippines has lagged behind regional peers in the Association of Southeast Asian Nations (ASEAN) in attracting foreign investment. The Philippines ranked sixth out of ten ASEAN economies for total FDI inflows in 2020, and last among ASEAN-5 economies (which include Indonesia, Malaysia, the Philippines, Singapore, and Thailand) in cumulative FDI inflows from 2010-2020, according to World Bank data. The majority of FDI equity investments in 2021 targeted the manufacturing, energy, financial services, and real estate sectors. (https://www.bsp.gov.ph/SitePages/MediaAndResearch/MediaDisp.aspx?ItemId=6189) 

Poor infrastructure, high power costs, slow broadband connections, regulatory inconsistencies, and corruption are major disincentives to investment. The Philippines’ complex, slow, 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 in addressing foreign ownership limitations that has constrained investment in many sectors, through legislation such as the amendments to the Public Services Act, the Retail Trade Liberalization Act, and Foreign Investment Act, that were signed into law in 2022. 

Amendments to the Public Services Act open previously closed sectors of the economy to 100 percent foreign investment. The amended law maintains foreign ownership restrictions in six “public utilities:” (1) distribution of electricity, (2) transmission of electricity, (3) petroleum and petroleum products pipeline transmission systems, (4) water pipeline distribution systems, (5) seaports, and (6) public utility vehicles. The newly approved Retail Trade Liberalization Act aims to boost foreign direct investment in the retail sector by reducing the minimum per-store investment requirement for foreign-owned retail trade businesses from USD 830,000 to USD 200,000. It will also reduce the quantity of locally manufactured products foreign-owned stores are required to carry. The Foreign Investment Act will ease restrictions on foreigners practicing their professions in the Philippines and grant them access to investment areas that were previously reserved for Philippine nationals, particularly in the education, technology, and retail sectors. 

In addition, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act signed in March 2021 reduced the corporate income tax from ASEAN’s highest rate of 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 could attract new business investment, although some foreign investors have concerns about the phase-out of their incentive benefits, which are replaced by the performance-based and time-bound nature of the incentives scheme adopted in the measure. 

While the Philippine bureaucracy can be slow and opaque in its processes, the business environment is notably better within the special economic zones, particularly those available for export businesses operated by the Philippine Economic Zone Authority (PEZA), known for its regulatory transparency, no red-tape policy, and one-stop shop services for investors. Finally, the Philippines’ infrastructure spending under the Duterte Administration’s “Build, Build, Build” infrastructure program is estimated to have exceeded USD100 billion over the 2017-2022 period. 

To access the Philippine ICS, visit the U.S. Department of State Investment Climate Statements website.