Foreign direct investment (FDI) in the Philippines

FDI in Figures

According to the UNCTAD's World Investment Report 2022, foreign direct investment inflows to the Philippines increased from USD 6.8 billion in 2020 to USD 10.5 billion in 2021, remaining above the full-year target of USD 8 billion set by the Central Bank of the Philippines. The stock of FDI also increased in 2021, reaching USD 113 billion. The United States, China, the United Kingdom, Singapore, and Japan are traditionally the main investors, while inflows are concentrated in the transportation and storage, electricity, real estate, manufacturing, and construction. Other sectors that attract the highest levels of investment are information and communication, and administrative and business support services activities. Moreover, the country relaxed the local employment requirement for workers of foreign investors.

Despite growing FDI inflow levels, the Philippines continue to lag behind regional peers, in part because the Filipino constitution limits foreign investment, and also due to the threat of terrorism in some parts of the country. This can be partially explained by the fact that the country is evolving into a service society with low capital strength, which means that it needs only minimal equipment. In addition, the government favours subcontracting agreements between foreign companies and local enterprises rather than FDI in the strict sense of the term. Lastly, factors such as corruption, instability, and inadequate infrastructure, high power costs, lack of juridical security, tax regulations and foreign ownership restrictions discourage investment. Nonetheless, the country offers many comparative advantages, including an English-speaking and well-skilled workforce, a strong cultural proximity to the U.S., exposure to an emerging market, and a geographical location in a dynamic region. Furthermore, the Philippines have been substantially improving its business climate in recent years: starting a business is now easier due to the abolishment of the minimum capital requirement for domestic companies; dealing with construction permits has been improved (improvement of coordination, standardisation of the process for obtaining an occupancy certificate); and minority investor protection has also been strengthened.  According to the Economist Business Environment, the Philippines ranks 57 out of the 82 countries reviewed for their investment climate.

What to consider if you invest in the Philippines

Strong Points

The country's main strong points in terms of FDI attractiveness include: 

• A skilled young English-speaking workforce
• A large domestic market (with a population of over 114 million people)
• A gateway to other countries in the region facilitated by the country's membership in ASEAN
• An economy that has successfully integrated enterprise outsourcing (BPO)
• A very advanced legal system
• Considerable natural wealth

Weak Points

The main weaknesses of the country include:

• Political instability
• Poor quality of its infrastructure  
• Restrictions on foreign investment in certain sectors
• Legal uncertainty and a lack of transparency of procedures (total banking secrecy favouring money laundering) generating tensions and a lack of confidence of the business community towards the legal system
• High level of corruption in the administration and various state agencies 
• Strong disparities in development according to the regions: income and security inequalities (problematic security situation in the Muslim regions of the South)

Government Measures to Motivate or Restrict FDI

Legislation liberalising business practices has opened up more areas for investment, granting foreign investors the same incentives as other ASEAN members while simplifying procedures. The government has planned to increase investments to improve infrastructure (roads, bridges, railways, health and education) and to encourage social programs (child vaccinations, support for poor families, extension of health insurance coverage, primary education).
Recent changes to the Foreign Investment Negative List (FINL) allow foreign companies to have a 100% investment in internet businesses (not a part of mass media), insurance adjustment firms, investment houses, lending and finance companies, and wellness centres; as well as 40% in construction and repair of locally funded public works (the previous cap was at 25%).

Bilateral investment conventions signed by the Philippines

To see the list of investment treaties signed by the Philippines, consult UNCTAD's International Investment Agreements Navigator.