By Bernie Cahiles-Magkilat
Investment pledges registered with the Philippine Economic Zone Authority (PEZA) dwindled, posting a negative 24.54 percent growth in the first four months as the pending Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) Bill continued to spook foreign investors.
Charito B. Plaza, Director-General of the Philippine Economic Zone Authority (PEZA), told reporters that as 20 MNCs skipped the Philippines due to the uncertainty brought about by the TRABAHO Bill, the agency’s approved investment pledges in January-April this year declined by 25.54 percent to P29.492 billion as against P39.085 billion in the same period last year as the number of project registration also decreased by 1.24 percent to 159 from 161 last year.
Investments in the IT sector decreased by 7.08 percent to P4.632 billion from P4.985 billion in January-April period last year. There were only 50 IT projects that registered as against 52 last year.
Despite the slowdown in new investments, direct employment was still positive at 7.36 percent to 1,480,134 from 1,378,655 in the January-April period last year. Exports remained modest at $12.946 billion.
PEZA Spokesman Elmer San Pascual said it has become more difficult to convince companies to invest and expand in the ecozones.
“We just could not convince yet a number of those PEZA export manufacturing and IT companies who have withheld their expansions to proceed,” he said.
But PEZA is trying to assure investors that there is a good chance to include the ‘‘grandfather rule” included in the TRABAHO Bill.
For those new ones that PEZA had serviced while on their due diligence, San Pascual said, they have been impressed on what they have seen at the ecozones and the ease of doing business in PEZA.
But just the same, San Pascual said “The final question to us is: Will there be a change in your incentives?”
Plaza also said that they cannot also make promises to these investors regarding the outcome of the TRABAHO Bill, which seeks to overhaul the generous PEZA incentive packages.
Plaza said they still continue undertaking investment promotion activities but said their job has become doubly difficult because these firms “do a lot of research because these are big investments and they are big capitalists with branches all over the world so they know. If they will relocate in the Philippines will the rules not be changed in the middle of the game?”
But Plaza saw a bit of a silver lining with the newly-elected senators saying they are a “friendlier” batch. Even the old senators, who helped craft the TRAIN 1, have also intimated to her of their moves to amend the first tax reform law to make it more friendly to investors.
Plaza said they were not consulted in the crafting of the TRABAHO Bill by the Department of Finance and Department of Trade and Industry when they are the most affected government agency.
PEZA administers the tax and fiscal incentives of export-oriented companies located in various economic zones in the country.
On the investors that skipped the Philippines, Plaza said the potential investors were affected by the US-China trade war and were relocating into safer havens like the Philippines, but were turned off by the uncertainty caused by the pending TRABAHO Bill, the second package of the government’s comprehensive tax reform measure which seeks to overhaul the current generous incentive package of PEZA.
They were composed of investors from Japan, China, US and EU and have relocated to other ASEAN countries like Thailand, Indonesia and Vietnam.
These firms approached them separately starting March this year when the trade war between the US and China was reignited.
Plaza has no estimate as to the magnitude of their investments but said these are big global firms engaged mostly in manufacturing like steel, electronics and garments.
At first, she said, the potential investors were drawn by the attractiveness of the Philippines being eligible for zero duty on their exports to EU countries under the EU-GSP Plus scheme and the US-GSP system.
In addition, these global manufacturing giants are also relocating after having been discouraged by China’s rising salary rate, which could be four times higher than the Philippines’.
China is also implementing a ban on highly-polluting manufacturing industries that some of these firms are forced to relocate overseas. While these firms would have wanted to relocate in the Philippines, Plaza reiterated that the pending TRABAHO Bill has created uncertainties on their plans.
That is why, she said, the government should reconsider the current TRABAHO Bill version to attract companies affected by the trade war between US and China.