The Philippines and the United Arab Emirates (UAE) are headed towards unprecedented economic relations as the two countries concluded negotiations for the Investment Promotion and Protection Agreement (IPPA) and jointly announced to start official discussions on a Comprehensive Economic Partnership Agreement (CEPA) or a potential free trade agreement.
Already, three UAE firms committed signed Letters of Intent (LOIs) and one Memorandum of Understanding (MOU) that are expected to bring in $580.5 million worth of investments and 4,000 employment opportunities into the Philippines. These projects would be for renewable energy projects, theme park development, dairy production, and in retail of medical equipment. The biggest of the pledged investment is the planned $500 million integrated diary facility in the country by Baladna Qatar Public Shareholding Company (QPSC), the largest UAE food and dairy producer.
Trade and Industry (DTI) Secretary Ramon Lopez and UAE Minister of State Ahmed Ali Al Sayegh recognized the signing of the start of negotiations for the CEPA and committed towards the eventual signing of the IPPA at the sidelines of the Philippines’ National Day at Expo 2020 Dubai on Friday, Feb. 11. Lopez and UAE Minister for Foreign Trade Thani bin Ahmed Al Zeyoudi also signed the joint statement formally announcing the intent to pursue CEPA.
“The IPPA is modern, business friendly, and comprehensive, covering promotion, facilitation and protection of investments. The Agreement provides for the establishment of a Joint Committee on Investments (JCI), which will serve as a platform to more closely coordinate and collaborate in implementing a focused investment promotion that create greater impact to both our economies. I urge both sides to quickly convene so we can soon realize the objectives of the Agreement,” Lopez said.
The IPPA is an important pillar for realizing investment opportunities from the UAE, especially those that will tap into their sovereign wealth funds with combined assets of over $1.6 trillion. Four of the world’s largest sovereign wealth funds (SWF) are based in the UAE, namely the Abu Dhabi Investment Authority, the Investment Corporation of Dubai, Mubadala Investment Company, and ADQ.
The UAE’s SWFs will benefit from investing in key sectors in the Philippines, such as agribusiness/agriculture, energy efficiency technologies/renewable energy, IT-BPM/shared services, manufacturing, oil and gas, processed and specialty food, tourism and hospitality, and real estate development.
To further maximize the opportunities for complementation in shared areas of interests and priorities, the Philippines and the UAE are also in the process of finalizing a Memorandum of Understanding (MOU) on Economic and Technical Cooperation, which, together with the IPPA, provides the solid foundation for pursuing the CEPA.
“These initiatives are expected to boost trade and investments between two countries, leading to more diversified economic activities, development of new industries, employment generation, and higher consumer spending as we partner for shared prosperity. The Philippines may serve as a UAE’s strategic hub for the Southeast Asian region, as economic activities continue to shift to Asia. Active engagement between government and business sectors is key in ensuring that both countries will maximize benefits of the Agreements, including diversifying and expanding economic interests,” the trade chief continues.
The IPPA intensifies the economic relations of both states as it forges deeper investment ties. The Agreement is very comprehensive. It affords more protection of UAE investments into the Philippines and vice versa. It also accords National Treatment, Most Favored Nation Treatment, freedom from expropriation, Transfers, access to Investor-State Dispute Settlement Mechanism, among others.
Lopez also told UAE businessmen, “Now is the more opportune time for UAE investors to invest in the Philippines as recent economic and regulatory reforms are now set in place, such as the liberalization of public services act, retail trade and the foreign investment act and improvement in the tax and incentives regime of the Philippines.”
He further urged the Joint Committee on Investment established under the agreement be called to start investment initiatives.
The trade chief highlighted key sectors in the Philippines such as electronics, hyperscalers, automotive, copper, nickel, aerospace, agri-business, among others.
On CEPA, both sides agreed that it will strengthen trade, enhance investment flows, remove unnecessary barriers to trade, and create new business opportunities.
“These bilateral agreements are both important and significant because they denote a commitment from both countries to work together to deepen cooperation and stimulate business initiatives on the basis of mutual benefit,” said Lopez.
Agriculture Secretary William Dar, also part of the Dubai delegation cited the Baladna project stating, “The DA, through the National Dairy Authority (NDA), fully support and welcome this new initiative as this will help jumpstart catalytic investments in the Philippine dairy industry to contribute to food security, local milk production and processing leading to agri-industrial development.”
The planned state-of-the-art integrated facility project with potential 2,000 initial jobs generation will significantly increase local milk production by 120 million liters from the current milk production of 26.71 million liters. This will be bringing the Philippines’ total milk production to 146.71 million liters, thus contributing to addressing the local demand of 2,927.04 million liters, of which bulk is imported.
In his keynote speech, the Philippines trade chief and chairman of the Board of Investments cited Minister of State for Financial Affairs Mohamed Bin Hadi Al Hussaini, for his leadership in steering the negotiations for the IPPA to its final conclusion, and Minister of Foreign Trade Dr. Thani Bin Ahmed Al Zeyoudi, Minister of Foreign Trade, for the CEPA.
Lopez told the participants reasons why the Philippines remains as a premium investment destination among its neighboring countries, and one of which is a “game changer” passage of the Public Service Act (PSA). Once President Rodrigo Duterte signs the bill into law, foreign equity restrictions will be relaxed, attracting more global players that will modernize key sectors such as telecommunications, shipping, air carriers, railway, and subways.
Aside from the PSA, other recently signed measures will bolster the country’s business climate – the amendments to the Retail Trade Liberalization Act (RTLA) and the Foreign Investment Act (FIA), which are both expected to establish reforms and remove barriers for foreign entry.
Also, to make the investment climate in the Philippines more attractive, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, issued last year, rationalizes, modernizes, and offers more relevant incentives to investors.
Both economies are also recovering from the effects of the COVID-19 pandemic, as total trade between our two countries rose by 34.7 percent with a value of $951 million in 2021, from $705 million in 2020. Philippine exports reached $245.1 million while imports doubled to $705.9 million.
Among the Philippines’ trading partners in 2021, the UAE is our biggest export partner in the Middle East. Abu Dhabi, in particular, serves as a transit hub for the Philippines’ export products, many of which enter duty-free to other countries in the Middle East.
In terms of investments, the UAE ranked as the 17th top source of approved investments in 2019, valued at $13.24 million.