There is no question that the Philippine economy has a dire need for Foreign Direct Investments (FDIs) if we are to continue to be among the fastest growing economies in the Indo-Pacifici region, together with India and Vietnam, and more so if we aspire to grow even faster at eight percent or more in GDP [gross domestic product] over the next five to 10 years. This faster growth rate is needed if we are to bring down the poverty incidence to single-digit rates from its present level of more than 20 percent. Only a higher GDP growth rate will enable our government to generate enough revenues to significantly increase public expenditures on education, health, and public housing—the three most important requirements to address mass poverty. It is true, as some economists who are not impressed with the fact that we are among the fastest-growing economies attest, that GDP growth does not necessarily improve the lives of the majority of Filipinos. Actually, President BBM supported this view in his last SONA. It is equally true, however, that if there is no growth, it would be very difficult to improve the lives of the poor through greater expenditures on public education, public health, and public housing—the three most important needs of the poor.
The $64 question is how do we attract the largest amounts of FDIs in the next four to five years? In the previous articles, we thoroughly discussed what we can term as the macroeconomic conditions that will attract FDIs to our country: a vibrant and growing economy; a young and growing population; abundant natural resources, especially mineral ores like copper and nickel; investor-friendly environment such as openness to foreign equity, ease of doing business and good governance. We agreed that the last two are a work in process and will take longer to achieve. Now, I would like to address the micro-economic question of which foreign investors we should target and in what industries. To use a military metaphor, the President uses a machine-gun approach by visiting as many countries as possible. That is part of his duty as President to establish close ties, not only economic, with as many states as possible. We in the private sector should adopt a rifle approach: choose wisely the countries that are most likely to invest large amounts of long-term capital in selected sectors of the economy.
What do the data reveal about FDIs in recent years? According to World Bank information, FDIs in the Philippines were $8.67 billion in 2019, $6.82 billion in 2019, $11.98 billion in 2021, and $9.37 billion in 2022. From a different source of data provided by the BSP, net FDI in 2023 reached $8.9 billion, a decline from 2022. For comparison, in 2022, India attracted $49.94 billion; Indonesia, $24.70 billion; Vietnam, $17 billion; and Cambodia, $3.58 billion. The most recent data from the BSP revealed that net foreign direct investment in the Philippines grew 23.1 percent year-on-year to $0.69 billion in March 2024, primarily attributed to increases in net inflows for equity capital and debt instruments. Equity capital placements for the month largely came from Japan, Singapore, and the United States, with investments directed mostly to the manufacturing, financial and insurance and real estate industries. For the first quarter of 2024, FDIs reached $2.97 billion, 42.1 percent higher compared to the corresponding period of 2023. Given the very positive feedback I have been getting in the various roadshows I have joined in Spain, Taiwan, and Japan—three of the most likely sources of FDIs in the coming years—I would venture to extrapolate for the whole year of 2024 at least $12 billion and even more, topping the highest level ever reached in 2021 at the height of the pandemic.
In a recent roadshow to Japan facilitated by top executives of the Mitsui group of enterprises, I could sense a more bullish view among Japanese investors about the prospects of investing in the Philippines compared to the period before the pandemic. I could explain the pleasant surprise I had when I learned that in 2023, of total FDI in the Philippines, Japan accounted for 51 percent, followed by the US at 13 percent, Singapore at 12 percent, and Germany at eight percent. Actually, the Japanese enterprise that organized our roadshow, Mitsui & Co., is one of the very first to show a vote of confidence in the Philippine economy by buying a minority stake in the Metro Pacific Investments Corp., together with a Japan-backed fund. In April 2023, Mitsui & Co. and JOIN acquired 20 percent of MPIC for $477 million. Both Japanese firms worked together with existing minority shareholders, including Metro Pacific Holdings Inc., GT Capital Holdings Inc., Mit-Pacific Infrastructure Holdings, and MIG Holdings Inc., to buy out the minority shareholders, which effectively delisted the company from the Philippine Stock Exchange. The Mitsui executives involved in their Philippines operations have been quite happy with their experience in investing in the Philippines that they decided to organize a road show targeting the various enterprises within their business family to sell them the idea of also investing in the Philippines in the various sectors of infrastructures, mobility, logistics, hospitality, health and many more.
Since Japanese enterprises can be expected to be among the top foreign director investors in the Philippines in the coming years (our young and growing population perfectly complements their shrinking and aging population), let me enumerate the other Japanese companies that have preceded Mitsui & Co. in taking a bullish approach to investing in the Philippines in the last five years or so. In 2022, Sumitomo Mitsui Banking Corporation (SMBC) increased its ownership of the Rizal Commercial Banking Corporation (RCBC) by 20 percent by purchasing additional stocks amounting to $460.78 million. For SMBC, one of the largest banks in Japan, the investment in RCBC is in line with its strategy to expand in select Asian markets, including Indonesia, Vietnam and India. In fact, this is a leading example of the very discernible trend among developed countries both in the Indo-Pacific region and in North America and the European Union to give the highest priority to the ASEAN countries and India in their foreign investment activities.
In 2021, JERA Asia Co. Inc., Japan’s largest power generation firm, acquired 27 percent of listed Aboitiz Power Corp. for about $1.58 billion. By participating in the Aboitiz Power business, JERA said that it expects to make a positive contribution towards the promotion of clean and renewable energy in the Philippines. This very same decision of a Japanese energy company is being replicated by many foreign investors from Germany, the Netherlands, Spain, Denmark, and other European countries that are very active in investing in solar, wind, and other renewable energy sectors. Some of the largest FDIs that will flow into the Philippines during the BBM Administration and beyond will be in the energy sector, which could possibly include a modular nuclear plant, which MPIC-owned Meralco is already seriously contemplating constructing with the help of U. S. investors. To be continued.