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Presentation Outline. FDI policy Investment incentive program FDI trends & distribution by sector FDI performance. FDI policy reforms. Foreign Investment Act 1991. List A. reserved for Filipinos due to Constitutional constraints: mass media, cooperatives, small-scale mining.

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Presentation Outline

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  1. Presentation Outline • FDI policy • Investment incentive program • FDI trends & distribution by sector • FDI performance

  2. FDI policy reforms Foreign Investment Act 1991 List A reserved for Filipinos due to Constitutional constraints: mass media, cooperatives, small-scale mining reserved for Filipinos due to health, defense, & moral reasons; protection of SMEs List B List C areas where adequate number of firms exist to serve the economy

  3. FDI policy reforms Foreign Investment Act 1996 • retail trade liberalization (March 2000) allows 100% FDI with minimum equity US$7.5million • Foreign Bank Liberalization (1994): 10 new foreign banks • rural banking completely closed to FDI • restrictions on licensed professions, pyrotechnics & firecrackers; ceilings on financing, advertising, domestic air transport, commercial deep sea fishing List A List B • restricts to 40% FDI in firms engaged in national security, defense, public health & safety & non-export firms with less than US$200,000 capital

  4. Remaining FDI restrictions • Land ownership - lease for 50 years, renewable once for another 25 years • BOT projects - foreign ownership limited to 40% • Omnibus Investments Code - for incentives linked with export performance, export requirements for foreign firms are higher (70%) than domestic firms (50%)

  5. Tax & other fiscal incentives to FDI FDI Incentive Regimes Subic Bay Metropolitan Administration Clark Development Corporation Board of Investments Philippine Export Processing Zone • 1987 Omnibus Investments Code • 1995 Special Economic • Zone Act • 1972 Export Processing Zone Authority • 1993 Clark Development Corporation • 1992 Bases Conversion & Development Act

  6. FDI Incentives National & local taxes: gross receipts tax, VAT, ad valorem, excise, real property tax Allowable deductions: direct salaries, wages, production supervision salaries, raw materials, supplies & fuels, goods in process, depreciation, rent, utility charges, financing charges

  7. Approved FDI by Agency

  8. FDI Trends

  9. FDI & GDP Growth

  10. FDI as % of GDP Average FDI/GDP 0.54% 1980s 1.21 1990s 1.7 20s

  11. FDI Distribution 50 45 34 32 31 11 15 18 6 0.9 12 8 8 5 3 6 5 1 Food mfg 9% 15% Mfg: electronic components assembly, food, transport, chemicals, petroleum & coal, basic metal Public Utilities: telecommunications

  12. FDI Sources 56 25 21 22 22 15 12 12 5 8 6 6 6 7 5 3 4 5 3 2 0.5

  13. Comparative Performance

  14. Comparative Performance

  15. Competitiveness Indicators:Country Rankings Source: World Economic Forum, Global competitiveness Report, 2003-2004 (102 countries) Macro: macro stability, country credit risk, wastage in government expenditures Public institution: enforcement of contracts & law, degree of competition

  16. Cost of Doing Business Indicators Source: World Bank, World Development Indicators, 2004.

  17. Utility costs Source: MIGA & World Bank, FDI Competitiveness in Asia, 2004.

  18. Real estate costs Source: MIGA & World Bank, FDI Competitiveness in Asia, 2004.

  19. Corporate tax rate Source: The Economist Intelligence Unit (2004)

  20. Tax Incentives:Selected SE Asian Countries Sources for Malaysia, Thailand, Indonesia, & Vietnam: Chalk (2001) & PWH Coopers (2001) as cited in Fletcher (2002)

  21. Tax Incentives:Selected SE Asian Countries (cont’d)

  22. ADB-WB Survey in the Philippines: major constraints to business General Findings (domestic & foreign firms) • Macro instability • Corruption • Electricity • Tax rates Foreign firms • Customs regulations • Telecommunications • Labor regulations • Crime • Labor skills

  23. Broad Conclusions • FDI liberalization & changes in incentive policy crucial in FDI improvements • Competition for FDI resulted in a complex investment incentive system • Overall FDI performance has lagged behind the country’s neighbors • Tax incentives were not able to compensate for the relatively weak fundamentals and poor investment climate

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