Getting Ready for the ASEAN Economic Community 2015: Philippine Investment Liberalization and Facilitation

The paper examines the state of investment liberalization and facilitation in the Philippines and suggests policy measures to enable the country to comply with its ASEAN Economic Community commitments. Based on interviews and surveys, the results indicated that investment incentives, low tax rates and time/cost of starting a business are critical factors affecting firms` decision to invest in the Philippines. The respondents noted significant improvements in political stability and level of corruption. A great majority of the firms also indicated future expansion of their operations and the ASEAN market as a significant factor in their investment decision.In evaluating the quality, servicing, policy, and strategy of investment promotion agencies (IPAs), the Philippines obtained a quite respectable score of 71 percent. The firms rated government agencies` investment facilitation and promotion activities as satisfactory. They cited bureaucracy and slow processing of permits as most problematic issues affecting their operations. They also pointed out the lack of transparency in guidelines and procedures, corruption, and the nonuniformity of investment incentives given by the major IPAs. Meanwhile, according to IPAs, the most problematic procedures that investors face in establishing business are permits from local government units (LGUs), environmental compliance certificate from the DENR-Mines and Geosciences Bureau, and visa from the Bureau of Immigration.To reduce the gap between policy and implementation and boost the country`s competitiveness, the paper suggests the unification and centralization of the investment promotion and facilitation efforts by all IPAs under one agency. It is also necessary to strengthen the current efforts of the Philippine Investment Promotion Plan (PIPP) interagency committee to coordinate the various IPAs` actions and plans. To improve the operational environment and investment climate, IPAs should closely collaborate with national agencies and LGUs particularly in the automation and streamlining of business procedures. Currently, the DTI and the DILG are intensifying their efforts to improve the business permit and licensing system. PEZA`s experience in effectively streamlining its procedures is also worth emulating.To face the challenges and take advantage of the opportunities arising from AEC 2015, the reforms suggested above must be accompanied by substantial increases in infrastructure investment particularly in power and logistics to reduce the cost of doing business in the country. Modern and efficient air, land, and sea infrastructure should be built fast enough. A comprehensive review of the constitutional limitations on foreign equity particularly the 60-40 rule should also be pursued.