The Philippines’ investment grade does not guarantee foreign direct investments (FDI)

The Philippines gained its  first investment grade from Fitch, an international credit rating agency.

The Philippines gained its first investment grade from Fitch, an international credit rating agency.

The Fitch, an international credit rating agency, upgraded the Philippines’ Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘BBB-‘ from ‘BB+’. The Long-Term Local-Currency IDR has been upgraded to ‘BBB’ from ‘BBB-‘. The Outlooks on both ratings are Stable.

The agency has also upgraded the Country Ceiling to ‘BBB’ from ‘BBB-‘ and the Short-Term Foreign-Currency IDR to ‘F3’ from ‘B’.

The significance of upgrading the credit rating of the Philippines by the Fitch to an investment grade is that the cost of obtaining credit by the government and the private businesses from the international financial market would decrease as they would perceive that our country’s finances are stable to caution for any external or internal shockwaves that may hit our economy. It means that more opportunity for the government and the private businesses to borrow money to invest in our economy, no matter it is for real job generation or speculative purposes.

In the eyes of some foreign investors who are not really knowledgeable the culture of doing business in our country, they would perceived that the Philippines is open and stable to do their business even though it is not.

I glad that the Philippines obtained its investment grade by the Fitch due to our government especially during the previous Gloria Macapagal-Arroyo’s government, who sacrificed herself to push her initiatives to balance our government finances and assuring private investors to invest in our economy despite of several attempts by FPGMA’s opponent to topple her from the president back then and the Subprime financial crisis that affected the economic development during the sunset of her administration. Fortunately for the current president, Benigno Aquino III, he continued what her predecessor had done by maintaining the fiscal soundness of our government and stability in our economy despite of the weak global economy.

However, the investment grade given to us from the Fitch does not assure that bulks of foreign direct investments needed for our long-term economic development will come to our country, whether short-term or long-term, as our government has not yet addressed the pressing concerns of easing the cost of doing business for foreign investors to do their business for massive job generation like constitutional 60/40 foreign ownership restrictions of setting-up enterprise, unnecessary fees and permits needed to comply by a foreign investor, red-tape in the government, and many others.

Foreign individuals or multinational corporations will not easily affirmed the notion that our country’s recent investment grade  means that their investments are safe from the barriers I stated above as these investors who wants to pour their capital in infrastructure, manufacturing, mining, oil and gas extraction, agriculture, transportation, and tourism will not going to waste their time and especially money to follow or circumvent our stringent regulations of doing business and instead, they would rather invest their bulks of capital to countries with liberal investment regulations like Vietnam, Indonesia, Thailand, Malaysia, Singapore, Cambodia, or even Myanmar, which these countries could give a better assurance for their investment to realize than us. Only those who are in the speculative portfolio investment industry will pour their capital in our country which in nature, for short-term and does not generate bulks of employment opportunities for millions of Filipinos who are unemployed or underemployed.

Therefore, we have to be cautious and realistic that investment grade does not give an assurance that our country has a better environment for businesses and jobs to flourish. Once the government addresses political constricts on doing business, this would be the time that foreign direct investments will pour in our country for our economic development.

Georgia’s economic transformation and the Philippines should learn from them

Georgia is a small country in Caucasus region, sandwiched by giant neighboring countries of Russia and Turkey.

Yesterday, I read an article through the Business Insider website written by Simon Black of Sovereign Man featuring the economic miracle of Georgia, a small country with historical significance, sandwiched by giant neighboring countries of Russia and Turkey.

That article states the economic reforms done by the recent government of Georgia led by Mikheil Saakashvili like easing the cost-of-doing business to the level of developed countries, implementing flexible labor laws that made hiring and firing employees easier, cutting the tax rates to the level of most competitive countries like Singapore, and many others.

Free-market economic reforms makes Georgia among one of the most competitive countries not just in Caucasus but for the entire post-Soviet countries. Free-market economic reforms encourages foreign investors to invest in Georgia without much risks of red tapping and other constricts which stimulates economic growth there as more Georgians have an option for employment at home and improves the infrastructure which is vital for Georgia to go forward in the years to come.

Georgia’s economic reform should be the inspiration among the leaders of the Philippines to enact a necessary economic reforms in order to alleviate the poverty problem like more employment opportunities at home, to become more economically competitive with the rest of the world, to improve our vital economic infrastructure, and to reduce the endemic problem of corruption at all levels in our society.

The Philippines has no reason not to reform economically as our country has enough natural and human resources to use in order to compete with the rest of the world in economic terms. The problem on why our country is not competitive economically is because of our protectionist laws (stipulated to our constitution) that constricts further economic growth like limiting potential foreign investors to invest to only 40% in establishing or acquiring a firm in contrast in other countries where foreign investors are allowed to invest 100% from their own capital without a necessity of a local partner to tap 60% or something unlike here, inflexible labor laws that limits further job creation like prohibiting foreign citizens to practice their respective professions and difficulty to fire inefficient employees, rampant red tape and corruption in the government workplace which further rises the cost-of-doing businesses here in our country especially among foreign investors, outdated infrastructure and educational system that needs further investment. These constricts should be going to address by our leaders if we want to have an economy that is a prosperous, a competitive, and a sustainable in relative with the rest of the world.