Analyst sees need for bold, deep reforms
Foreign direct investment (FDI) inflows to the Philippines surged 38.5 percent in 2024, but the latest World Investment Report from the United Nations Conference on Trade and Development (UNCTAD) showed the country still lagged behind regional peers in attracting investment inflows into Southeast Asia.
Released Thursday, the world report showed that FDI inflows last year rose to $8.94 billion from $6.45 billion in 2023, accounting for 8.2 percent of the country’s gross fixed capital formation (GFCF). That share of the GFCF was bigger than 6.2 percent in 2023 — suggesting deeper integration of foreign capital into the domestic economy, it said.
Despite this gain, the Philippines attracted only 4 percent of the total FDI into Southeast Asia, which reached $225.26 billion. The country lagged behind regional peers, with Indonesia drawing $24.2 billion and Thailand receiving $10.58 billion in inflows.
In terms of total FDI stock, the Philippines also showed a 5.6 percent increase to $125.53 billion in 2024, equivalent to 27.2 percent of GDP. In comparison, Indonesia and Thailand recorded significantly larger FDI stock levels at $305.67 billion and $336.52 billion, respectively. Southeast Asia’s cumulative FDI stock reached $3.59 trillion last year.
‘Positive development’
John Paolo Rivera, senior research fellow at the Philippine Institute for Development Studies (PIDS), said the increase in FDI inflows is a “welcome and positive development,” particularly given its higher contribution to GFCF. However, he noted that the country still lags regional peers in both inflows and cumulative stock.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., attributed the stronger inflows to the country’s fast-growing economy—one of the most dynamic in Asean and Asia — as well as its favorable demographics and relatively lower long-term interest rates.
He added that the increase may also reflect “realized investment commitments from over two years of investment promotion trips” by the administration of President Ferdinand Marcos Jr.
Drop in greenfield projects
Despite the overall rise in FDI, the value of greenfield investment projects in the Philippines dropped 58 percent to $8.79 billion in 2024 from $21.1 billion in 2023. Greenfield investments refer to new projects built from the ground up by foreign investors.
Cross-border merger and acquisition (M&A) activity also fell sharply, with deals totaling just $571 million in 2024 — a 65 percent drop from $1.65 billion the previous year.
Rivera said these declines point to deeper structural issues, such as regulatory uncertainty, inadequate infrastructure, and ongoing concerns about ease of doing business.
Ricafort echoed the sentiment, citing the need for sustained reforms, including lower electricity costs, improved infrastructure, and reduced business red tape. He also noted that uncertainty over global trade policy — particularly under US President Donald Trump’s return and renewed tariff threats — likely contributed to investor hesitancy.
“President Trump’s higher import tariffs and trade tensions created a wait-and-see stance on global investments, both for new and expansion projects,” Ricafort said.
Urgent reforms
Rivera emphasized that moving from “incremental gains to being an FDI magnet” requires bold reforms: “We need to improve competitiveness, address cost-of-business concerns, and pass key legislation like the 99-year land lease law and amendments to the Build-Operate-Transfer Law.”
He stressed that the country must now “deepen reforms in bureaucracy, infrastructure, education, innovation, and local governance” to sustain and amplify investment-driven growth.
Ricafort said the release of the implementing rules of the CREATE MORE Act early this year could further incentivize foreign investors considering relocation to the Philippines. He also pointed to the potential boost from anticipated cuts in US, global, and domestic policy rates from 2025 to 2027, if inflation remains within target.
Asean still attractive
UNCTAD said Asean remains a top destination for global capital, led by Indonesia, Malaysia, Singapore, Thailand, and Vietnam.
However, global FDI fell by 11 percent in 2024 to $1.5 trillion — marking the second straight year of decline.
“The investment landscape in 2024 was shaped by geopolitical tensions, trade fragmentation, and intensifying industrial policy competition,” UNCTAD said. “These dynamics, combined with elevated financial risks and uncertainty, are redrawing global investment maps and eroding long-term investor confidence.”
The Bangko Sentral ng Pilipinas (BSP) just last week reported net inflows of FDI into the country in the first quarter of 2025 dropped 41.1 percent from a year earlier amid global and local economic headwinds.
FDI net inflows fell to $1.76 billion in the January-March quarter from $2.99 billion a year earlier, BSP data showed.
