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Philippines Aims to Attract Investors Hit by Tariffs in Sino-US Trade War

by Ralph Jennings

   TAIPEI --

   Vietnam has earned a name as the chief haven for multinationals hoping
   to avoid the Sino-U.S. trade dispute of 2018. The Philippines, another
   Southeast Asian country that has pushed to pick up foreign investment,
   aims to follow suit.

   The Philippines boasts young workers skilled in English, quick
   infrastructure upgrades and a tax system overhaul -- though fuel prices
   and periodic political unrest may check progress, people familiar with
   the country say.

   The government approved $17.2 billion in investments, up 47 percent
   over 2017, the Board of Investments announced on December 24. Those
   figures "blew past expectations," the board said.

   "We do have a market, a growing middle class and qualified workers, but
   there are economic and political factors that affect the level of
   confidence among investors, particularly foreign investors," said Maria
   Ela Atienza, political science professor at University of the
   Philippines Diliman.

   Perks in the Philippines

   The Philippines would attract foreign investment in part because of its
   $169 billion infrastructure renewal, Atienza said. The rebuilding is
   set to run through 2022 and get funding partly by money from China and
   Japan.

   "I'm sure the additional financing they've been offered is very helpful
   for them to develop their economy, and the Philippines knows it very
   much needs infrastructure development to become more competitive," said
   Rajiv Biswas, Asia-Pacific chief economist at IHS Markit.

   Though too early to say, new infrastructure might help develop energy
   sources and lower electricity prices that otherwise deter investors,
   the professor said.

   Multinationals also consider the English language ability and other
   skills among workers, she said. Another sought-after skill: training in
   healthcare. Minimum wages for most manufacturers as well as in the
   service sectors will rise to $9.50 per day, on par with some of China's
   lower pay.

   "The workforce is still young, so whatever the needs of the new economy
   will be, the Philippines can provide, given its young workforce," said
   Jonathan Ravelas, chief market strategist with Banco de Oro UniBank in
   Metro.

   A tax reform bill, if implemented in Manila, will lead to an "influx"
   of investment in manufacturing, he said. He was referring to part two
   of the Tax Reform for Acceleration and Inclusion, which would cut
   corporate income tax.

   The Philippine Economic Zone Authority further helps secure investment
   by offering "facilitation," said Carl Baker, director of programs with
   Pacific Forum CSIS in Honolulu.

   China, Japan try it out

   China topped the list of foreign investors in the Philippines in 2018
   with $927 million worth of commitments, up from just $10 million a year
   ago, the government board said. Like multinationals, companies in China
   are looking to other countries as an export base that will not trip
   U.S. tariffs.

   Japanese companies also expressed particular interest in the past year,
   Ravelas said.

   In 2017, Seiko Epson opened a $143 million plant south of Manila. The
   plant will make projectors and inkjet printers. Around the same time,
   Shin-Etsu Magnetic Philippines, which produces magnets for electronic
   devices, opened its eighth plant in the country.

   Foreign investors that produce exports in China face U.S. import
   tariffs on $250 billion worth of goods, one result of a trade dispute
   that consumed the past year. U.S. President Donald Trump regards China
   as an unfair trading partner.

   Philippine officials have been drumming up support for foreign
   investment over the past half-decade as manufacturing costs rise in
   China.

   Deterrents to investment

   Investors have kept away from the Philippines because of its
   archipelagic location -- hard for transport -- limits on foreign
   ownership, and utility rates.

   Electricity prices, a reflection of underlying energy costs, deter some
   investors as they top the rest of Southeast Asia except Singapore at
   $0.11 per kilowatt hour. Government officials are trying to develop new
   energy sources, including renewables, Ravelas noted. Foreign investors
   can own no more than 40% cap of land parcels, Philippine-based
   corporations or public utilities.

   Philippine workers are more likely to be unionized than in other Asian
   countries, Atienza said. They tend to be "more vocal" in demands for
   higher pay compared to other Southeast Asian countries, she added.

   Localized violence that may erupt ahead of midterm elections in May as
   well as the government's struggle against Communist rebels in the
   countryside could put off hopeful investors, she said.

   Among south and Southeast Asian countries, the Philippines will "gain
   the least" from the Sino-U.S. trade dispute, investment bank Natixis
   said in a research report December 4. It cites "expensive" electricity
   and "weak" business infrastructure.

   Vietnam has earned a name through cheap land and labor, government
   openness to foreign investment and a growing list of free trade
   agreements. "There is significant competition from other ASEAN
   countries for attracting investors looking for an alternative to
   China-based manufacturing," Baker said.