What deters foreign direct investments in the Philippines?

I came across this “Investment Climate Statement” of the U.S. Department of State for the Philippines in 2025, and what struck me is this passage that is very disappointing, yet not at all surprising, for anyone who has tried to do business in the Philippines:

“Some U.S. investors describe business registration, customs, and immigration processes as burdensome. Customs processes, in particular, can present challenges and the Embassy has received multiple reports from U.S. businesses of overly invasive searches, inconsistent customs charges, and solicitations of “facilitation fees” (e.g., bribes) from some customs officials.”

Horrible. But again, not surprising. 

This is a reality that most businesses have to deal with in our country. There have been attempts to address it, but, at least as of last year, it’s a pervasive enough issue that the U.S. released a statement on it. 

This is not to amplify negativity, but to point out a “hidden tax” that all businesses have to deal with in the Philippines – corruption.

 

Institutional Weakness Discourage Foreign Investments

This scathing statement came despite a series of major legal reforms in our investment laws passed in 2021 – 2022 that were meant to attract more foreign capital. Among them was  RA11659, or the amendment to the Public Service Act, to allow up to 100% foreign ownership in the previously-restricted industry of “public utilities”, like telecommunications, airlines, railways, etc. 

For the most part, these changes have been seen as positive and are a welcome change to our outdated investment laws. Foreign Direct Investments (FDIs) help fuel economic growth, create jobs, and bring in new technologies and markets – and these are exactly what these reforms are trying to attract. 

However, most foreign investors increasingly cite institutional weaknesses – especially judicial delays and regulatory corruption – as a key deterrent to investing in the Philippines. In the same Investment Climate Statement, the U.S. calls corruption in the Philippines a “pervasive and long-standing problem in both the public and private sector”. 

 

Corruption Issues Deters Foreign Direct Investments

Data shows that investors are wary about doing business in the Philippines in 2025. In the 2025 data released by the Bangko Sentral ng Pilipinas (BSP), FDI inflows fell by 39.83% in October 2025, compared to the same month a year ago. The BusinessMirror called it a “wait-and-see stance amid global trade risks and domestic political developments”. 

With all the changes to our investment laws, you might be wondering why FDIs are still not flowing into the country, and why bring up the issue of corruption in the first place? We all are riled up about the flood control issue from last year, but what does that have to do with FDIs?

Simply put, issues like these reduce investor confidence in the Philippines because they show that our systems and institutions lack the proper safeguards to prevent such irregularities in the first place. In an environment such as ours, waiting becomes safer than investing. And once a better market becomes apparent, of course investors will choose to invest there instead of here.

 

Why Do Business if the Philippines is like this?

Beyond the headlines, there also exist systemic issues in our judiciary and regulatory agencies that further erode investor confidence.

Think about it – the reality of doing business in the Philippines is that you have to deal with local agencies, red tape, and “SOPs”. As a foreigner, do you really want to deal with all of that?

Take a foreign company, for example, that encounters a contract dispute with their local supplier. Their first instinct is of course, to resolve it the “legitimate” way, meaning filing a court case. We all know what that entails – possible years of delay, inconsistent rulings, or even demands for bribes from judicial staff to expedite the case. 

The possible resolution? The company withdraws its investment, citing a lack of confidence in the rule of law. Why go through all that trouble in the first place?

 

Eliminating Corruption Directly Results in Increased Investor Confidence

At its very core, this is another example of an economic effect of corruption that we don’t automatically think about. All the reforms on our foreign investment laws are good and necessary, but that is just the first step.

What is needed is to address the problem at its root – eliminate judicial and regulatory corruption. 

Imagine if we improve our systems for doing business:

  • Simplify business requirements but increase safeguards to lessen the friction that businesses encounter in their daily operations.
  • Make sweeping reforms in our internal revenue system to make sure that the taxes that we pay go to the right places.
  • Create specialized anti-corruption courts to effectively persecute and deter these shady business practices.

At the end of the day, all of these not only directly increase FDIs, but also make it easier for all Filipino businesses as well. 

Easier said than done, of course. But something to think about the next time we encounter these small acts of corruption, and then we rationalize that “it’s just the way business is conducted in the Philippines”. It doesn’t have to be.