Foreign Investment, Duterte Drug War Victim

Unlike poor, defenseless Philippine teenagers, foreign investors have successfully avoided Duterte's Philippines.

Philippine strongman Rodrigo Duterte has elicited international condemnation over his bloody drug war,  whose most visible result are thousands of deaths among poor Filipinos unfortunate enough to live in open areas targeted for anti-drug operations. While primarily a security issue, there are also apparent economic consequences for Duterte's "reign of terror" (as the Catholic Church describes it) being waged on the civilian population as foreign direct investment dries up.

In fact, foreign direct investment [FDI] pledges have fallen for the four consecutive quarters Dutertet has been in power.

Investment pledges made by foreign firms slid 55 percent year-on-year to P18.2 billion in the second quarter, the fourth straight quarter that commitments dropped. In a report Friday, the Philippine Statistics Authority (PSA) said foreign investments approved by seven investment promotion agencies (IPAs) from April to June declined from P40.4 billion in the same three-month period last year.

As of the end of the first six months, IPA-approved foreign investments totaled P41 billion, down 38.4 percent from P66.6 billion a year ago. To recall, foreign investment pledges fell 12.8 percent year-on-year to P22.9 billion in the first quarter. Also, approved foreign investments declined 9.3 percent year-on-year to P125.7 billion in the fourth quarter of last year after commitments dropped by a faster 45 percent to P26.7 billion in the third quarter of 2016. It meant that foreign investors’ pledges decreased in the first four quarters of the Duterte administration.

In brief, what we have here is a political risk issue. Would-be foreign investors fear for their safety in a country where a Korean businessperson has been falsely accused of involvement in the drug trade and killed inside of police headquarters in a kidnap-for-ransom scheme. There's also the problem of possible losses of market access. First, the European Union is evaluating whether to continue preferential trade access to the EU under its Generalized System of Preferences Plus (GSP+). Under GSP+, duty-free rates can be availed if participating countries meet various conventions, of which those concerning human rights are coming under scrutiny:

The Philippines was granted beneficiary country status under the EU-GSP+ in December 2014, allowing the country to export 6,274 eligible products duty-free to the EU market. The alleged cases of extrajudicial killings as part of President Duterte’s drug war, however, has put at risk the country’s GSP+ privileges.

The beneficiary status under the GSP+ necessitates the implementation of the 27 international treaties and conventions on human rights, labor rights, environment and governance. Results of the latest review are expected to come out this year.

Following the EU's lead, others are encouraging fellow democracies to impose economic sanctions on the Philippines to discourage Duterte's violence against his own people. As you would expect, Philippine investment authorities are up in arms:

Trade and Industry Secretary Ramon Lopez on Tuesday hit The New York Times (NYT) for urging the international community, in an editorial, to impose trade sanctions against the Philippines for extrajudicial killings under the Duterte administration's campaign on illegal drugs.

"The editorial by The New York Times last March 24, calling for trade sanctions against the Philippines, is baseless and unfair," Lopez said in a statement. "Any form of trade sanction against the Philippines is uncalled for, unfounded and undeserved," the Trade chief emphasized.

In an editorial, titled "Accountability for Duterte," the American daily urged foreign governments to "hit" President Rodrigo Duterte "where it may hurt the most" – trade – in a bid to hold the Philippine leader accountable over the alleged killings in his "deadly" war on illegal drugs.

It's a cliche to say that businesspersons appreciate the lack of uncertainty, but with Duterte in charge of the Philippines, let's say no one is rushing to make investments in a country that's becoming increasingly isolated due to human rights concerns when there are so many far more predictable places to invest.