Philippines: Liberalisation Welcomed, Digital Infrastructure To Benefit

Key View

• The government’s decision to remove the cap on foreign ownership in several industries including telecoms will improve the appetite for foreign direct investment in the Philippines.
• The country has a highly conducive environment for technological uptake but is held back by nascent digital infrastructure. Increased foreign investment in the telecoms and tech sectors will serve the growth of such assets, particularly terrestrial fibre networks where coverage is particularly limited.
• Downside risks to foreign investment and improvements to fixed networks include the Philippines’ proximity to escalating tensions between China and Taiwan, as well as the appeal of mobile broadband.

The Philippines’ Senate has passed legislation that will allow full foreign ownership across several industries, including telecoms. Currently foreign ownership of public utilities is capped at 40% to protect domestic industry. Amendments to the Constitutional legislation will see sectors like telecoms and transport reclassified as ‘public services’, making them exempt from the 60:40 rule.

The government aims to make the Philippines a more attractive country for foreign direct investment (FDI): recently the Central Bank reported that net foreign investment had fallen for the third consecutive year in 2020, down nearly 25%. The Philippines will become the latest country in Asia to pursue liberalisation of FDI regulations, with China, India and Vietnam among others having also committed to market openness.

In our Asia-Pacific (APAC) Digital Maturity Index, the Philippines is largely held back by underdeveloped digital infrastructure though scores are low in all four categories, surprising for such a large market with a growing young, tech-savvy population. Liberalising the environment for foreign investors is likely to encourage greater investment into maturing the country’s digital infrastructure, a requirement for tech-players looking to successfully capitalise on the Philippines’ conducive demographics.