Corruption still hurting FDI flow

by Catherine N. Pillas, BusinessMirror

Posted at Mar 24 2014 09:23 AM | Updated as of Mar 24 2014 05:23 PM

MANILA, Philippines - Corruption remains a pervasive problem for the business community and has a strong correlation to the low level of foreign direct investments (FDI) that the country is attracting, according to analyst Peter Wallace of the Wallace Business Forum.

“There is no question that there is a link between the amount of corruption in a country and the level of foreign investment that comes in per country. We can’t make a direct comparison but the correlation worldwide is quite close,” said Wallace in a forum on Friday, where he discussed the effects of corruption in business.

Wallace cited the marginal gross domestic product-per capita growth, the indicator of a country’s average wealth, that the Philippines has been experiencing and the paltry levels of FDI inflow of the country compared to its Asean neighbors.

A United Nations Conference on Trade and Development study last year showed that the Philippines remains the laggard in the Asean region in terms of FDI volume, registering $2.797 billion in 2012. Its neighbors’ FDI are significantly higher, with Singapore bagging $56.5 billion, Indonesia $19.85 billion and Malaysia $10.07 billion.

Further, Wallace said the perception of corruption in the Philippines, citing Transparency International’s Corruption Perceptions Index (CPI) in 2013, figures into the decision-making of most investors.

The Philippines’s ranking in the CPI improved by two spots from 34th in 2012 to 36th in 2013. The CPI scores countries from 0, signifying a highly corrupt environment, to 100, referring to a “very clean” system.

Among other factors compounding the issue of corruption in the Philippines, according to Wallace, is the “predictability” facet of corruption—in other countries that may be equally or more corrupt such as Vietnam or Indonesia, if bribery is involved in a transaction, results can be expected; whereas in the Philippines, even with a bribe in place, there is no assurance in the outcome of the deal.

Moreover, Wallace noted that the myriad of government agencies and processes involved in doing business in the Philippines increases the likelihood of corruption.

“After you’re cleared from one agency, you get hit by another. A common complaint from my clients is getting the permits from the local government, which won’t move from the desk if they’re not paid off,” Wallace said.

Although Wallace conceded that the “institutionalized corruption” is near-impossible to solve, legislation such as the Freedom of Information bill, streamlining of the processes in setting up businesses, as well as political developments such as the removal of the pork barrel from lawmakers’ control, are steps in the right direction.

“From the recent Social Weather Station survey, we have seen some improvement in the corruption perception of the President’s administration. But more needs to be done,” Wallace said.