Political Integrity and Investor Confidence in the Philippines

Foreign direct investment (FDI) in the Philippines has stagnated in recent years, with inflows remaining flat at $8.9 billion in 2024 compared to 2023, falling short of the Bangko Sentral ng Pilipinas' (BSP) $9 billion target, according to a 2023 study. This modest growth, while ending a two-year decline, underscores the persistent challenges foreign investors face in a market where corporate governance risks loom large. Political integrity-encompassing corruption, judicial efficiency, and regulatory consistency-has emerged as a critical determinant of investor confidence, shaping the Philippines' ability to compete for capital in Southeast Asia.

Corporate Governance Risks: A Drag on FDI

The Philippines' investment climate is marred by systemic governance risks. Corruption remains deeply entrenched in institutions, from the judiciary to customs administration, fostering an environment of unpredictability, according to GAN Integrity. Bribes for favorable judicial decisions and police extortion are rampant, eroding trust in legal dispute resolution-a key concern for foreign firms seeking enforceable contracts. These issues are compounded by a slow judicial system, where cases can languish for years, deterring long-term investments.

Quantitative analysis reinforces this narrative. The 2023 study found that while regulatory quality positively influenced FDI inflows, metrics like control of corruption and government accountability had no significant impact. This suggests that despite reforms, the Philippines' inability to curb graft and improve transparency continues to offset gains from policy liberalization. For instance, the country's 2021 ranking of 117 out of 180 on Transparency International's Corruption Perceptions Index (CPI) reflects global perceptions of poor governance, according to a U.S. State Department report.

Political Integrity and Regional Competitiveness

The Philippines' governance shortcomings have tangible economic consequences. In 2022, South Korea suspended a proposed infrastructure loan to the Philippines over corruption concerns, sending a signal to other potential partners. Domestically, public outrage over scandals-such as mismanaged flood control projects-has further highlighted the need for reform, as a Philstar article reported. Meanwhile, the country lags behind ASEAN peers in attracting FDI, ranking sixth out of ten in 2020. Infrastructure gaps, high logistics costs, and bureaucratic inefficiencies exacerbate these governance risks, creating a self-reinforcing cycle of low investor confidence.

Yet, the government has introduced measures to address these challenges. The 2021 CREATE Act and its 2024 successor, the CREATE MORE Act, aim to streamline incentives and reduce corporate tax rates, while amendments to the Public Services Act have eased foreign ownership restrictions in sectors like retail and telecommunications. These reforms, coupled with the Retail Trade Liberalization Act, signal a commitment to improving the investment climate. However, their effectiveness is constrained by structural bottlenecks-such as inconsistent enforcement of anti-corruption laws and underfunded judicial systems-that persist beyond legislative changes.

The Path Forward: Governance as a Strategic Investment

To attract sustained FDI, the Philippines must treat governance reform as a strategic investment. The 2023 study emphasized that regulatory quality-defined as the government's ability to implement policies that foster private-sector growth-is a critical enabler of FDI. This requires not only passing laws but also ensuring their rigorous enforcement. For example, while the CREATE MORE Act offers tax holidays and deductions for energy-intensive industries, its success hinges on reducing corruption in customs and procurement processes.

Moreover, international benchmarks suggest that countries perceived as corrupt face higher capital costs. Research has found that FDI inflows are inversely correlated with corruption perception indices, with investors favoring markets where governance risks are minimized. The Philippines' CPI score of 33 out of 100 in 2025-well below regional peers like Singapore (85) and Malaysia (58)-highlights the urgency of improving institutional credibility.

Conclusion

The Philippines stands at a crossroads. While legislative reforms like the CREATE MORE Act have made the country more competitive in tax incentives and foreign ownership rules, they cannot fully offset the drag of weak political integrity. Investors are increasingly sophisticated in their risk assessments, weighing governance metrics as heavily as macroeconomic indicators. For the Philippines to break its cycle of stagnation, it must prioritize not just policy design but also the institutional reforms needed to enforce them. Without addressing corruption and judicial inefficiency, the nation risks remaining a peripheral player in Southeast Asia's FDI landscape-a market with untapped potential but persistent governance headwinds.