Why we need FDI

BSP Governor Eli Remolona Jr., in a Senate hearing last week, cited the need for the country to have more exports to bring in more dollars we need to buy the increasing amount of goods that we now import. Remittances and BPOs are not enough.

This means we need sizable investments in manufacturing products in demand in foreign markets, as Vietnam experienced. But the Governor observed there seems to be dwindling investor interest. Wala na yatang gustong mag invest sa atin.

The Governor said the country’s strong “consumption culture” limits the organic growth of domestic savings, leaving the economy structurally reliant on borrowing to fund major expansions.

No, he was not insulting poor Filipinos who barely have enough to eat and are unable to save, as a leftist economist accused him.

Businessworld explained the economic principle behind the Governor’s observation:

“In the second quarter of 2026, the country’s savings rate — de?ned as gross domestic savings as a percentage of gross domestic product (GDP) — grew 8.6 percent, reaching P643 billion. Meanwhile, the investment rate was 23.2 percent of GDP, or P1.74 trillion, resulting in a P1.1-trillion gap.

“The savings-investment gap (S-I) gap — the difference between gross domestic savings and gross capital formation — shows a country’s ability to ?nance its overall investment needs. An S-I de?cit occurs when a country’s investment expenditures exceed its savings, so the country must borrow money to fund the gap.”

When domestic savings cannot cover localized infrastructure and business investments, a country must rely on foreign capital, foreign direct investments (FDI) or external debt to plug the difference.

But the left says there is enough domestic capital but cornered by the economic elite who would rather invest in safe and protected industries like property, retail and banking. The solution of China and Vietnam is to direct private domestic capital to priority industrial projects which made both countries export success stories.

No, not the Russian Stalinist approach of strict state management of the economy which proved catastrophic. We have taken that path of state-led industrialization during the first Marcos regime. And it failed.

Filipino leftists call for nationalist industrialization or state control, preferably ownership. But China and Vietnam both realized that pure state ownership could not generate the innovation, efficiency or global competitiveness needed to industrialize.

Recall that in 1979, Marcos, Sr. launched a $6-billion state-led initiative to pivot from light, consumer-goods manufacturing toward basic, heavy industries.

This included:

A copper smelter intended to process local raw copper ore into refined copper locally, leading to the creation of the Philippine Associated Smelting and Refining Corp. in Leyte.

Then there is the integrated steel mill planned for Iligan City to establish a fully domestic steel industry covering both upstream and downstream production.

Next is a phosphate fertilizer plant positioned next to the copper smelter in Leyte to convert its chemical waste products into commercial agricultural fertilizers.

The aluminum smelter — planned heavy-metallurgy plant in Mindanao designed to manufacture structural and consumer-grade aluminum.

Diesel engine manufacturing — targeted to mass-produce small and heavy-duty diesel engines for transportation and agricultural machinery.

Petrochemical complex — designed to process crude inputs into basic plastics and synthetic industrial components.

Cement industry expansion — to modernize, scale up and integrate local cement factories to support heavy infrastructure building.

Coco-chemical plant — to process domestic coconut oil into higher-value fatty alcohols and chemical raw materials for global markets.

Integrated pulp and paper mill — a large-scale industrial logging and manufacturing hub intended to make the country self-sufficient in paper and packaging materials.

Heavy engineering industries — focused on the heavy machinery sector featuring massive foundries, fabrication equipment and machine-tool building capabilities.

Alcogas development. An early renewable energy initiative meant to blend sugarcane-derived alcohol with gasoline to decrease reliance on imported crude oil.

All failed due to heavy debt-driven financing, high unaffordable capital needs and rampant crony capitalism.

If the government is incapable, maybe the private sector can?

Directing private domestic capital toward priority industrial sectors, as China and Vietnam did, would have likely yielded a higher GDP growth rate and a stronger manufacturing base for the Philippines.

The problem is, Philippine conglomerates prefer safe domestic rent-seeking investments over risky global competition.

The traditional focus of our economic elite is on non-tradable, domestic sectors such as retail, property development, banking and utilities. They have shown no interest in high-tech manufacturing for export.

None of the top 10 Filipino billionaires manufacture or export the high-tech electronics and consumer tech products that transformed Vietnam into a global export powerhouse.

Building high-tech factories requires immense upfront capital, rapid innovation cycles and navigating cutthroat global competition.

By contrast, sectors like real estate, shopping malls, banking and telecom offer shorter return-on-investment timelines and significantly lower risk profiles compared to global technology manufacturing. It is easier to tap into a captive, consumption-driven domestic market fueled by steady OFW remittances and a BPO-driven middle class.

Because of timid domestic capital, FDI is needed. Besides, domestic capital alone cannot buy the global supply chain networks, proprietary technologies and management systems that multinational corporations bring.

Vietnam aggressively built state-backed industrial hubs and secured heavy FDI to capture the final assembly lines for global consumer brands (like smartphones), boosting record massive export values.

The Philippines specializes in the intermediary step — advanced semiconductor assembly, testing and packaging. Local manufacturing facilities create the microchips that power artificial intelligence and modern cars, but these components are sent to places like Vietnam or China to be integrated into finished electronic products.

Our semiconductor industry accounts for 60 percent of our commodity exports but its local value added is at best, 20 percent. The sector heavily relies on imported raw materials and components.

Of course, we also lack industrial fundamentals: cheap and reliable electricity, efficient ports, predictable logistics and streamlined bureaucracy. Even FDIs hesitate because of these deficiencies.

Indeed, Pax Silica, probably our last near-term chance to break into high-tech manufacturing, won’t happen unless we clean up our governance first.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco