Why investor protection is a national competitiveness issue

When discussions about national competitiveness arise, the conversation usually revolves around infrastructure, taxes, power costs, or ease of doing business. These are all important. Yet one critical factor receives far less attention: investor protection.

It may appear to be a niche concern, relevant only to lawyers or regulators. In reality, it is a fundamental economic issue. Countries that protect investors well attract more capital, develop deeper financial markets, and build stronger economies. Countries that fail to do so struggle with weak capital formation and persistent distrust in institutions.

Trust is ultimately the currency of capital markets.

The FDI gap Is real and measurable

Despite a 38.5 percent surge in foreign direct investment inflows in 2024, reaching $8.94 billion, the Philippines ranked sixth among ASEAN economies in total FDI received, according to UNCTAD’s World Investment Report 2025. Vietnam disbursed $25.35 billion. Indonesia drew $24.2 billion. Thailand received $10.58 billion. The Philippines attracted only four percent of the total FDI flowing into Southeast Asia that year. In cumulative FDI stock, the gap is starker still: Indonesia holds $305.67 billion and Thailand $336.52 billion, against the Philippines’ $125.53 billion, equivalent to just 27.2 percent of GDP.

The headline growth figure looks encouraging. The structural reality does not. Capital does not merely flow toward growth. It flows toward confidence. Across ASEAN, the Philippines consistently receives a smaller share of that confidence than its demographics and legal framework would seem to warrant.

The domestic picture reinforces this. Despite a population exceeding 110 million, the Philippines had only 2.86 million stock market accounts as of end-2024, approximately 2.5 percent of the population. Retail investors contribute only 16 percent of total value turnover on the Philippine Stock Exchange, while a handful of institutional players drive roughly 80 percent of trading volume. Compare this to Indonesia at 32 percent retail participation, Thailand at 28.9 percent and Malaysia at 19.5 percent.

Concentrated capital markets reinforce concentrated economic power. This problem is not merely educational. It is institutional.

The governance gap in the numbers

The 2025 IMD World Competitiveness Yearbook placed the Philippines 51st out of 69 economies, last among the five ASEAN economies included. We were behind Malaysia (23rd), Thailand (30th) and Indonesia (40th). The Philippines ranked 33rd in economic performance, one of its stronger indicators. What pulls the country down are precisely the institutional and governance dimensions: the government efficiency pillar declined, with sub-factors covering institutional framework and business legislation ranking well behind regional peers. Tax policy remains one of the few genuine bright spots within governance.

The World Bank’s 2025 B-READY Report confirms the pattern and sharpens it. The Philippines ranked 26th out of 101 economies in the regulatory framework pillar, with a score of 73.86, reflecting genuine legislative progress. But in operational efficiency, or the measure of how well those frameworks actually function in practice, the Philippines ranked 80th out of 101, with a score of 51.45. That is worse, not better, than its operational efficiency score of 57.95 in the inaugural report. In a nutshell, the Philippines writes good rules but struggles to make them work consistently on the ground.

Red tape is an investor protection issue

Ease-of-doing-business reforms are too often framed as administrative housekeeping. They are investor protection by another name.

When procedures are opaque or burdensome, the cost falls disproportionately on smaller actors. Large conglomerates navigate regulatory complexity with compliance teams which startups, MSMEs and retail investors cannot often afford. Excessive bureaucracy functions as a subsidy to incumbents and a tax on challengers, quietly reinforcing the market concentration that suppresses broad investor participation.

As of 2024, only 112 local government units had complied with the requirement to implement an electronic business one-stop shop. We have 1,483 cities and municipalities nationwide. That translated to only 7.6 percent of LGUs complying with an eBOSS.

An investor evaluating a regional expansion does not experience the regulatory framework at the national policy level. They experience it at the LGU window, at the permit queue. That is where institutional credibility is built or lost.

Reforms: Necessary but insufficient

The Capital Markets Efficiency Promotion Act of 2025 is a meaningful step. CMEPA reduces the stock transaction tax from 0.6 to 0.1 percent and simplifies taxation of passive income, beginning to close the cost gap with regional peers. It is long overdue.

Tax reform is great. It reduces friction. However, it does not necessarily build trust. The harder work of strengthening enforcement consistency, improving disclosure standards, protecting minority shareholders from related-party transaction abuse, and extending protection into digital markets remains ahead. Online trading accounts jumped by 62 percent in 2024 to 2.47 million. A growing share of Filipinos now invest through digital platforms where frameworks built for floor trading offer inadequate coverage.

Some argue that stricter governance deters investment. The evidence says otherwise. Sophisticated investors prefer well-governed markets because governance reduces the uncertainty premium they demand. What deters investment is not governance. It is unpredictability. A market where rules are strong but selectively enforced is more dangerous to capital than one where rules are modest but reliably applied.

The opportunity

The Philippines is not starting from zero. The B-READY regulatory framework score of 73.86 reflects genuine reform. CMEPA is a real achievement. The SEC, ARTA and the PSE have improving mandates and capabilities.

But the returns on further progress are large precisely because the gap between design and delivery remains wide. Vietnam disbursed $25.35 billion in FDI in 2024, nearly three times what the Philippines attracted. Indonesia deepens its capital markets while running large-scale industrial policy. Singapore has differentiated itself on institutional quality for 50 years.

The Philippines can compete, but only by recognizing that investor protection is not a downstream concern, something to be addressed after growth is achieved. It is an input to growth. It is, in the most practical sense, a national development strategy.

Investors do not invest only in companies. They invest in systems, in governance, in predictability.

And above all, they invest in trust.

Ira Paulo Pozon is senior partner at Pozon Recto Petrache and Laiz Law Offices and Chair of the Ease of Doing Business Committee at the Management Association of the Philippines and a fellow of the Institute of Corporate Directors. He holds an MBA (DLSU), JD (FEU), and LLM (University of Nottingham), and has been a fellow at the Asia Global Institute (University of Hong Kong) and the Lee Kuan Yew School of Public Policy (National University of Singapore). He was a Chevening UK Government Scholar, Confucius Institute Scholar, and alumnus of the US State Department’s International Visitor Leadership Program (IVLP). He is a newly inducted member of the Shareholders’ Association of the Philippines (SharePHIL). [email protected] To learn more about SharePHIL, visit https://sharephil.org