Philippines scores investment pledges, but fading FDI risks missing Asean manufacturing boom

[MANILA] Despite an investment boom on paper, the Philippines’ realised foreign direct investment (FDI) net inflows are plummeting, leaving the country lagging as regional rivals capture a historic multibillion-dollar surge in foreign capital.

Multinationals are rushing to secure state approval for their pledges, which are non-binding, to qualify for perks such as tax holidays. But analysts say that many appear to be holding back on committing capital to deploy projects.

This capital stagnation risks marginalising Manila, while the rest of the region benefits from massive inflows such as the China+1 supply chain windfall.

Paper boom versus cash crunch

The Philippines’ approved foreign investment pledges – proposed projects that have secured government approval but have yet to be realised – rose 52.3 per cent year on year in the first quarter to 42.6 billion pesos (S$884 million) or about US$691 million, data from the Philippine Statistics Authority (PSA) showed. 

South Korea, Singapore and China were the largest sources of these commitments, which favoured leisure over heavy industry.

The arts, entertainment and recreation sector led with an intake of 10.4 billion pesos, followed by the manufacturing sector and the accommodation and food services sector, which attracted nine billion pesos each.

The uptick comes after a sharp decline in the country’s investment pipeline. Approved foreign investment pledges fell 50 per cent to US$4.7 billion in 2025 from US$9.5 billion in 2024, the PSA said.

The disconnect from actual investment flows is rather pronounced. FDI net inflows in the first two months of 2026 plummeted 35 per cent to US$1 billion, from US$1.6 billion in the same period a year prior, data from the country’s central bank showed.

John Paolo Rivera, a senior research fellow at the Philippine Institute for Development Studies, said that tighter global financial conditions, escalating geopolitical risks and intensifying competition in South-east Asia hampered the Philippines’ foreign capital inflows in 2025.

SEE ALSO

Global energy shock tests Philippine lenders’ resilience

What will power growth amid uncertainty? Asean businesses say answer lies close to home: BT survey

Philippine court orders arrest of senator over graft scandal

While the same systemic risks weigh on all Asean economies, the Philippines is most vulnerable due to structural weaknesses.

Unlike Vietnam and Thailand, which have advanced infrastructure attracting manufacturing FDI, an OECD survey of the Philippines revealed that the country faces infrastructure delays along with concerns over public work scandals that have deterred foreign investors.

A heavy dependence on oil imports also makes it more sensitive to geopolitical tensions threatening global supply. As a result, investors are more selective about Philippine exposure than Asean peers that have accelerated reforms and offer more predictable business environments.

Caution among investors ultimately stifled capital deployment, Dr Rivera added.

Interest rising elsewhere in Asean

On the other hand, some of South-east Asia’s manufacturing juggernauts have continued to see a multibillion-dollar FDI boom, with net inflows in the past five years exceeding US$200 billion annually, reaching a record US$226 billion in 2024. Manufacturing FDI rose 150 per cent to US$44 billion that year.

Vietnam and Thailand, in particular, have caught investor interest and grown their FDI net inflows. This comes as they benefit from the China+1 diversification model, in which global corporations launch parallel manufacturing hubs across South-east Asia to hedge their operational exposure and eliminate full dependency on China.

Vietnam’s total realised FDI in 2025 hit a record US$27.6 billion, up 9 per cent year on year. The country remains the leading alternative to China for global assembly in electronics, garments and components. 

Meanwhile, Thailand reported FDI net inflows of US$10.4 billion in 2025, a 42 per cent rise year on year. Contract manufacturing, IT services and digital infrastructure were among its primary drivers of foreign capital inflows.

Chinese automakers BYD, Great Wall Motor, SAIC Motor and Changan Automobile have established electric vehicle production hubs in Thailand to tap the broader Asean market and benefit from the country’s 30@30 policy, which mandates that zero-emission vehicles comprise at least 30 per cent of total domestic auto production by 2030.

Shrinking inflows

In contrast, the Philippines’ FDI net inflows fell 17.1 per cent to US$7.8 billion in 2025, from US$9.4 billion the year before. The contraction marked the country’s lowest capital intake since the Covid-19 pandemic.

Despite the region’s manufacturing boom, the Philippines has failed to sustain its own FDI momentum in this high-multiplier segment.

The country’s manufacturing sector received the highest net equity placement at US$729.4 million in 2025, commanding a 55 per cent share, but this was a sharp 40.3 per cent decline from 2024.

This underperformance coincides with weakening investor confidence. Dr Rivera said that a sharp decline in FDI net inflows suggests foreign firms are “becoming more cautious about lending additional funds to their local units, possibly due to slower project roll-out, weaker growth prospects or high global interest rates".

As Thailand and Vietnam rose to the sixth and 16th spots, respectively, on the 2026 Kearney FDI confidence index – which features the most attractive markets for foreign investors – the Philippines tumbled two spots to place 18th out of 25 emerging markets.

This was its third consecutive annual decline in the ranking of international investor sentiment.

Only 12 per cent of senior executives surveyed by management consulting firm Kearney see the Philippines’ infrastructure quality as a competitive advantage.

Beyond paper promises

For the Marcos administration, the decline in realised capital threatens to stunt the Philippines’ medium-term growth. 

Secretary of the Department of Economy, Planning, and Development Arsenio Balisacan warned that paper promises will not sustain the momentum of the domestic economy.

“Without bold action on infrastructure, ease of doing business and FDI, we risk settling for a 5 to 6 per cent growth ceiling instead of breaking past 7 per cent,” he said.

Affirming the Philippines’ “BBB+” investment rating, S&P Global Ratings said that it expects the country’s FDI to remain steady, with regulatory reforms preserving capital baseline stability despite a widening current account deficit stoked by elevated energy prices and geopolitical friction in the Middle East.

One such reform, the Create More Act, lowers the corporate income tax of qualified businesses from 25 to 20 per cent to match Vietnam’s tax rate. S&P Global said that the Act, taken together with other recent reforms, “should support FDI over the next two to three years”.

Meanwhile, amendments to the Public Service Act dismantle decades-old protectionist policies by permitting foreign investors to own critical public services such as telecommunications, power generation and transportation.

Renewable energy sectors such as solar and wind, for example, now allow 100 per cent foreign ownership.

Other market observers maintain a sanguine outlook for the remainder of the year.

Robert Dan Roces, group economist at SM Investments, said: “While the Iran conflict adds uncertainty through higher oil prices and market volatility, we still expect FDI to gradually recover in 2026, particularly in manufacturing, renewable energy and logistics.”

Supply chain diversification will continue as global financial conditions ease, he added.