Can Philippines turn reforms into gains in Southeast Asia’s Foreign Direct Investment race?
Reforms have thrust the country into the spotlight as it seeks to lure capital away from Vietnam, Malaysia and elsewhere
[Photo caption] Containers and cranes at the international port of Manila last year. Risk analysts have praised the Philippines for its market openness, regulatory strength and labour rights. [Photo: AFP]
By Sam Beltran, Published: 3:00pm, 18 Jul 2026
https://www.scmp.com/week-asia/economics/article/3360978/can-philippines-turn-reforms-gains-southeast-asias-fdi-race?
Not so long ago, the Philippines was bedevilled by warning signs to investors, from its corruption to its groaning infrastructure and a fuel crisis born of a war fought thousands of miles away.
Those problems have not simply disappeared, but a flurry of business-friendly reforms – paired with ambitious plans to upgrade the nation’s railways, ports and power grid – now puts it in a stronger position to capture some of the billions of dollars seeking a home outside the region’s recent supply chain winners, such as Vietnam and Malaysia.
With companies still fleeing Washington’s tariff war on China, Philippine President Ferdinand Marcos Jnr’s government has pushed through new laws on tax, governance and extended land leasing to entice global capital seeking a safe harbour in troubled times.
Meanwhile, its English-speaking population of around 117 million offers a ready labour force for companies considering relocation. Philippine President Ferdinand Marcos Jnr’s government has pushed through new laws to entice global capital.
Taken together, these factors give the Philippines all the hallmarks of a global supply chain “rising star”, according to risk intelligence and data analytics firm Verisk Maplecroft.
“Despite lower infrastructure quality and governance challenges, including recent corruption scandals, the Philippines’ opportunities are knocking in electronics, auto parts and food manufacturing,” the company said in its recent 2026 Supply Chain Risk Outlook report.
It praised the country, alongside Thailand, for their “market openness, regulatory strength and labour rights – structural, slow-moving factors that are critical to manufacturing supply chains”.
Southeast Asia attracted a record US$244 billion in foreign direct investment last year. While regional leader Singapore captured the majority, the remainder was concentrated in Malaysia’s semiconductors, Vietnam’s electronics and communications and Indonesia’s renewable energy.
But Verisk Maplecroft warns that Vietnam and Malaysia are increasingly the subjects of investor concern over shifting global tariffs and complex regulatory compliance risks.
Indonesia, meanwhile, has seen its market openness decline amid what the firm called “rising resource nationalism”, in reference to government proposals to channel strategic exports through a state-owned entity.
While the Philippines trails its neighbours in total FDI, its geopolitical position has opened doors that analysts say could help it climb the global value chain.
These include the Luzon Economic Corridor – a connectivity project with the US and Japan that could inject US$100 billion into the economy by transforming the country’s main island into a manufacturing and logistics hub – and a 1,620-hectare AI hub under the Pax Silica initiative.
Pax Silica is a US-led coalition that aims to secure critical supply chains in artificial intelligence and semiconductors. The Philippines and Singapore are its sole Southeast Asian members.
[Photo caption] A barge is loaded with nickel ore in Pangasinan province, Luzon. The Philippines has the world’s second-largest reserves of nickel. [Photo: AFP]
Beneath the ground lies another prize: an estimated US$1 trillion in mineral wealth, including the world’s second-largest nickel reserves – a resource crucial for EV batteries and coveted by both China and the US.
“The Philippines has been at the receiving end of foreign direct investment from other like-minded or allied countries, as well as from competitors and supply chains for these hi-tech industries that have shown interest in the Luzon Economic Corridor,” said Michael Ricafort, chief economist at the Rizal Commercial Banking Corporation.
Recent laws extending foreign investor lease terms to 99 years and cutting income tax aim to spur further investment.
Climbing the chain
Semiconductors already account for 40 per cent of the Philippines’ exports and industry leaders sense a pivot point approaching.
“The next challenge is to move beyond traditional assembly and test operations towards higher-value activities across the semiconductor value chain,” said Dan Lachica, president of the Semiconductor and Electronics Industries in the Philippines Foundation.
“As countries seek to diversify production and reduce concentration risk, the Philippines could position itself as a trusted and reliable partner within this emerging network.”
Get the Luzon Economic Corridor right and it could “lower the cost of doing business, improve supply chain efficiency and make the Philippines a more attractive destination for high-value manufacturing investments”, he added.
[Photo Caption] Workers monitor an automated assembly line for semiconductors at a factory in Laguna, the Philippines. [Photo: AFP]
The Philippines’ electronics exports hit US$49.64 billion last year, the bulk of which was semiconductors. Yet this pales in comparison when set against Malaysia’s 711 billion ringgit (US$174.3 billion) in exports, a figure projected to top 800 billion ringgit this year as the neighbouring nation pushes into front-end wafer testing and other higher-value work.
Lachica’s foundation has been advocating for a national semiconductor wafer lab to build similar capabilities at home.
What the Philippines lacks in hi-tech infrastructure, it more than makes up for with an abundant labour force that has helped it build the world’s second-largest business process outsourcing industry after India.
“The Philippines’ competitive advantage is at the higher end of the global value chain,” Ricafort said, pointing to industries that required “highly skilled professionals” such as business process outsourcing and emerging hi-tech sectors as possible growth areas.
[Photo Caption] Call centre workers attend to clients at a facility in Quezon City. The Philippines’ business process outsourcing industry is second only to India’s. [Photo: AFP]
Jack Madrid, president and CEO of the IT and Business Process Association of the Philippines, agreed that the country was “well-positioned to support companies that are redesigning their global operations”.
“Our value proposition goes beyond cost. We offer scale, a strong service culture, an English-proficient workforce and growing capabilities in AI-enabled services,” he said.
Yet for all the hype, experts urge caution. The Philippines still has huge infrastructure gaps, a sluggish bureaucracy and a declining skills base, with AI threatening to eliminate hundreds of thousands of back-office jobs.
A government-backed education commission report released in January found that 70 per cent of Filipino children “continue to struggle with foundational skills” by the third grade, with proficiency worsening at every subsequent level.
“That impacts the ability of the country to create a credible workforce for critical and emerging technologies,” said Mark Manantan, a technology researcher at La Trobe University’s Centre for Global Security.
“And if you add artificial intelligence into the mix … it’s already threatening the business process outsourcing.”
Observers warn that the government must anchor its long-term plans on building a resilient economy, rather than one shaped merely to fit the current chaotic global moment through tax incentives that ultimately share little benefit with local communities.
“I have suspicions that the Luzon Economic Corridor alone will not propel the Philippines up the value chain,” said Maria Theresa Anna Robles, an assistant professor of political science at the University of the Philippines Diliman.
“Strategies need to take a more long-term perspective instead of being swayed by geopolitical vacillations. If the policy mix includes strengthening domestic capabilities alongside investment incentives … then that could be a step in the right direction.”
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Sam Beltran is a journalist based in Manila who has written for publications in the Philippines and around Asia. Her stories explore food, lifestyle scenes, popular trends, and sub-cultures as windows into society and the human condition.
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