The question lurking behind the Philippines' latest foreign direct investment (FDI) figures is not simply whether the country is failing to attract capital — it is whether the Philippines is failing to prepare for the kind of capital that will shape the next economy.

That is the argument advanced by Diwa C. Guinigundo, former deputy governor of the Bangko Sentral ng Pilipinas (BSP), in a column for BusinessWorld, as global investment flows become increasingly concentrated in strategic sectors.

Risk Versus Readiness

The 2026 Global Atlas of Risk and Readiness (GARR) offers a starting point. The Philippines ranks 68th among 85 jurisdictions on risk, with an overall score of 78.83. More tellingly, it ranks only 64th on readiness, with a score of 6804. GARR characterizes the Philippines as a "higher-risk, higher-potential" market: an economy with considerable opportunity, but one whose governance and structural constraints limit its ability to turn that opportunity into durable competitiveness.

GARR is not an FDI ranking, nor does it claim to explain FDI performance. Its value lies in a broader question: can an economy manage risk while creating the conditions for long-term growth? Its readiness framework weighs governance and institutions, digital and innovation capacity, human capital, economic fundamentals, and environmental and energy resilience, with risk and structural stability given equal weight alongside readiness and market opportunity.

That concept of readiness, Mr. Guinigundo writes, offers a useful lens through which to read the investment numbers.

The Next Wave of Global Capital

What exactly is this "next wave" of global capital? It is capital that increasingly flows into the infrastructure and technologies expected to shape the next economy: semiconductors, artificial intelligence and data infrastructure, digital networks, critical minerals, advanced manufacturing, renewable energy, and other energy-transition technologies.

These are not merely financial placements. They require factories, power, logistics, skilled people, reliable institutions, and long-term policy certainty.

This is why competition for FDI is changing. The question is no longer simply where capital can earn a competitive return today, but where it can build productive capacity for tomorrow. That makes a country's readiness — not merely its market size or labor cost — a far more consequential part of the investment proposition.

Sobering Headline Numbers

The Association of Southeast Asian Nations (ASEAN) attracted a record $243.9 billion in FDI in 2025, 9.7% more than in 2024. Philippine inflows, however, declined from $9.4 billion to $9 billion. Thailand and Malaysia recorded substantial increases, Vietnam edged higher, and Indonesia also declined, though from a considerably larger base.

More telling than the headline flow, the column argues, is greenfield investment — capital committed to creating new productive capacity. Announced greenfield investment in the Philippines fell from $9.2 billion in 2024 to $6.4 billion in 2025, a decline of nearly one-third. Over the same period, Vietnam's greenfield investment increased to $24 billion and Thailand's surged to $17.2 billion.

That figure matters because greenfield investment is where foreign capital most visibly becomes factories, facilities, jobs, supplier networks, technology, and export capacity. It is therefore a better indicator of whether an economy is positioning itself for the next generation of productive activity.

A Nuanced Central Bank Picture

The BSP's own figures add an important qualification. Net FDI inflows fell 17.1%, from $9.398 billion in 2024 to $7.791 billion in 2025, their lowest annual level in five years. But this was not simply a flight from Philippine equity: equity capital and reinvested earnings actually increased. The major decline came from net debt instruments, principally intercompany borrowing and lending. The distinction matters for reading the trend: equity capital and reinvested earnings are the FDI components that fund operations and expansion directly, whereas intercompany debt captures lending between related entities within multinational groups.

The story should not be exaggerated, the analysis cautions. The data do not show foreign investors abandoning the Philippines. They show something more nuanced, and potentially more important: the overall foreign-investment relationship weakened even as the pipeline of new productive capacity deteriorated.

A Concentrating Global Landscape

The numbers become more significant against this changing investment landscape. The 2026 World Investment Report from the United Nations Conference on Trade and Development (UNCTAD) says global FDI recovered by 6% in 2025 to $1.6 trillion, but the recovery was increasingly concentrated. The world's 20 largest host economies accounted for more than 80% of global FDI. More significantly, strategic sectors — including AI infrastructure, semiconductors, critical minerals, advanced technologies, and energy-transition industries — accounted for 44% of global greenfield project value in 2025, up from just 16% in 2020.

This changes the competitive game. Countries are no longer competing simply for capital seeking lower wages or attractive tax incentives. They are competing for investment that demands reliable power, efficient logistics, sophisticated infrastructure, skilled workers, digital capability, credible institutions, and access to global supply chains.

This is where readiness becomes decisive.

Traditional Advantages, Total Costs

The Philippines has many of the attributes investors traditionally value: a large domestic market, a young population, an English-speaking workforce, a substantial services sector, and an established electronics industry. But these advantages are not priced separately. Investors calculate the total cost and risk of operating in the country, weighing market access against infrastructure, electricity, logistics, connectivity, labor productivity, taxation, regulation, legal certainty, and supply-chain linkages.

A country can have relatively inexpensive labor and still be an expensive place to produce.

The Organisation for Economic Co-operation and Development's (OECD) 2026 Economic Survey of the Philippines points to precisely these constraints. Regulatory barriers remain relatively high compared with regional peers. Important liberalization has taken place in telecommunications, transport, renewable energy, and other sectors, but foreign-equity restrictions remain in some areas. Even where sectors are formally open, fragmented permitting, overlapping mandates, and decentralized regulatory requirements can raise costs and uncertainty. Electricity and telecommunications costs, infrastructure gaps, and weak competition in important network industries add to the burden.

The issue, therefore, is not simply that the Philippines is "closed" to foreign investment. It is that the cost of doing business can make other locations more compelling. That is the gap between potential readiness.

Turning Opportunity Into Investable Scale

The Philippines has opportunities. The harder task is building the institutional, physical, and human capacity to make those opportunities investable at scale.

This also explains why FDI matters beyond the investment statistics. Foreign investment is not a substitute for fiscal discipline, nor does weak FDI automatically cause government borrowing. Public debt ultimately reflects fiscal deficits, financing needs, interest rates, and debt-management choices. But productive FDI can strengthen the economy in a way borrowing alone cannot. When foreign investors build new facilities, expand service operations, or establish production platforms, they bring capital and assume commercial risk. They can also bring technology, management expertise, worker training, global-market access, and links to multinational supply chains.

If the investment coming into the country does not generate enough new productive capacity, the consequences eventually extend beyond the investment account: weaker productivity, less export capacity, slower potential growth, and, ultimately, a narrower tax base.

This matters in an economy where fiscal space is already constrained. In 2025, the latest official figures put the Philippines' national government deficit at 5.6% of GDP and national government debt at 63.2% of GDP, with fiscal consolidation expected to be gradual. Infrastructure investment remains essential, but so are disciplined project selection, governance, and cost-benefit analysis.

The point is not that FDI will solve the fiscal problem. It is that productive investment can enlarge the economic base from which the fiscal system ultimately draws its strength.

Readiness as a More Durable Strategy

That is why the response should not be another round of ever-larger incentives, the column argues, nor should the Philippines try to win every investment race. The more durable strategy is to become ready for the investments that matter most.

That means competitive electricity and telecommunications; lower logistics and connectivity costs; simpler and more predictable permitting; greater regulatory consistency; stronger rule of law; better-selected and better-executed infrastructure; stronger human capital; deeper links between foreign investors and domestic suppliers; and a deliberate strategy to position the country in areas where it has credible advantages — from semiconductors and advanced manufacturing to digital infrastructure, energy, and sophisticated services.

The measure of success should not be whether FDI rises from $9 billion to $10 billion. The better questions are: What does each dollar of FDI build? Does it create new productive capacity? Raise productivity? Train workers? Deepen domestic supply chains? Expand exports? Transfer technology? And, critically, make the next investment easier to attract?

The Real Test

The GARR ranking should not be treated as a verdict on the Philippines. No single index can explain FDI performance, and rankings are not destiny. But its distinction between risk and readiness provides a powerful way of interpreting the country's investment challenge.

The Philippines is not short of opportunity. What is scarce is the readiness to convert opportunity into investment, investment into productivity, and productivity into sustained growth.

That distinction becomes more important as global capital becomes more concentrated and strategic. The next wave of investment will not be allocated simply to countries that offer a large market or low labor costs. It will gravitate toward economies capable of supplying the infrastructure, technology, energy, skills, institutions, and policy certainty that sophisticated investment requires.

So perhaps the question is no longer why investors are not coming. The harder question is whether the Philippines is ready for the investments that will shape the next generation of growth. That is the question the GARR ranking puts before the country — and the one the FDI numbers are beginning to answer. On this reading, the figures to watch going forward are not the headline flows but the greenfield pipeline: whether announced commitments to new productive capacity recover relative to regional peers such as Vietnam and Thailand.

Diwa C. Guinigundo is the former deputy governor for the Monetary and Economics Sector of the Bangko Sentral ng Pilipinas (BSP). He served the BSP for 41 years. From 2001 to 2003, he was alternate executive director at the International Monetary Fund in Washington, DC. He is the senior pastor of the Fullness of Christ International Ministries in Mandaluyong.

Source: BusinessWorld