Hermes Morgavi
Cyrille Schwellnus
OECD Economic Surveys: Philippines 2026
Abstract
Productivity growth in the Philippines has been robust over the past 15 years, especially prior to the pandemic. However, to reach its 2040 income per capita target, productivity growth needs to accelerate by around three-quarters of a percentage point above the pre-pandemic average. Achieving this will require wide-ranging structural reforms to foster stronger competition. Key priorities include opening network industries by separating infrastructure ownership from service provision and ensuring fair access pricing. Attracting more foreign direct investment will also be critical, including by simplifying permitting processes at the local level and consolidating them in a single national-level window. Finally, the Philippines could capitalise on shifting global supply chains by streamlining customs procedures and concluding trade agreements with comprehensive services provisions.
Over the past 15 years, the Philippine economy has benefited from rapid growth in the working-age population and robust labour productivity growth. Since 2011, average annual labour productivity growth has been around 2%, with employment growth contributing another 2.7 percentage points to annual GDP growth (Figure 2.1, Panel A). This is an improvement with respect to previous decades and broadly in line with productivity growth in economies such as Malaysia and Thailand. However, top emerging-market performers, such as India and Viet Nam, have seen even stronger productivity growth. Moreover, productivity growth has mainly relied on capital accumulation rather than technological progress, as measured by total factor productivity growth (Figure 2.1, Panel B).
Note: Labour productivity is measured as GDP in 2021 USD PPP per worker. Calculations for the year up to 2019 are based on Penn World Table 10. For the years 2020-23, it is assumed that: employment, gross capital formation, and real GDP grow at the same pace as recorded in the national accounts or in OECD Economic Outlook data, capital is computed as , where the rate of depreciation (𝛿) comes from the Penn World Table until 2019. From 2020 onward, it is assumed to remain constant at the level observed in 2019. Investment is estimated based on the Penn World Table data for capital and depreciation until 2019 and, thereafter, is assumed to grow at the same pace as in the national accounts or in OECD Economic Outlook data.
Source: OECD calculations based on Penn World Table 10.1; OECD Economic Outlook database; Philippine Statistics Authority; Singapore Department of Statistics; Malaysia Department of Statistics; World Bank Development Indicators database; CEIC.
To some extent, lower productivity growth compared with regional peers over the past 15 years reflects the sharp pandemic-related downturn in 2020-21. In the years before the pandemic, productivity grew by an annual average of around 4%. During the COVID-19 pandemic, the Philippines implemented some of the most stringent and prolonged containment measures in Southeast Asia, and its services-based economy was hit harder than most of its regional peers (Chapter 1). In addition, during the health emergency there was a significant shift of labour from higher-productivity jobs, such as manufacturing, to lower-productivity sectors, such as agriculture and low value-added services. The economy rebounded in the subsequent two years, but productivity growth only returned to pre-crisis rates in 2024.
Sectoral productivity growth in the Philippines is comparable to the regional medians but remains well below Southeast Asia’s best-performers, especially in services. The services sector is a significant component of the Philippine economy, accounting for about 63% of GDP in 2024. Within this sector, information and communication and financial and insurance activities have been notable drivers of growth. However, overall services sector productivity growth has been modest since the sector remains dominated by low-value-added activities, with a very high share of retail and wholesale trade relative to regional peers such as India and Viet Nam, which as has limited scope for broader productivity enhancements. Over 2011–22, labour productivity in the service sector in the Philippines increased by 2.2% per year, compared to 3.4% in Viet Nam and 4.3% in India.
Labour and capital reallocation across sectors can boost productivity and accelerate economic convergence. Compared to regional peers, the Philippines has been slower in shifting labour from agriculture and traditional services towards manufacturing and high-value services. This has contributed to low productivity growth, as a significant share of workers remain concentrated in sectors with limited potential for wage increases and efficiency gains. As of 2024, about one-fifth of the employed population was working in the agricultural sector. In contrast, the manufacturing sector accounts for just around 7% of employment, substantially below the share in and Malaysia (17%), Viet Nam (23%), and Thailand (26%). By reallocating labour away from low-productivity sectors and expanding employment in manufacturing and high-value services, the Philippines can achieve substantial additional productivity gains. In the years 2011-22, the between-sector component of productivity growth was a modest 0.5 percentage points, compared with 1.3 percentage points in Thailand and 2.0 percentage points in Viet Nam (Figure 2.2).
Shift-share decomposition of productivity growth, 2011-22
Note: Labour productivity is measured as real GDP per worker. The difference in overall labour productivity growth compared with Figure 2.1 reflects the difference in period coverage, with GDP per worker declining by 3.7% in 2023.
Source: OECD calculations based on Penn World Table 10.1, OECD Economic Outlook database; Philippine Statistics Authority; Singapore Department of Statistics; Malaysia department of statistics; World Bank Development Indicators database; CEIC.
The Philippines defined its long-term vision (AmBisyon Natin 2040) in 2016 to guide development planning over a 25-year horizon. The plan includes the ambitious objective of approximately tripling per capita income relative to 2015 by 2040. Reaching this ambitious objective would require more than doubling income per capita over 2025-2040, implying average GDP growth of about 6% over 2025-40, well above the 2011-24 average of 4.8% but around the pre-pandemic average. However, the contribution of population growth to GDP growth is expected to decline from 2% over 2011-19 to 0.8% over 2025-40 as the demographic dividend gradually declines (Figure 2.3). In order to achieve the 2040 income per capita objective, productivity growth will have to rise from 4.5% in the pre-pandemic period to 5.2% over 2025-40 (Figure 2.3). This is not out of reach but requires an ambitious package of productivity-enhancing structural reforms.
Implied real GDP growth rate decomposition
Note: Labour productivity is measured as real GDP per worker. The data from World Population Prospects 2024, medium variant, were used for projected population growth. For the computation of the productivity contribution for the period 2025-40, a constant employment rate for the population aged 15-64 was assumed.
Source: OECD calculations based on Philippine Statistics Authority and United Nations World Population Prospects 2024.
This chapter will analyse challenges and reforms that could unleash stronger productivity growth through enhanced competition, greater integration with global markets, and improved public governance. Enhancing competition in network industries — especially electricity and telecommunications — is a precondition for rapid digitalisation and can lower input costs and enhance productivity in downstream sectors, including manufacturing (Arnold, Javorcik and Mattoo, 2011). At the same time, easing restrictions on trade and foreign direct investment strengthens incentives for multinational firms to establish or relocate production locally. Strong public governance further supports the business environment by reinforcing trust, reducing transaction costs and ensuring regulatory predictability. OECD model simulations suggest that the structural reforms proposed in these areas could raise average annual productivity growth by 1.2 percentage points. This would raise productivity growth from its pre-pandemic average of 4.2% to a level of 5.4% (Table 2.1) and allow the Philippines to reach real GDP growth of 6.4% despite declining population growth. Complementary reforms to enhance human capital (Chapter 1) and raise productivity and resilience of agriculture (Chapter 4) could bring further gains.
Long-term impact on potential growth, in percentage points
Note: Product market regulation is measured by the OECD PMR indicators (Terrero-Dávila, Vitale and Danitz, 2023), which is aligned with the top third of OECD countries in the simulation. Global economic integration is measured using the “economic globalisation” sub-index of the composite globalisation index of the Swiss KOF Institute (Gygli et al., 2019), which is aligned with the OECD average in the simulation. Public governance is measured by the rule of law indicator of the World Bank Worldwide Governance Indicators (Kaufmann, Kraay and Mastruzzi, 2010), which is aligned with the average of the bottom half of OECD countries.
Source: Simulations based on the OECD Long-Term Model l (Guillemette and Château, 2023).
2.2.1. Barriers to competition remain high in some areas of the economy
Strong competition promotes cost efficiency, stimulates innovation, and sustains long-term productivity growth. The OECD Product Market Regulation (PMR) indicators – that measure how regulations support or hinder competition across key sectors of the economy – suggest that barriers to competition in the Philippines are significantly higher than the OECD average but around the level of other emerging market economies, such as Indonesia and Thailand (Figure 2.4).
PMR indicator, index scale of 0-6 from least to most restrictive, latest year available
Note: Information used to calculate the 2023-24 PMR indicators is based on laws and regulations in place on 1 January 2023 or a later year depending on when the information was provided by the relevant country (1 January 2022 the Philippines; 1 January 2024 Hungary, the Netherlands, United States, Bulgaria, China, Indonesia, Peru, Romania; and 1 January 2025 Argentina, Thailand)
Source: OECD WBG 2023-24 PMR database.
High barriers in network industries and trade and investment regulations are key factors behind the Philippines’ weak product market regulation performance (Figure 2.5). Although recent reforms have strengthened competition and streamlined regulatory procedures (Box 2.1), structural challenges remain across several dimensions and in sectors such as electricity, telecommunications, and transport. In these sectors, ownership of infrastructure is not fully separated from service provision, which creates conflicts of interest, weak transparency, and limited incentives for third-party access. Foreign equity restrictions persist in many services sectors, despite recent liberalisation under the amended Public Service Act. Obtaining local permits remains burdensome, with fragmented requirements across municipalities and overlapping agency jurisdictions, causing delays and added costs. These regulatory and institutional rigidities reduce investors’ ability to scale up their operations, they impair integration into global value chains and discourage the reallocation of production to the Philippines (Chapter 1).
PMR indicator, index scale of 0-6 from least to most restrictive, latest year available
Note: Information used to calculate the 2023-24 PMR indicators is based on laws and regulations in place on 1 January 2023 or a later year depending on when the information was provided by the relevant country (1 January 2022 the Philippines; 1 January 2024 Hungary, the Netherlands, United States, Bulgaria, China, Indonesia, Peru, Romania; and 1 January 2025 Argentina, Thailand)
Source: OECD WBG 2023-24 PMR database.
Pro-competition reforms have been focused on reducing red tape, modernising the regulatory framework, and easing foreign investment.
Several reforms have simplified administrative procedures by streamlining business licensing, introducing single-window processes, mandating time limits for application processing, and digitalising licence submissions. These simplification measures aimed to reduce red tape, improve service delivery, and lower regulatory burdens. The Anti-Red Tape Authority (ARTA) was established in 2018. “Green Lanes” and a One-Stop Action Center for Strategic Investments, providing a single point of entry and strict turnaround times for administrative procedures related to projects classified as strategic investments, were created in 2023.
The creation of the Philippine Competition Commission (PCC) in 2016 as an independent quasi-judicial agency marked a significant institutional development. The PCC has since taken important steps to assert its role, including merger reviews, investigations of potential cartels, and competition advocacy, particularly in the telecommunications, transport, energy, and agriculture sectors. Competition principles have been integrated into policymaking through the mandatory use of Regulatory Impact Assessments (RIAs) by all government agencies, with the PCC having issued guidelines that have been embedded in training programmes for civil servants. Government agencies are required to integrate competition impact assessments as part of the RIAs, assessing the potential effects of new regulations on market competition, thus helping to prevent rules that create unnecessary barriers to entry or reinforce market power. The recent enactment of the Internet Transactions Act has established a framework for fair digital competition, protecting consumers while encouraging e-commerce and cross-border investment.
The Public Service Act amendments (2022) redefined public utilities, enabling full foreign ownership in sectors such as telecommunications and maritime transport. Renewable energy was fully opened to foreign ownership through a separate regulation in 2022, and the 2021 Retail Trade Liberalisation Act eased restrictions on foreign retailers. This has reduced barriers to foreign capital inflows, potentially boosting investment and strengthening competitive pressure for incumbents in previously closed sectors. Additionally, the Foreign Investment Act (2022) further eased entry by lowering minimum capital requirements and allowing full ownership in select domestic enterprises.
2.2.2. Strengthening competition in network sectors
Electricity
The Philippine electricity sector is partially unbundled, but electricity is perceived as a key constraint on doing business (Figure 2.6), due to high prices (Chapter 1) and recurrent outages. Electricity generation is open to local and foreign investors, and generation companies are allowed to compete freely by selling electricity through bilateral Power Supply Agreements (PSAs) with distribution utilities and large end-users, or on the Wholesale Electricity Spot Market (WESM). Long-distance transmission remains a nationwide monopoly under a 25-year concession to the private National Grid Corporation of the Philippines (NGCP), with a government-owned company (TransCo) retaining asset ownership. The local distribution segment consists of regulated local monopolies that control both the procurement of generation contracts and retail supply to customers. To operate, distributors must obtain a 25-year legislative franchise. Retail supply is only partially unbundled, with large commercial and industrial users able to choose their supplier, while households remain captive to distributors as monopolistic suppliers.
Percent of firms indicating electricity as their biggest obstacle
Source: World Bank enterprise survey database.
While unbundling generation and retail from natural monopoly segments – transmission and distribution – is a necessary step for effective competition, it is not sufficient. One issue is that, due to the archipelagic nature of the country, many islands lack interconnection, so generators — particularly electric cooperatives in smaller Philippine islands — operate as local monopolies due to their isolated grids. This means that they face no competition and cannot participate in the wholesale electricity market, which currently operates only in the large Luzon and Visayas islands. Significant progress in interconnection has recently been made, with a number of islands, including southern Mindanao, connected to the national grid. Apart from strengthening the potential for competition, these advances enhance grid resilience and enable cross‑region power sharing. However, numerous smaller islands remain disconnected, excluding their generators from participation in the wholesale market. Expanding interconnection between the larger islands would allow the integration of more generators – including renewable energy plants – into the wholesale electricity market, foster competition, and reduce prices. The experience with Nord Pool, the integrated Nordic-Baltic power market that links multiple national grids, suggests that grid integration can promote competition and help lower prices.
Despite the formal unbundling of the generation and distribution segments, the electricity sector continues to exhibit pronounced vertical integration, with dominant distribution firms owning generation assets and engaging in retail activities. Across Metro Manila, for instance, one company distributes electricity while also owning generation assets and operating as a licensed retail electricity supplier. This structure poses significant risks, as vertically integrated companies may foreclose competition by prioritising affiliated generators in dispatch, giving preferential access to grid resources, or tailor distribution charges to favour affiliate retailers. Such practices suppress market entry and create barriers for customers — mainly small businesses and households — to choose alternative suppliers.
Structural separation of generation, distribution, and retail companies should be the cornerstone of reform, with distribution utilities mandated to divest their generation assets and exit retail activities. Singapore, for instance, enforces strict separation between the owner of the transmission and distribution grids and generation/retail entities, overseen by the Energy Market Authority through transparent market operation, ring-fencing rules, and neutral wholesale and retail contract administration. Australia’s National Electricity Market operates with legally separated transmission and distribution networks, an independent system operator responsible for neutral dispatch, and a unified wholesale spot market across states. In the absence of full divestiture — which is often politically challenging — a credible second-best approach involves introducing strict ring‑fencing guidelines. This should entail separating corporate activities, staff, IT systems, and financial accounts between related entities and tightened oversight by the Energy Regulatory Commission over distribution fees. Although less definitive than structural separation, strict affiliate firewalls can substantially limit competition risks related to grid access for competitors.
For vertical separation to have tangible effects on competition, free choice of electricity supplier needs to be further promoted by abolishing or substantially reducing the threshold above which customers can choose their supplier. Japan’s post-2016 electricity market reforms, which fully liberalised the retail market and required the unbundling of transmission and distribution from the incumbent utilities, suggest that opening retail supply while enforcing network neutrality can enhance consumer choice and competitive pricing. Currently, only large electricity consumers — those with average monthly peak demand of 500kW or more — can freely choose their supplier, with about 60% of eligible users having already switched suppliers. The Energy Regulatory Commission is now planning to lower this threshold to approximately 100 kW bid mid-2026, while simultaneously piloting and expanding a Retail Aggregation Program. This allows smaller users, including MSMEs and residential clusters, to pool their consumption and qualify for supplier choice. These measures are supported by streamlined switching procedures, enabling smoother transitions.
Telecommunications
Both fixed broadband and mobile internet prices are significantly higher than in regional peers and in the average OECD country (Figure 2.7), partly reflecting remaining barriers to competition. Mobile networks remain the dominant mode of internet access in the Philippines, with over 120 million active SIMs and only about 7 million fixed broadband lines. Two dominant companies account for roughly 90% of the mobile broadband market (The World Bank, 2024). A smaller third player holds most of the rest, while virtual mobile operators account for less than 1% of the market. The two main incumbents control most of the country’s cell towers and critical frequency bands. Fixed broadband access is concentrated in central, urbanised parts of the country, with much lower availability in rural municipalities. Many remote or less-densely populated areas remain unserved due to high deployment costs. Three companies dominate fixed broadband, including the ownership of critical infrastructure, focusing on urban, higher-income customers. Two of these are also dominant players in the mobile segment.
Source: ITU, World Telecommunication database.
In mobile telecommunications, a key barrier to competition is the absence of transparent and non-discriminatory access conditions to critical infrastructure. The Common Tower Policy mandates the sharing of physical infrastructure (such as towers, shelters, and power supply) but excludes radio equipment (such as antennas and base station modules), with tariffs for infrastructure sharing being unregulated. This limited scope leads to duplicated network systems, high costs for mobile virtual operators to enter the market, and high prices for consumers. The National Telecommunications Commission (NTC) – the sector regulator – lacks independence, which weakens its ability to enforce fair access to infrastructure.
To promote competition, the Common Tower Policy should be expanded to require sharing of active network components, including antennas and base station equipment, with pricing and access terms overseen by an NTC with expanded technical and financial autonomy. Germany’s regulatory framework, for instance, promotes both passive infrastructure sharing and active sharing of radio equipment, with the Bundesnetzagentur enforcing cost-oriented, non-discriminatory access terms. This has reduced duplication, lowered entry barriers for new operators, and ensured transparent access to essential mobile network facilities. Empowering the Philippine telecom regulator with true autonomy and giving it clear, transparent powers to oversee infrastructure sharing would reduce barriers to entry, promote more efficient network expansion, and bring the country in line with international best practices in digital infrastructure governance.
The current infrastructure sharing framework for fixed broadband in the Philippines is also narrowly focused on allowing limited sharing of passive infrastructure — such as ducts and utility poles — but excludes active components like fibre cables, terminals, and network access layers. This piecemeal approach contributes to high duplication costs, discouraging new providers and perpetuating a market dominated by a few incumbents. Recent studies suggest that effective infrastructure sharing greatly lowers setup costs for rural internet providers and enhances market entry for smaller operators (Serafica, Francisco and Oren, 2023). Addressing this issue requires open access-network mandates for fixed broadband infrastructure, mandating incumbents to share both passive ducts and active last mile fibre on regulated, non-discriminatory terms. A clear policy overseen by a more independent NTC would ensure transparency in pricing and guard against anti‑competitive behaviour. In Singapore, for instance, an independent authority enforces an open access-broadband network underpinned by regulated wholesale access, allowing multiple service providers to compete on a single physical network. Emulating this model would unleash competition over the same infrastructure, reduce consumer prices, boost rural coverage, and align the Philippines with the digital infrastructure norms of leading economies.
Network expansion in both mobile and fixed telecommunications is hindered by complex and time‑consuming processes for building permits, municipal approvals, and outdated franchise requirements that involve direct legislative action. The Anti-Red Tape Authority’s (ARTA) National Effort for the Harmonization of Efficient Measures of Inter-related Agencies (NEHEMIA) Program is a positive step to remove redundant telecommunications permits (OECD, 2022). But existing procedures continue to favour established providers while imposing heavy burdens on new entrants, limiting the benefits from the recent lifting of foreign ownership restrictions under the amended Public Services Act. To improve the situation, the government could streamline and digitalise the permitting process by implementing a one‑stop online platform for approvals, modelled on successful digital government initiatives in the region. The recent lifting of the legislative franchise requirement for the transmission segment of the telecommunications industry is a positive step to promote market entry and competition. But legislative franchise requirements could be lifted for the telecommunications industry more broadly, replacing them with standardised licences issued directly by the NTC, thus removing political interference and procedural delays. In comparison, Thailand’s regulator grants necessary licenses and spectrum rights through transparent, market‑based auctions without needing legislative approval.
Transport
Logistics costs amount to about 27% of wholesale prices of goods, well above the cost shares in Viet Nam and Thailand (OECD, 2020). This partly reflects geography, with the Philippines spanning 7600 islands, which limits the scope for long-distance road or rail transport. Competition challenges, however, also seem to play a role, as suggested by the significantly lower logistics cost share in Indonesia (21%) with a similar geography. Given the strategic importance of shipping, the institutional framework regulating the maritime transport sector is of crucial importance to reduce logistics costs. Competition in the sector is restricted by a range of regulatory issues, including high entry barriers, limits on foreign participation, as well as challenges related to red tape.
The Philippines has encouraged private investment in ports by leasing out terminal operations through long-term concessions, typically ranging from 15-25 years. Leases can currently be renewed at expiry, conditional on passing a performance review. While this port concession system applied by the Philippine Ports Authority has attracted significant private-sector interest, it favours incumbents over new entrants, with dominant operators managing multiple ports and terminals across the country. For instance, the Manila International Container Terminal, the Manila North Harbor and several other facilities in the Philippines are managed by a single company and its affiliates. This limits the potential for price or service differentiation across ports and terminals and narrows the choices available to shipping lines and cargo owners.
To strengthen competition, terminal concession contracts should be systematically re-auctioned at expiry. Additionally, concessions could include competition safeguards. For example, a tender could require that specific berths or cargo segments within a single terminal must be open to alternative operators, ensuring one company does not monopolise all berths or streams of a given terminal. Second, the government should more proactively promote competition between terminals within ports and between different ports — coordinating “hinterland” infrastructure investments such as roads, rail links, and cargo distribution centres connecting ports and their economic zones. This coordination could be led by the Department of Transportation, possibly through a dedicated port hinterland coordination office. A successful example is Chile’s Antofagasta port system, where different terminals operate under separate concessions, yet share a rail-truck network linking mines and industrial zones — allowing efficient cargo shifting when disruptions occur.
Permitting regulations further entrench incumbent dominance in the domestic shipping sector, limiting the benefits of the recent lifting of foreign ownership restrictions through the amended Public Services Act. The Certificate of Public Convenience, which must be obtained to operate any commercial shipping service, involves a lengthy and not entirely transparent approval process that incumbents can influence, slowing or blocking new competitors, and cabotage rules require foreign-flagged vessels to obtain special permits for any domestic travel. Competition could be strengthened by streamlining the Certificate of Public Convenience issuance through clear, limited timelines, reducing discretionary hold-ups, and ensuring transparency in decision-making. Foreign-flagged vessels without commercial establishment in the Philippines are authorised to transport foreign cargo from one Philippine port to another and co-load foreign cargo unloaded at a Philippine port by other foreign-flagged vessels. But cabotage restrictions could be softened further by allowing foreign-flagged vessels to transport domestic cargo, enabling quicker access to specialised ships when Philippine fleets are unavailable.
A practical measure to boost competition in domestic shipping involves enabling shared vessel and infrastructure access. In simple terms, this means allowing multiple companies to jointly use ships on busy routes — similar to airlines that share flights — and share port facilities. Such arrangements help fill vessels more consistently, increase sailing frequency, and lower costs for passengers and shippers. An example of best practice in domestic shipping regulation is Australia’s coastal shipping framework, which uses defined licensing periods, time-bound coastal trade permits, and shared vessel usage under strict government oversight to promote better vessel utilisation, more frequent services, and healthier fare competition. Reforms to the domestic shipping sector should be carried out with proper safeguards to maintain safety, service quality and regulatory oversight.
Burdensome permitting regulations also hinder competition in road transport, where inconsistent pass-through fees imposed by local government units (LGUs) further compound the effects on logistics costs. As for the domestic shipping sector, the delivery of road transport services requires a Certificate of Public Convenience based on an opaque economic needs test. Moreover, local governments often impose pass‑through fees on trucks merely traversing their jurisdictions, increasing administrative complexity, raising costs, and disadvantaging suppliers seeking broader geographic reach. Despite an executive order of 2023 suspending such fees on national roads, enforcement issues persist. To address these barriers to competition, licensing could be streamlined through a digital one‑stop portal and the removal of the economic needs requirement, replacing it with a regime based on operator performance, such as compliance with safety regulations, as is the case in the United Kingdom, for instance. National legislation should explicitly ban local government pass‑through fees and designate a central authority, such as the Department of Transportation, to monitor, enforce compliance, and publish annual reports on inter‑LGU levies. In Australia, for instance, operators are licensed via a simple national system and tolls are transparently administered through a central road‑user charging framework.
2.2.3. Reducing barriers to foreign investment and trade
Making foreign direct investment regulations less restrictive
Foreign direct investment (FDI) has picked up in recent years but remains well below regional top performers such as Malaysia and Viet Nam (Chapter 1). Among other factors, this reflects high remaining regulatory barriers to FDI. According to the OECD FDI regulatory restrictiveness index, FDI regulations are significantly more restrictive than in regional peers. While FDI restrictions are present in most Southeast Asian peers, particularly in sectors considered as strategic or relevant for national security – such as defence, telecommunications, transport and energy – they appear to be more pervasive in the Philippines, with foreign equity restrictions being particularly high (Figure 2.8).
OECD FDI regulatory restrictiveness index, 2024
Note: The OECD FDI Regulatory Restrictiveness Index (FDIRRI) is a policy-based tool designed to measure statutory restrictions on foreign direct investment. The economy-wide FDIRRI is simply the weighted average of all 22 sectoral scores, using common sector weights across countries to ensure that any variance in scores is due to policy differences, not differences in sectoral weights. Foreign equity restrictions limit the extent of foreign ownership that is permitted in companies or in the aggregate of companies in a given sector Other restrictions include approval requirements of varying scope that discriminate against foreign investors; rules that completely prohibit the appointment of key foreign personnel or impose nationality requirements for the board of directors; reciprocity requirements; restrictions on profit or capital repatriation establishment of branches not allowed or local incorporation required, restrictions on access to local finance, discriminatory minimum capital requirements; discriminatory local content requirements; preference to locally-owned firms in government procurement offers; and restrictions on access to land or real estate.
Source: OECD FDI Regulatory Restrictiveness Index database.
The 2022 reform of the Public Services Act eliminated foreign ownership restrictions in a range of sectors, including telecommunications, air transport and airports, maritime transport, and railways. These sectors are now classified as public services and allowed 100% foreign ownership, subject to reciprocity and national security safeguards. Foreign ownership restrictions in renewable energy generation were also lifted through a separate regulation in 2022. However, a range of sectors remain classified as public utilities and thus subject to 40% foreign ownership limits, including electricity transmission and distribution, water distribution, petroleum pipelines, seaports, and public utility vehicles. Foreign equity is also limited to 40% in real estate and agriculture, and direct land ownership is constitutionally prohibited for foreign investors. Moreover, foreign investors are subject to various minimum paid-up capital requirements, but enterprises exporting at least 60% of their output and those registered in special economic zones are exempt from these requirements. These remaining restrictions raise the cost of capital and slow the transfer of advanced technology.
If removing foreign equity caps in these sectors is deemed undesirable and politically difficult – for instance due to national security concerns – alternative approaches could be explored. Many OECD countries rely on centralised, security-focused investment screening bodies, like the US Committee on Foreign Investment or the EU FDI Screening Regulation. These assess risks on a case-by-case basis, rather than relying on blanket ownership limits. OECD Council Guidance from May 2009 recommends members adopt such an FDI review mechanism “based on principles of non-discrimination, transparency, predictability, and accountability” to safeguard national security. In the Philippines, remaining foreign blanket caps could be replaced by expanding the mandate of the Inter-Agency Investment Promotion Coordination Committee (IIPCC) that already conducts reviews of foreign investments in sensitive sectors such as defence, cyber infrastructure, pipeline transport, and other activities that may pose risks to territorial integrity and public safety. Lifting equity caps could then proceed gradually, aligning with national security interests and giving domestic firms time to adjust.
The Investors’ Lease Act, signed into law in September 2025, has made long-term land leases more investor friendly. While the Philippine constitutional ban on foreign land ownership is common among regional peers, the pre-reform framework of long-term land leases was relatively restrictive. The maximum initial lease term was 50 years, with a maximum 25-year extension that required re-negotiation. The new law extends the maximum lease term to 99 years as in Malaysia. While easing the constitutional ban on foreign land ownership could be considered in the medium term, the short-term priority is the effective implementation of the new law that would enhance investor certainty, especially for investment projects with long horizons.
Simplifying Regulations to Boost FDI Inflows
Even in sectors that are formally open to foreign direct investment, excessively burdensome administrative procedures continue to deter foreign participation. Lengthy procedures and overlapping mandates across agencies often create uncertainty and raise transaction costs, acting as de-facto barriers to foreign investment and undermining the benefits of de-jure openness. A recent reform removed the requirement of a legal franchise and the Certificate of Public Convenience and Necessity in telecommunications, but a legislative franchise is still required in electricity distribution and transmission. Moreover, a Certificate of Public Convenience, remains a requirement in electricity distribution and transmission and transport and often requires economic needs tests, whose transparency could be enhanced. During the application process for the Certificate the applicant must prove its legal, technical and financial capability, as well as the feasibility of offering the service. Regulatory decentralisation further complicates the business environment. Each local government can require its own business permit and impose its own processes for construction permits, local taxes, and even product approvals. Some cities, for example, can impose additional health and sanitation permits for food products. These heterogeneous local rules introduce entry barriers, especially for foreign investors who are not familiar with the business environment.
Positive initiatives to streamline regulatory fragmentation are the electronic business one-stop shop (eBOSS) and the Green Lanes for Strategic Investments initiative. The full operationalisation of eBOSS across 112 local government units has significantly reduced business registration time to six steps over three days (from 13 steps and 33 days). The Green Lanes initiative is a government-wide reform aimed at accelerating the approval and implementation of high-impact projects. The initiative prioritises large strategic investments — including in renewable energy, digital infrastructure, and advanced manufacturing — through a single-entry system coordinated by the One-Stop Action Centre for Strategic Investments under the Board of Investments. The system consolidates permit, licence, and clearance applications into a single-entry point, reducing the need for investors to engage separately with multiple government agencies and local governments. It imposes shorter, predefined timelines for government action and facilitates inter-agency coordination. The projects also benefit from priority processing, reduced documentation requirements, and digital tracking, which cuts delays and increases transparency and predictability. The initiative aligns with global best practices, but its coverage in terms of sectors remains relatively limited and the envisaged size threshold for eligible investment of PHP 3 billion (around USD 50 million) is relatively high.
Consolidating local and national permits, licences, and clearances into one single-window approval platform, backed by strict turnaround times and digital tracking, following the model of the Green Lanes for Strategic Investments initiative, could improve inter-agency coordination, reduce bottlenecks, and increase transparency and predictability. Eliminating legislative franchises and replacing the current licensing procedure with a unique administrative licensing system based on objective measurable criteria under clear and independent regulatory authority, would reduce administrative burdens and limit the scope for discretionary decisions that could hinder market entry. Complementary local reforms are essential. Institutionalising Local Economic Development and Investment Promotion Offices (LEDIPOs) as local Green Lane units, as envisaged in the Philippine Development Plan 2023–28, is critical. These offices would operate one-stop shops, provide clear guidance on incentives and procedures, coordinate with national agencies, and address persistent issues such as permitting delays and fragmented local regulations.
Reducing trade barriers
Since the 1980s, the Philippines has progressively liberalised trade through tariff reductions, WTO commitments, regional integration, and bilateral agreements. While the average MFN tariff on manufactured goods is 5.4% – comparatively low with respect to regional peers such as Indonesia (7.9%) and Viet Nam (8.3%) – tariff and non-tariff barriers remain elevated for specific goods. In particular, safeguard duties on cement imports first introduced in 2019 have increased costs and strengthened incumbent firms’ market power. Remaining trade barriers are compounded by inefficiencies in customs administration (World Bank, Logistics Performance Index database). The National Single Window and TradeNet platforms aim to streamline trade permits but remain only partially functional. The Authorised Economic Operator Programme – a customs partnership scheme for pre-approved traders who meet high standards, giving them faster and more secure treatment at borders – aligns with global standards to reward compliant traders and improve supply chain security. However, fragmented electronic systems and weak implementation prolong processing. Full implementation and integration of the National Single Window and acceleration of the rollout of the Authorised Economic Operator programme would reduce clearance times and reduce overall logistics costs.
The ongoing reconfiguration of global supply chains has created strategic opportunities for the Philippines to position itself as a complementary manufacturing hub in Southeast Asia. To capitalise on this, the authorities have accelerated free trade agreement (FTA) negotiations. The Regional Comprehensive Economic Partnership (RCEP), which entered into force for the Philippines in 2023, integrates 15 Asia-Pacific economies under unified tariff regimes and rules of origin, enhancing regional supply chain participation. The bilateral Philippines – Korea FTA, effective end-2024, eliminates tariffs on nearly 95% of Philippine exports. The Philippines is negotiating a comprehensive free trade agreement with the European Union to build on its existing preferential access under the Generalised System of Preferences, extending liberalisation to goods, services, investment, and regulatory cooperation. At the same time, discussions with the United Arab Emirates are advancing toward a Comprehensive Economic Partnership Agreement to deepen market access and investment ties.
Including comprehensive services chapters in FTAs is essential for the Philippines, where business process outsourcing (BPO) is a significant and growing sector of the economy (Chapter 1). The industry depends not only on digital infrastructure, but also on legal certainty for cross-border operations. Services trade often requires free movement of skilled personnel and the ability of foreign firms to establish a commercial presence, both of which are typically addressed in services chapters. For instance, the planned EU–Philippines FTA is expected to include a digital trade chapter covering cross-border data flows, bans on forced data localisation, and recognition of electronic contracts, which are key enablers for seamless service delivery across borders. These provisions, alongside commitments on labour mobility and right of establishment, offer firms the predictability they need to expand operations. FTAs that include such chapters signal policy stability and reduce regulatory risk, making them powerful tools for attracting FDI into services sectors.
2.2.4. Improving economic governance and strengthening the fight against corruption
Strong institutions are crucial for productivity, competition and inclusive growth (Acemoglu, Johnson and Robinson, 2005). A robust integrity framework includes both preventive mechanisms and effective enforcement. The OECD Recommendation on Public Integrity (2017) encourages countries to adopt a whole-of-government strategy encompassing prevention, detection, and enforcement, underpinned by clear institutional responsibilities, accountability, and transparency. Although the Philippines has made significant legal and institutional progress, corruption perceptions remain high compared to regional peers, suggesting persisting governance deficits (Figure 2.9). This is explained by an institutional framework that remains fragmented and weak, particularly on prevention. Following the 2022 dissolution of the Presidential Anti-Corruption Commission, the Ombudsman remains the sole agency mandated to prosecute corruption cases, with a primary focus on law enforcement rather than prevention. Beneficial ownership transparency is limited, public procurement oversight is fragmented, internal control systems are weak, and whistleblower protection legislation is not comprehensive (UNODC, 2023).
Government transparency and anti-corruption policy are underpinned by the Anti-Graft and Corrupt Practices Act; the Code of Conduct and Ethical Standards for Public Officials and Employees; and the Government-Owned and Controlled Corporation (GOCC) Governance Act. A wide range of corrupt practices are criminalised and an independent constitutional office, the Ombudsman, is mandated to prosecute offenders, with penalties including imprisonment and disqualification from office. Ethical standards are set for all public servants, who are mandated to annually file statements of assets, liabilities, and net worth (SALNs). Several laws, administrative regulations, and policies offer varying degrees of protection and guidance for individuals who report workplace misconduct. However, weak enforcement and restricted public access to SALNs reduce their effectiveness, while the legal framework for whistleblower protection remains fragmented and dispersed, making it harder for whistleblowers to understand their rights as well as remedies available.
One salient feature of the Philippines economy is the presence of several large corporate conglomerates. These dominate parts of the economy, which calls for strong provisions to avoid conglomerates leveraging their wealth to shape political outcomes. Incomplete transparency rules on reporting ultimate beneficial ownership, for example, could be strengthened, as limited transparency can allow hidden overlap between business conglomerates and political officeholders. Recent studies point to cases of politicians with business interests in sectors that are highly dependent on government contracts and permits, such as construction, accommodation and food services, wholesale and retail trade, and real estate (Mendoza, Bulaong and Mendoza, 2025) . Making ultimate beneficial ownership information public helps fight corruption and money laundering, prevents conflicts of interest, and strengthens public oversight. Since 2001, Philippine regulation has mandated ultimate beneficial ownership disclosure, but the fragmented system lacks a unified legal definition, centralised public registry, robust data verification, and consistent enforcement. A comprehensive beneficial ownership law, in combination with a centralised and publicly accessible registry would bring transparency in line with international standards.
Note: The corruption perception index measures the perceived level of public sector corruption on a scale of 0-100, where 0 means highly corrupt and 100 means very clean. This indicator measures the strength and effectiveness of a country’s policy and institutional framework to prevent and combat corruption.
The Control of corruption indicator measures the strength and effectiveness of a country’s policy and institutional framework to prevent and combat corruption. It is an index combining a subset of 24 different assessments and surveys, depending on availability, each of which receives a different weight, depending on its estimated precision and country coverage. Country scores are calculated by taking the difference between actual scores and the median.
Source: Transparency International, corruption perception index database; and World Bank Worldwide governance indicators database.
Given the prevalence of corporate conglomerates in the economy, establishing a comprehensive lobbying regulatory framework would enhance transparency, promote accountability in policymaking, and help safeguard the public interest. This should include a lobbyist registry, clear rules on political finance and third-party campaigning, effective safeguards against undue influence from revolving door practices between the public and private sectors, and clear standards on gifts, hospitality, and other benefits offered to public officials (OECD, 2025). Creating a lobbyist registry – which is mandated by a 1957 law but has never been implemented – is crucial to allow civil society and media to reveal undue political influence. A lobbyist registry formally tracks interactions between interest groups and public officials, promoting transparency, reducing conflicts of interest, and ensuring political influence occurs through accountable and regulated channels. The registry should identify who is lobbying and on whose behalf, the public officials involved, and the purpose of each lobbying effort, including the policy issue or regulatory act concerned. It should also require disclosure of financial expenditures related to lobbying, helping prevent covert influence and reduce the risk of political capture. For instance, Ireland’s lobbying register mandates quarterly reporting and covers a broad range of actors and interactions. It includes a searchable online platform accessible to the general public. Studies have shown that the Irish registry has enhanced public trust and encouraged more ethical lobbying practices by clarifying what constitutes reportable activity and reducing informal backchannel influence (Crepaz and Arikan, 2023; Hogan, 2024).
Local governments are required to publicly disclose key financial documents such as budgets, procurement plans, and expenditures, but compliance remains uneven, particularly among resource-constrained local governments. Recent initiatives such as the 2022 Anti-corruption and integrity programme for Government-Owned and Controlled Corporations (GOCCs) and the 2023 New Government Procurement Act aim to institutionalise anti-corruption measures and improve transparency, accountability, and competition in government purchases. GOCCs are required to implement internal risk assessments, whistleblowing mechanisms, and integrity-building programmes aligned with performance monitoring, introduce open contracting, beneficial ownership disclosure, and civil society monitoring. Effective enforcement will require substantial capacity building across implementing agencies and local governments.
The GOCC sector is exposed to corruption risks due to limited transparency, weak accountability, and entrenched discretionary control over economic resources. GOCC reforms improved governance via the GOCC Governance Act and monitoring tools like the Integrated Corporate Reporting System. The Governance Commission for GOCCs is evaluating 119 state corporations to ensure that those with both commercial and regulatory roles are restructured, addressing concerns related to potential conflicts of interest and limited regulatory autonomy (OECD, 2025). However, challenges persist. Board appointments are centralised, with no legal requirement for independent directors and the President holding final authority to select directors from shortlists. Moreover, many board members serve in an ex officio capacity, potentially compromising board autonomy and creating conflicts of interest. Compliance with transparency and accounting standards and financial oversight are inconsistent. While GOCCs are formally required to comply with national accounting standards aligned with international norms, many entities do not publish timely financial data or undergo independent external audits. Audit responsibilities rest solely with the Commission on Audit (COA), the country’s supreme audit institution for public-sector entities. Improving governance and transparency across the GOCC sector – including by strengthening the COA and mandating the appointment of independent directors – would improve economic governance. Strengthening the Commission on Audit (COA) would require expanding audit coverage to all GOCC subsidiaries and joint ventures; enforcing strict timelines and mandatory publication of audit results; increasing staffing and technical capacity; and granting stronger authority to compel remedial action.
Public procurement and infrastructure projects are typical high-risk areas for corruption. An efficient procurement system requires transparent and impartial procedures, and equal access to markets and processes (OECD, 2019; OECD, 2023). In recent years, the Philippines has introduced substantial reforms to strengthen the integrity and efficiency of public procurement, including the modernisation of e-procurement through the PhilGEPS system, enhanced transparency, and mandatory disclosure of beneficial ownership for bidders. The New Government Procurement Act of 2024 is expected to further streamline, modernise, and ensure transparency in procurement processes, reducing administrative complexity and harmonising fragmented systems across agencies. The recent establishment of the Independent Commission for Infrastructure (ICI), mandated to investigate corruption and mismanagement in public works, strengthens deterrence against corruption in infrastructure investment. The new transparency portal launched by the Department of Public Works and Highways (DPWH), a digital repository of infrastructure projects, allows citizens to track implementation and report any irregularities.
Despite these advances, public procurement remains constrained by complex procedures and fragmented digital systems. Further promoting competitive tendering and expanding the use of e-procurement by local government units – including by integrating payment systems at the central government and local levels – would improve transparency, reduce corruption risks, and widen supplier participation. Digital procurement systems, like those in Chile and Korea, have successfully reduced irregularities and increased competition, with the Korean system fully integrating planning, bidding, management and payment of contracts (OECD, 2016; OECD, 2017). Lifting bank secrecy for corruption-related investigations, in line with OECD and FATF standards (FATF, 2012-2025; OECD, 2021), would allow Philippine authorities to trace illicit financial flows linked to public procurement and strengthen deterrence against collusion and kickbacks.
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