Updated 08:47 AM PHT Thu, September 8, 2016
Metro Manila (CNN Philippines) — The Philippines is losing out on foreign direct investment (FDI) to other emerging markets in Southeast Asia — particularly Vietnam — studies show.
FDI to the region saw an annual decline of 8% to $120 billion last year, according to a report by the Association of Southeast Asian Nations (ASEAN). Broken down, however, inflows to Cambodia, Laos, Vietnam and Myanmar (CLVM) surged 38% to $17.4 billion.
The Philippines attracted $5.7 billion in 2015, unchanged from the previous year.
A separate study conducted by Standard Chartered also showed about 40% of foreign investors in China would choose Vietnam if they had to relocate. Cambodia came second with 25%. Only 3% of investors said they would move their business to the Philippines.
"Vietnam is definitely in the sweet spot right now," David Mann, Standard Chartered chief economist for Asia, said in a press conference on Tuesday.
"Who could be next? One could argue that that if the pieces all fell into place, the Philippines or even India could move into the sweet spot as well. But I think that's years, rather than months, away."
Related: Drug killings won't affect investors: UK trade envoy
FDI accounts for the large, long-term, physical investments foreign businesses bring into a country. This is in contrast to foreign portfolio investments — made in the stock and bond market, entering and leaving with ease.
FDI is widely considered to be one of the most crucial factors in helping developing economies grow. When foreign businesses set up in a country, they build factories, hire workers, bring in equipment and expertise.
Mann said Vietnam has taken a proactive stance in opening up its economy to foreign investors.
"They made it much easier to do business, cut red tape, loosened restrictions — basically, brought down non-tariff barriers," he explained.
Vietnam also signed up to a number of regional trade agreements, which investors saw would bring down costs for them, he added.
Related: U.S. investors exploring Mindanao
The Philippines aims to do the same, Socioeconomic Planning Secretary Ernesto Pernia said in a forum on Wednesday.
Key reforms include improving the power supply, reforming the corporate income tax structure, allowing foreign businesses to hold long-term land leases and, most importantly, increasing the foreign ownership cap to 70% from 40%.
Mann supported the government's plans, saying it wasn't too late for the Philippines to catch up.
"Vietnam and other countries may be far ahead in terms of manufacturing, but the Philippines still has the edge in services industries, like business process outsourcing," he pointed out.
Manufacturing saw the largest increase in FDI last year, jumping 61% from 2014, ASEAN data showed. Investments in services notched an annual drop of 21%.