Philippines Lags ASEAN Rivals in Foreign Investment Rankings Despite Income Upgrade

The Confidence Gap

The Philippines moved into the upper-middle-income bracket this year, but the promotion has not yet convinced foreign investors to place it ahead of its regional peers. In Kearney's 2026 Foreign Direct Investment Confidence Index, the country ranked 18th among 25 emerging markets, down from 16th a year earlier and behind Thailand, Malaysia, Indonesia and Vietnam.

The annual index surveys global business leaders on where they plan to deploy capital over the next three years. Thailand took sixth place, Malaysia seventh, Indonesia 13th and Vietnam 16th. The Philippines' drop underscores a disconnect between its upgraded income classification and the structural factors that drive investment decisions.

Marco de la Rosa, Kearney's country head for the Philippines, noted that the World Bank reclassification should improve the country's standing in theory. The upgrade followed the Philippines crossing a gross national income per capita threshold of $4,636, reaching $4,850. But the country remains near the bottom of the upper-middle-income band, which extends to $14,375 per capita.

What Investors See

Survey respondents identified talent availability, natural resources and economic performance as the Philippines' strongest investment draws. Infrastructure and governance scored lowest, pointing to weaknesses that could constrain competitiveness as the country seeks to attract more sophisticated capital.

Varun Arora, Kearney's Southeast Asia managing partner, said the income upgrade gives Manila a stronger narrative but has not shifted the flow of capital. "Unfortunately, in the last two to three years, in the FDI index and the investments, Philippines has dropped rankings a bit vis-a-vis the ASEAN countries, which has also reflected the flow of the money," Arora said.

The challenge, according to de la Rosa and Arora, is aligning the new income status with tangible improvements in infrastructure quality, regulatory predictability and ease of doing business. The promotion places the Philippines in direct comparison with better-prepared economies that have spent years building investor-friendly ecosystems.

A Tougher Field

De la Rosa likened the upgrade to a football club earning promotion to a higher league. The achievement signals progress, but it also means facing stronger competition and higher expectations. Investors who previously measured the Philippines against lower-middle-income peers now benchmark it against Thailand, Malaysia and other upper-middle-income markets with more developed infrastructure and deeper industrial bases.

President Ferdinand Marcos Jr. has already incorporated the new classification into his pitch to foreign investors. During a July working visit to Singapore, Marcos described the Philippines as offering "a secure, transparent and stable environment for businesses to thrive" backed by solid macroeconomic fundamentals.

Kearney's assessment suggests that while macroeconomic stability is necessary, it is not sufficient. The consultancy views the upgrade as a starting point rather than a destination, urging faster action on infrastructure gaps, governance reforms and economic diversification.

The Regional Context

The Philippines ended nearly four decades as a lower-middle-income economy with the World Bank's reclassification. But the country's GNI per capita still trails Vietnam, Thailand and Malaysia, all of which have invested heavily in manufacturing capacity, logistics networks and trade facilitation over the past decade.

Vietnam has become a manufacturing hub for electronics and textiles, drawing investment from companies diversifying supply chains away from China. Thailand has built a strong automotive sector and is positioning itself as a regional base for electric vehicle production. Malaysia has attracted semiconductor and data center investment, while Indonesia has leveraged its resource base and large domestic market.

The Philippines has strengths in services, particularly business process outsourcing, but has struggled to build competitive manufacturing clusters outside electronics. Infrastructure bottlenecks, inconsistent regulatory enforcement and slower customs clearance times remain frequent investor complaints.

Next Moves

De la Rosa emphasized that the stakes are rising. "Ultimately we need to compete to win," he said. The income upgrade raises the bar for what investors expect in terms of infrastructure quality, regulatory transparency and project execution speed.

For Manila, the message from Kearney's index is clear: income status matters, but operational realities matter more. The country has the macroeconomic credentials and a young, English-speaking workforce. What it needs now is the infrastructure backbone and governance framework to convert those assets into sustained investment inflows that can compete with the best in Southeast Asia.