By Luisa Maria Jacinta C. Jocson, Reporter
NET INFLOWS of foreign direct investment (FDI) into the Philippines slid in August mainly attributable to a pointy decline in investments in debt instruments, data from the central bank showed.
Net inflows dropped by 14.5% to $813 million in August from $951 million a yr ago, the Bangko Sentral ng Pilipinas (BSP) reported on Monday.
Month on month, inflows dipped by 0.9% from $820 million in July.
“The decline in FDI net inflows in the course of the month was due mainly to the 21.6% contraction in nonresidents’ net investments in debt instruments,” the BSP said in a press release.
Net investments in debt instruments slumped by 21.6% to $529 million in August from $675 million in the identical month a yr ago.
These consisted mainly of intercompany borrowing or lending between foreign direct investors and their subsidiaries or affiliates within the Philippines, the central bank said.
“The remaining portion of net investments in debt instruments are investments made by nonresident subsidiaries/associates of their resident direct investors, i.e., reverse investment,” it added.
BSP data also showed a 9.4% decline in nonresidents’ reinvestment of earnings to $217 million from $240 million a yr earlier.
However, investments in equity and investment fund shares inched up by 2.8% yr on yr to $284 million in August from $276 million.
Net investments in equity capital aside from the reinvestment of earnings surged (83.6%) to $66 million in August from $36 million within the previous yr.
Equity capital placements plunged by 52.5% to $103 million, while withdrawals slid by 79.8% to $36 million.
By source, the majority of equity capital placements were from Japan (72%), followed by the US (17%).
These were invested mainly in manufacturing (63%); real estate (20%); electricity, gas, steam and air-conditioning supply (9%).
EIGHT-MONTH PERIOD
In the primary eight months, FDI net inflows rose by 3.9% to $6.07 billion from $5.84 billion within the year-ago period.
Investments in equity and investment fund shares jumped by 26% to $2.2 billion from $1.75 billion.
Net foreign investments in equity capital surged by 59.4% to $1.34 billion within the January-August period.
Placements climbed by 38.8% to $1.7 billion and withdrawals slipped by 6.6% to $356 million.
These placements mainly got here from the UK (45%), followed by Japan (36%) and the US (8%).
Investments were mostly poured into manufacturing (75%), real estate (11%) and wholesale and retail trade (4%) industries.
Meanwhile, net investments in debt instruments went down by 5.5% to $3.86 billion from $4.09 billion. Reinvestment of earnings likewise decreased by 4.8% to $866 million.
Rizal Business Banking Corp. Chief Economist Michael L. Ricafort said the decline in FDIs may be attributed to the high rates of interest, because the central bank only began its easing cycle in mid-August.
The Monetary Board cut rates for the first time in nearly 4 years at its Aug. 15 meeting, delivering a 25-basis-point (bp) rate cut. Since then, it has reduced borrowing costs by a complete of fifty bps, bringing the important thing rate to six%.
John Paolo R. Rivera, a senior research fellow on the Philippine Institute for Development Studies (PIDS), said global investors are more cautious amid uncertainty in the US and European countries.
“High global rates of interest and inflation concerns are also causing investors to take a conservative approach, reallocating capital toward safer, less volatile markets,” he added.
Mr. Rivera said the Philippines also continues to face structural challenges that make it difficult for investments to enter, akin to “regulatory complexities, high operating and power costs, and persistence of infrastructure bottlenecks.”
“The relatively lower FDI might be caused by a wait-and-see stance by some foreign investors while waiting for the CREATE MORE to be passed into law,” Mr. Ricafort said.
On Monday, President Ferdinand R. Marcos, Jr. signed into law the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act. The law expands fiscal incentives and further cuts corporate income taxes.
“For the approaching months, the CREATE MORE law would now make international investors more decisive to locate within the country with higher incentives that would compete higher with other Asian countries,” Mr. Ricafort said.
“Thus, there will probably be more FDIs into the country for the approaching months attributable to CREATE more and likewise attributable to the expected further rate cuts by the Fed that might be matched by the BSP,” he added.
The Monetary Board is about to have its final policy meeting of the yr on Dec. 19. BSP Governor Eli M. Remolona, Jr. has signaled the opportunity of one other 25-bp cut.
Meanwhile, Mr. Ricafort noted risk aspects akin to more protectionist policies by a Trump presidency starting in 2025 “would discourage some US corporations from investing and creating more jobs outside the US.”
“Nonetheless, offsetting risk aspects for future FDI data could be possible more protectionist by a Trump presidency stating in 2025 that will discourage some US corporations from investing and creating more jobs outside the US,” Mr. Ricafort added.
US President-elect Donald J. Trump is about to return to office in January. Certainly one of Mr. Trump’s essential policy proposals are his stricter trade restrictions, including plans to slap a universal tariff in addition to tariffs on Chinese goods.
The central bank expects to finish this yr with $10 billion in FDI net inflows.
