FDIs top 2017 target as of November

By Melissa Luz T. Lopez
Senior Reporter

FOREIGN DIRECT INVESTMENTS (FDI) to the Philippines surged anew in November amid strong interest in debt instruments and equities, taking year-to-date inflows beyond the $8 billion expected by the Bangko Sentral ng Pilipinas (BSP).

Net FDIs reached $869 million that month, surging 16.9% from the $744 million recorded in November 2016. November inflows, however, were less than half October’s $2.017 billion, according to latest central bank data.

FDIs are a key source of capital for the local economy, creating more jobs for Filipinos as these funds fuel business expansion.

The strong investment flows brought the 11-month tally to $8.725 billion, a fifth more than the $7.264 billion recorded in 2016’s counterpart period and past BSP’s $8-billion full-year forecast.

“The sustained FDI inflows reflected investor confidence given the Philippine economy’s solid macroeconomic fundamentals and growth prospects,” the BSP said in a statement on Monday.

Foreign investors preferred placing their bets primarily in debt instruments of their Philippine affiliates for their operation or expansion. These inflows grew by 13.1% year-on-year to $604 million in November, accounting for roughly 70% of net FDIs that month.

November also saw equity other than reinvested earnings jump 38.7% to reach $210 million, as $228 million in gross placements eclipsed just $18 million that headed for the exit. Both gross placements and withdrawals, however, saw year-on-year reductions of 47.6% from $434 million and 93.8% from $283 million, respectively.

Companies based in Singapore, Hong Kong, Luxembourg, China and the United States were the biggest sources of capital during the month. A chunk of equity investments went to the sectors of manufacturing; real estate; electricity, gas, steam and air-conditioning supply; construction; as well as wholesale and retail trade activities, the central bank said.

November also saw reinvested earnings dip 4.3% to $56 million from $58 million the prior year.

Two analysts said the Philippines’ robust growth story whetted investor appetite during the period.

“Positive economic growth prospects may have prompted foreign investors to increase their FDI stock in the country as exemplified by the large tally for November,” said Angelo B. Taningco, economist at Security Bank Corp.

The Philippine Statistics Authority announced on Nov. 16 that the economy grew by 6.9% in the third quarter, beating market expectations. This was later on revised upward to seven percent, while full-year growth for 2017 clocked in at 6.7%, well within the government’s 6.5-7.5% target.

“It is possible that strong FDI inflows were sustained in December on the back of foreign investors’ optimism towards the country’s full-year economic performance,” Mr. Taningco added.

Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines, pointed out that progress in the government’s economic reform agenda may have also spurred investor sentiment.

“[T]here has been a significant increase in the country’s net FDI for November 2017 and for the whole of last year as a result of improved investor optimism amid the Duterte administration’s key initiatives — Build, Build, Build Program and TRAIN law — which are expected to support the country’s growth in the next few years,” Mr. Dumalagan said.

November saw the Senate approve of the first of up to five planned tax reform packages that was eventually signed into law last Dec. 19 as Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion Act (TRAIN). The law, which took effect last month, reduces personal income tax rates for those earning P2 million or lower in a year, to be offset by higher taxes on select goods and services.

TRAIN revenues — which are expected to reach P82.3 billion this year — will help fund priority infrastructure projects of the current administration. The entire four to five packages are supposed to contribute about a fourth of the P8 trillion the government needs for its infrastructure drive until 2022, when President Rodrigo R. Duterte ends his six-year term.

Currency fluctuations may have also helped convince investors to pour more funds into the country, with the peso trading at an average of P51.0384 versus the dollar in November last year. Mr. Dumalagan said that the FDI tally might have slipped in December as the peso recovered to the P50 level against the greenback.