June’s FDI surge fails to lift 1st half flows

By Melissa Luz T. Lopez
Senior Reporter

NET foreign direct investment (FDI) flows to the Philippines nearly tripled in June as firms abroad reinvested earnings and lent more to their units here, but still failed to lift last semester’s tally, according to data the Bangko Sentral ng Pilipinas (BSP) released yesterday.

Net FDI inflows surged to $674 million that month from the downward-revised $568 million recorded in May and from the $238 million that entered the country in June last year.

In a statement, BSP said the strong FDI figures demonstrated investors’ “continued bullish outlook on the Philippine economy.”

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

June saw investors reacting positively to the approval at the end of May of the first tranche of the government’s tax reform package at the House of Representatives, bringing the proposal closer to the 2018 implementation targeted by the Department of Finance.

Foreign investors poured $674 million into debt instruments of their subsidiaries and affiliates in June, nearly four times the year-ago $182 million.

Reinvested earnings grew 16.5% to $72 million from $62 million.

On the other hand, equity capital flows resulted in $72-million net withdrawals that were much bigger than the year-ago $5-million outflows, as a threefold growth in gross placements to $113 million from $36 million was outpaced by total withdrawals’ nearly fivefold spike to $185 million from $41 million.

The June haul pulled the first-semester FDI tally to $3.598 billion, 14% less than the $4.184 billion received in last year’s comparable six months, owing to April 2016’s record $2.244-billion net inflow.

The comparable six months saw investment in debt instruments grow nearly a third to $3.04 billion and reinvested earnings increase nearly a tenth to $416 million, while net equity investment inflows saw a 90.3% drop to $141 million.

Sought for comment, two analysts said foreigners likely see debt instruments as a more viable investment platform amid heightened uncertainty in the global market, demonstrating confidence in the Philippines’ growth story.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said: “Upon careful inspection, this particular inflow increase… benefits the recipient, through business and operation expansion… As long as it goes to support production activities, it is all good.”

Security Bank Corp. economist Angelo B. Taningco said debt placements seem to have been the choice of investors abroad who have been working around the country’s foreign ownership restrictions.

“I think FDIs into the Philippines utilize more debt financing as opposed to equity financing possibly due to tax and foreign ownership considerations, among others,” Mr. Taningco explained.

“FDIs via intercompany borrowings tend to be relatively large in countries with a high income tax rate and with foreign ownership limits.”

Both economists see the BSP’s $8-billion estimate for FDI net inflows this year as doable, with expectations that more investments will pour in this semester.

If realized, BSP’s projection would be more than 2016’s record $7.93-billion actual net inflows.

The United States, Japan, Singapore, Hong Kong and Taiwan were the biggest sources of foreign capital last semester, BSP said, noting that inflows went mainly to real estate; insurance and other financial services; manufacturing; electricity, gas, steam and air conditioning supply; as well as wholesale and retail trade activities.