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By Melissa Luz T. Lopez
Senior Reporter

April FDI retreats from year-ago peak

Posted on July 11, 2017

FOREIGN direct investment (FDI) net inflows to the Philippines hit a 12-month high in April even as they slid from the year-ago record haul, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

Net FDI inflows jot $874 million that month, 71.71% more than March’s $509 million and the biggest haul since the $2.244 billion recorded in April 2016. But April’s net inflows were still down 61.1% year-on-year.

April’s net inflows brought the year-to-date haul to $2.434 billion that was a third less than the $3.581 billion recorded in 2016’s comparable four months.

In a statement, the BSP attributed April’s 12-month-high net inflows to the “continued investor confidence in the country’s sound macroeconomic fundamentals,” even as they were down from a year ago.

Analysts previously attributed April 2016’s one-time surge to front-loading ahead of the May 9 national elections, which saw former long-time Davao City mayor Rodrigo R. Duterte win the presidency.

In April this year, economic managers staged the “Dutertenomics” forum that showcased the government’s six-year P8.4-trillion “Build, Build, Build” infrastructure spending plan.

FDIs are a key source of capital for business expansion that, in turn, generate additional gainful jobs.

The central bank expects FDI net inflows to reach $8 billion this year, just a tad more than 2016’s actual $7.93 billion.

April also saw investors continue to prefer debt instruments more than equity placements, which analysts said reflected market caution.

Foreign firms’ lending to their Philippine affiliates sustained a three-month rise in April to reach $723 million, even as those inflows were just a little more than half the year-ago $1.345 billion.

Reinvested earnings were the only FDI segment that grew year-on-year in April, rising 9.3% to $81 million from $74 million.

Equity investments netted $70 million in April, dropping 91.6% from the peak $825 million posted a year ago. Gross placements reached $84 million, down 90% from the year-ago $839 million, while total withdrawals rose 6.4% to $14 million from $13 million in the same comparable months.

“The shift from equity placements to debt instruments might be reflection of rising uncertainty in the market. Debt is relatively safer than equity,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines.

“With more uncertainty domestically and abroad, foreign investors might be opting for the safer alternative, which is debt.”

Mr. Dumalagan said April’s lower FDI net inflow was likely due to rising global interest rates, particularly after a 25-basis-point rate hike in the United States in March, as well as geopolitical tensions.

For his part, Union Bank of the Philippines chief economist Ruben Carlo O. Asuncion said the latest FDI tally showed that foreign investors are now focused on opportunities for expansion: “Instead of direct injections, foreign companies in the Philippines are either expanding existing projects and/or paying existing debts.”

“[D]espite all these external factors, the Philippine economy is resilient, and this resilience comes from a robust macroeconomic environment still despite the local political noise. The Philippines’ economic growth story is still seen to be intact and (the economy) is expected to grow further,” Mr. Asuncion added, noting that investors are drawing confidence from reforms on Mr. Duterte’s agenda.

Year-to-date, equity placements amounted to $170 million, 87.6% less than the year-ago $1.375 billion, reinvested earnings grew 7.5% to $274 million from $255 million while investment in debt instruments of local affiliates edged up two percent to $1.989 billion from $1.951 billion.

Japan, the United States, Singapore, Hong Kong, and Germany were the biggest sources of equity capital in the four months to April, with funds going to real estate; financial and insurance sectors; wholesale and retail trade; manufacturing; as well as electricity, gas, steam and air conditioning supply activities.

The US State Department said in a June 29 report that Philippines has become a “more attractive” investment destination, despite nagging constraints such as foreign ownership limits and poor infrastructure that prevent businesses from expanding operations. However, FDI to the Philippines continues to lag behind those of many of the country’s neighbors.