FOREIGN direct investments (FDI) inflows rebounded in October, reversing seven months of decline, according to data from the Bangko Sentral ng Pilipinas (BSP) released late Friday.

Data from the BSP showed FDI net inflows rose 33.7% to $672 million in October, from $502 million in the same period in 2018, “mainly on account of the expansion in non-residents’ net investments in debt instruments issued by local affiliates by 60% to $534 million.”

It was the biggest net inflow since April’s $963 million.

The October figure was also 18.73% higher than the $566 million posted in September.

October saw equity other than reinvested earnings shrink by 40.7% year-on-year to $58 million from $98 million. This as gross placements dropped 28% to $80 million, while withdrawals rose 57% to $22 million.

Equity capital infusions mostly poured from the United States, South Korea and Japan, the BSP said. These were mostly invested in industries such as real estate, financial and insurance, as well as manufacturing.

Reinvestment of earnings jumped 12.7% year-on-year to $79 million in October from $71 million a year ago.

“This higher net inflows in October 2019 may be a signal that FDI is turning a corner,” Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an emailed response.

However, Mr. Asuncion took note that the biggest contributor to the uptick is “inter-company borrowings and not the basic and fresh equity capital placements.”

This major increase in inter-company borrowings was also observed by Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

“This may reflect the fact that borrowing costs remained relatively low during the month, still near the lowest since the start of 2019, thereby making borrowings already attractive and compelling to finance more FDIs into the Philippines,” he said in an email.

“Still, this improvement may describe improved sentiment that may carry on for both November and December 2019 FDI net inflow growth numbers,” Mr. Asuncion added.

The BSP has slashed key policy rates by 75 basis points (bps) in 2019, through three 25 bps reductions. This has reduced the overnight repurchase rate to 4% while overnight lending deposits and lending are at 3.5% and 4.5%, respectively.

For his part, Security Bank Corp. Chief Economist Robert Dan J. Roces said that the gloomy FDI flows in the previous quarters took a toll on the country’s economic growth.

“Recovery in October could be because some of these uncertainties have somewhat dissipated. CITIRA (Corporate Income Tax and Incentives Rationalization Act) will be tackled this year with a clearer direction and probably accommodating the requests of the business sector, and a phase one trade deal,” he said in an email, noting that FDI.

CITIRA, which has been pending in the Senate since October, is a measure that gradually reduce corporate income tax rates from the current 30% to 20% as the country is among economies with the highest rates in the region.

BSP Governor Benjamin E. Diokno has also said that the unclear direction of the CITIRA may be the culprit behind the decline in FDI in the recent months.

“During the first years of (President Rodrigo R.) Duterte, FDI was around $10 billion… Last year nag-slowdown ‘yan (it slowed down). I think we can attribute that to the CITIRA uncertainty…,” Mr. Diokno said in a briefing on Tuesday.

Meanwhile, Washington and Beijing are set to sign their phase one deal on Jan. 15 in order to soothe the eighteen-month trade war against the world’s two biggest economies.

YEAR-TO-DATE FLOWS
Meanwhile, preliminary BSP data showed that FDI net inflows fell 32.8% to $5.79 billion during the January to October period.

“The lower FDI net inflows reflect subdued investor sentiment due to the continued sluggish global economic activity,” the BSP said.

Equity other than reinvested earnings more than halved (65.4%) to $690 million in the first ten months of 2019 from $1.998 billion in the comparable year ago period.

This was dragged by the 44.9% decrease in net placements to $1.319 billion from $2.394 billion. Meanwhile, withdrawals climbed 58.8% to $629 million from $396 million a year ago.

“The top country sources of equity capital placements during the period were Japan, the United States, Singapore, China, and South Korea,” BSP said.

These funds went mainly to sectors such as financial and insurance; real estate; and manufacturing.

Reinvested earnings for the first 10 months of 2019 jumped 12.5% to $825 million from $733 million in the same period of the preceding year.

On the other hand FDI in debt instruments dropped by 27.3% to$4.275 billion from $5.88 billion a year ago. — Luz Wendy T. Noble

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