By Luz Wendy T. Noble

FOREIGN direct investment (FDI) net inflows to the Philippines fell by almost a quarter last year, the central bank said on Tuesday, as global uncertainties, regulatory risks and an unclear path for a local tax reform program dampened investor sentiment.

Net inflows settled at $7.647 billion last year, 23.1% lower than a year earlier, the Bangko Sentral ng Pilipinas (BSP) said in a statement.

The central bank had originally targeted $9 billion in net inflows back in May, only to lower it to $6.8 billion later. It has an $8.8-billion goal this year.

“Notwithstanding the country’s sound macroeconomic fundamentals, global uncertainties dampened investor sentiment during the year,” it said.

FDI inflows in December alone jumped by 69% to $1.153 billion from a year earlier.

Net investments in debt instruments fell by 23.2% to $5.153 billion from the previous year.

Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc., said positive developments in the US-China trade negotiations might have led to higher FDI inflows in December.

“The end of 2019 signaled a better outlook coming into 2020 with the almost resolution of the US-Sino trade war with the signing of the phase 1 deal in January 2020,” he said.

“Investment sentiment was better during this month, with an expectation that a visible turning point was near the corner for a global economic recovery starting with an improved general trade atmosphere,” he added.

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., traced higher December inflows to increased government spending.

”That could have provided business opportunities for FDIs and other businesses that are part of the supply chain of infrastructure and other government spending,” he said.

Last year, equity other than reinvested earnings also fell by 38.2% to $1.449 billion after gross placements dropped by more than a quarter to $2.147 billion.

On the other hand, gross withdrawals rose by 18.4% to $698 million from a year earlier, BSP data showed.

Singapore, Japan and the United States were the main sources of equity capital placements, the central bank said. These investments were funneled mainly into the financial, insurance, real estate, electricity, gas, steam and air-conditioning supply, and manufacturing industries.

BSP said reinvested earnings rose by 16.6% year on year to $1.046 billion.

Analysts said foreign companies had deferred their expansion plans due to global uncertainties and the lack of clarity in local tax reforms.

“In 2019, investors faced difficulties from the trade war as well as regulatory risks plus uncertainties from tax reform bills that went pending for several months and impaired expansion plans,” Robert Dan J. Roces, chief economist at Security Bank Corp., said in an e-mailed reply to questions.

President Rodrigo R. Duterte this week certified a proposed Corporate Income Tax and Incentives Rationalization Act as urgent, which would allow the Senate to approve the measure on second and third reading on the same day.

Senators are still debating the bill, which will gradually cut corporate income tax to 20% from 30% and streamline fiscal incentives, in plenary. Congress will go on an almost two-month break starting March 13.

The drop in Philippine FDI suggests that investors might be picking regional peers over the Philippines, said Emilio S. Neri, Jr., lead economist at Bank of the Philippine Islands.

Indonesia, Malaysia and Vietnam seem to be more attractive destinations because they are better prepared to exploit redirected trade due to protectionist policies in China and the US, he said in an e-mail.

These policies include “wage competitiveness, adequacy of infrastructure, predictability of policies, quality of governance and ease of doing business,” Mr. Neri said, noting that FDI in these countries are higher than in the Philippines.

Indonesia’s FDI hit $28.2 billion last year, down from $29.3 billion in the previous year, Reuters reported, citing the country’s Investment Coordinating Board.

Total approved FDI flows to Malaysia rose by 6.5% to 66.3 billion ringgit or about $15.3 billion in the first nine months of 2019, according to Reuters, citing the Malaysian Investment Development Authority. Vietnam’s FDI inflows had reached $11.96 billion by August.

Some analysts think the government should step up efforts to boost investment flows amid the potential of a prolonged novel coronavirus outbreak.

The central bank is expected to review its targets and estimates for the year in the next quarter.

BSP Governor Benjamin E. Diokno earlier said FDI could drop as the coronavirus disease 2019 (COVID-19) outbreak that has killed almost 3,900 people and sickened about 111,000 more dissuades companies from expanding.

“Moving forward, we will not be surprised if FDI in early 2020 will continue to slow down or contract on the back of intensified regulatory risks in the Philippines as well as the rising risks, financial market turbulence and uncertainty arising from COVID-19,” Mr. Neri said.

Targeted fiscal stimulus including a supplemental budget for the Health department and other “careful, specific and coordinated policies” from the central bank, the National Government and Legislature could help restore investor confidence, Mr. Asuncion said.

Local health authorities yesterday reported nine new cases, bringing the total to 33 infections. — with Reuters