FOREIGN DIRECT investments (FDI) surged in April coming off last year’s low base, and reflecting positive investor sentiment over the passage of a key tax reform law.
FDI net inflows more than doubled to $679 million in April from $317 million in the same month a year ago, data from the Bangko Sentral ng Pilipinas (BSP) showed.
However, the latest inflows were 19% lower than the $808 million in March.
The central bank attributed the year-on-year improvement in FDI net inflows to “positive foreign investor sentiment on the country’s macroeconomic fundamentals and strong growth prospects.”
FDIs mean more capital for the Philippine economy, fueling business expansion that helps generate jobs and spurs overall domestic activity.
Net inflows in the first four months of 2021 climbed 56.3% to $3.056 billion from $1.955 billion in the same period last year.
“As expected because of low base in April 2020, pledges from before have materialized because of significant improvements in our pandemic response — from zero to some vaccination; from strict lockdown to less tighter protocols,” Asian Institute of Management economist John Paolo R. Rivera said in a text message.
To recall, the country was under the strictest form of lockdown in April 2020 in order to curb the spread of the coronavirus disease 2019 (COVID-19).
Metro Manila and nearby provinces were once again placed under lockdown from late March to April as new infections rose.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort attributed the higher FDI inflows to positive investor sentiment following the passage of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.
CREATE, which streamlines tax incentives and cuts corporate income tax to 25%, was signed into law by President Rodrigo R. Duterte on March 26.
Meanwhile, BSP data showed April’s FDI net inflows were driven by a 121.2% year-on-year increase in investments in debt instruments or inter-company borrowings to $500 million.
Equity inflows soared to $97 million in April from a mere $3 million in the same month last year. This, as placements surged 131% to $108 million, while withdrawals dropped 75% to $11 million.
Equity capital placements in April were mostly from Japan, the United States, and Singapore, the central bank said. These funds went mainly to the manufacturing and real estate industries.
Meanwhile, equity and investment fund shares almost doubled to $179 million from $91 million a year ago.
On the other hand, reinvestment of earnings slipped by 6.2% to $82 million in April. These are funds that foreign businesses chose to keep here for business expansion.
Investors are expected keep a close eye on how the Philippine government handles the pandemic, especially as new coronavirus variants emerge.
“(FDI inflows can be sustained) but that depends if improvements on pandemic management can still be demonstrated. It is also possible depending on who will run and is likely to win (in the 2022) elections as it will affect future investment environment,” AIM’s Mr. Rivera said.
The central bank in June trimmed its FDI projection for 2021 to $7.5 billion from $7.8 billion previously. — Luz Wendy T. Noble