NET INFLOW of foreign direct investments (FDI) — which point to long-term capital that generate jobs and transfer technologies — fell by 41% in July, with Bangko Sentral ng Pilipinas (BSP) governor Benjamin E. Diokno attributing this to the overall global economic slowdown and lingering uncertainty over the government’s tax reform program.

Data released by the BSP on Thursday night showed that net FDI inflow sank by 40.59% to $543 million in July from $914 million in the same period a year ago. It, however, recovered by 26.28% from June’s $430 million.

“Maybe that’s partly due to the slowdown in the global economy. Secondly, also the uncertainty on the second package of the tax reform. I think many investors have adopted a wait-and-see policy,” Mr. Diokno told reporters on the sidelines of the Financial Executives Institute of the Philippines (FINEX) conference held in Makati.

House Bill 4157 or the Corporate Income Tax and Incentives Rationalization Act (CITIRA), the second package of the government’s tax reform program, was approved on third and final reading on Sept. 13. The measure seeks to cut the corporate income tax rate gradually to 20% by 2029 from 30% currently, as well as make fiscal incentives more time-bound and tied to benefits to the overall economy. It is now pending at the Senate.

“The sooner we act on that [finality of CITIRA], then the sooner the investors can make up their mind whether to enter or exit [the country],” Mr. Diokno said.

BSP data showed equity other than reinvested earnings dropped 62.2% to $99 million in July, as gross placements declined by 39.6% to $168 million and withdrawals surged 302.4% to $69 million.

“Equity capital infusions during the month came mostly from Japan, Germany, Singapore, the United States, and South Korea. These placements were directed largely to financial and insurance, real estate, manufacturing, and human health and social work industries,” BSP said in a statement.

Foreign firms’ investments in debt instruments of their Philippine affiliates declined by 38.86% to $357 million in July from $584 million a year ago.

Reinvested earnings went up 16% to $87 million in July from $75 million a year ago.

July brought the year-to-date FDI net inflow to $4.1 billion, 39.1% lower than the $6.8 billion logged a year ago.

Equity other than reinvested earnings plunged 75% to $459 million during the January-July period, from $1.84 billion a year ago. Placements fell by 49.2% to $1.02 billion, while withdrawals surged 215% to $569 million.

BSP data showed that net investments in equity capital was more than halved (55.6%) to $1.054 billion from $2.373 billion in the first seven months of 2018.

Investments in debt instruments also went down by a third (30.3%) to $3.064 billion from $4.395 billion in the same period a year ago.

Year-to-date, reinvested earnings jumped 12.6% to $595 million from $528 million in the same period a year ago.

“Foreign investors hate uncertainty, and so the continuing external uncertainties brought about by the trade war and a global economic slowdown derail investment appetites. We also have not been absorbing more companies who are either setting up shop outside China or relocating to avoid the tariffs imposed by the US,” Security Bank Corp. chief economist Robert Dan J. Roces said in an email to BusinessWorld.

Meanwhile, ING NV-Manila senior economist Nicholas Antonio T. Mapa said the country’s FDI lagged behind its peers in the region.

“Gauging from the flows of FDI to other ASEAN (Association of Southeast Asian Nations), most our peers have been able to attract more FDI in the first half of 2019 versus the first half of 2018 with the Philippines the lone exception to this trend,” he said in an email to BusinessWorld, noting that the “pullback” in the inflows could be “tied” more to worries over CITIRA more than the global economic slowdown or trade war.

For his part, Rizal Commercial Banking Corp. chief economist Michael L. Ricafort, said the “relatively slower” loan growth amid an environment of falling interest and inflation may mean that “some investors, both local and foreign, may have waited for interest rates to…bottom out before becoming more aggressive in their borrowing/financing requirements, given the longer-term nature of financing some FDIs.”

But despite the drop in FDI, UnionBank of the Philippines Inc. chief economist Ruben Carlo O. Asuncion is hopeful of a recovery.

“FDI recovery may be seen as early as the clarity on the fiscal reforms are observed. Particularly, once there is clear consensus on the particulars of the CITIRA bill, it is expected that FDI levels will recover,” he said in an email. — L.W.T.Noble