FDI net inflows fall in September

By Melissa Luz T. Lopez
Senior Reporter
FOREIGN direct investment (FDI) net inflows to the Philippines fell in September to their lowest level in over a year, the Bangko Sentral ng Pilipinas (BSP) reported on Tuesday, at a time of faster inflation and global trade tensions.
FDI net inflows dropped to $569.35 million for the month from the $750.35 million that entered the country in August, and by 29.4% from the $806.8-million capital that entered in September 2017.
Net inflows were the smallest since July 2017’s $344.19 million, according to latest central bank data.
These flows bring in capital for new business or business expansion, which in turn generate gainful jobs.
The drop in investments came as foreigners decided to withdraw equity capital that month, the BSP said in a statement released late Monday.
Economic growth eased to 6.1% in July-September from 6.2% the previous quarter, while September alone saw a nine-year-high 6.7% inflation rate that was sustained into October, fueled by higher food and oil prices and the impact on imported goods of a depreciating peso, which traded at the P54 level versus the dollar.
Equity flows resulted in a net withdrawal of $117 million, as $69 million in gross inflows were wiped out by $187-million outbound capital. This reversed the $258-million net capital infusion in September last year, as $270 million in net placements offset $12-million outflows.
“Equity capital outflows for the month of September 2018 could be partly attributed to proposed rationalization of fiscal incentives, higher inflation and weaker peso during that time,” said Michael L. Ricafort, economist at the Rizal Commercial Banking Corp.
September also saw the House of Representatives approving House Bill No. 8083, or the proposed Tax Reform for Attracting Better and High-quality Opportunities Act, which gradually reduces the corporate income tax rate to 20% from the current 30% by two percentage points every other year starting 2021, but removes redundant fiscal incentives as well, drawing concern from investors in the country about changing policies and rules in the middle of the game.
FDI data which the BSP released on Tuesday also saw investments of foreign parents in debt papers of their Philippine subsidiaries or affiliates grow by a fourth to $609 million in September from $490 million a year ago, while reinvested earnings increased by a third to $78 million from $59 million.
The BSP said that equity investments mostly came from the United States, Japan, Macau, Hong Kong and China, channeled mostly to real estate; manufacturing; as well as electricity, gas, steam and air-conditioning supply activities.
Despite September’s drop, cumulative FDI net inflows still appeared to be headed for an all-time high this year.
Net inflows amounted to $8.038 billion in the nine months to September, 24.2% more than the $6.472-billion net inflows received in last year’s counterpart period.
Placements in debt instruments amounted $5.524 billion, up by a fifth from 2017’s first nine months.
Reinvested earnings edged up to $614 million from $604 million.
Equity other than reinvested earnings grew 52.1% to $1.9 billion from $1.249 billion, with such capital going to manufacturing; financial and insurance; real estate; arts, entertainment and recreation; as well as electricity, gas, steam and air-conditioning supply activities, the central bank said.
Ruben Carlo O. Asuncion, chief economist at the Union Bank of the Philippines, said “general confidence” in the Philippines’ growth story — despite worsening inflation — kept investors bullish.
At the same time, RCBC’s Mr. Ricafort said the volatile external environment may have forced foreign investors to take a second look at emerging markets like the Philippines.
‘The US-China trade has caused some shifts or increased flow of foreign direct investments from China to nearby ASEAN countries such as the Philippines to avoid higher tariffs imposed on Chinese exports to the US and to US exports to China,” Mr. Ricafort said, noting that the Philippines is now seen as an “alternative location for manufacturing.”
“Any continuation, at the very least, or further escalation of the US-China trade war, as well as increased tensions between the two countries involving their respective biggest businesses (e.g. Huawei) could result in further shifts of some FDIs from China to ASEAN countries such as the Philippines.”
The central bank expects FDI net inflows to reach $9.2 billion for the entire 2018, lower than the record $10.049 billion recorded last year. Revisions to the BSP forecasts will be announced on Friday.