Foreign direct investments plunge in April

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The central bank reported foreign direct investment inflows slumped in April. — REUTERS

By Luz Wendy T. Noble, Reporter

FOREIGN INVESTMENTS to the Philippines plunged to an 11-month low in April, as the coronavirus pandemic prompted lockdowns that disrupted economic activity around the world.

Net inflows of foreign direct investments (FDI) declined by 67.9% to $311 million in April, from the $971 million booked a year ago, data from the Bangko Sentral ng Pilipinas (BSP) showed. This 38.66% lower than the $507 million tallied in March.

The April inflows are the lowest since the $280 million recorded in May 2019.

“The slowdown in FDI inflows reflected the continued weak global and domestic demand prospects prompting many investors to put on hold investment plans amid the unresolved COVID-19 (coronavirus disease 2019) pandemic,” the BSP said in a statement on Wednesday.

The significant drop in April was attributed to a 73.2% decline in net investments in debt instruments to $223 million from the year-ago figure of $832 million.

Reinvested earnings, or funds which foreign businesses chose to keep here to fuel business expansions, also slipped by 15.8% to $81 million in April from the $96 million a year ago.

Equity other than reinvestment of earnings plummeted by 82.6% to $7 million for the month of April against the $42 million recorded last year. Placements sank 68.3% to $47 million, while withdrawals dropped 62.5% to $39 million.

“The bulk of the equity capital placements were sourced from Japan, the United States, Singapore, and Germany,” the central bank said, noting investments were funneled into industries such as manufacturing, real estate, and wholesale and retail trade.

Meanwhile, inflows to equity and investment fund shares decreased by 36.2% to $89 million from the $139 million booked a year ago.

For the first four months of 2020, FDI net inflows slid by nearly a third (32.1%) to $1.98 billion against the $2.916 billion seen in the same period of 2019.

In June, the BSP downgraded its FDI projection for 2020 to $4.1 billion from the $8.8 billion outlook penciled in last year.

Net FDI inflows settled at $7.647 billion last year, 23.1% lower than a year earlier, as global uncertainties, regulatory risks and an unclear path for a local tax reform program dampened investor sentiment.

The weakness of FDI inflows is consistent with the decline in other economic indicators due to lockdown restrictions, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

“Net FDIs sharply declined in April 2020, which was the height of the COVID-19 lockdown in the Philippines as well as in other developed countries that are the major sources of the country’s FDI,” Mr. Ricafort said in an e-mail.

A sharp drop in FDIs during a time of uncertainty is “not unique” given the country is an emerging market, Security Bank Corp. Chief Economist Robert Dan J. Roces.

Mr. Ricafort said the worst might be over for the country’s FDI inflows as lockdowns began easing around the world.

He said the passage of tax reform measures will help improve investor sentiment.

“The proposed CREATE (Corporate Recovery and Tax Incentives for Enterprises Act) bill, if passed into law later in 2020 would also help encourage more FDI inflows into the country in view of lower corporate income tax rates and greater certainty on incentives for some foreign investments,” Mr. Ricafort said.

The CREATE bill looks to immediately bring down corporate income tax to 25% this year from the current 30% and to 20% by 2027. It is still pending in Congress, which will resume session on July 27.

Mr. Roces said investments may recover if the country improves its infrastructure and incentives program.

“This on top of the fact that we still offer many comparative advantages, including an English-speaking and well-skilled workforce, and a geographical location in a dynamic region,” he added.





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