Long-term foreign investments down for 6th month in January

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FOREIGN DIRECT INVESTMENT (FDI) net inflows to the Philippines declined for the sixth straight month in January as more firms plucked out capital, still largely due to fears over global trade tensions, the Bangko Sentral ng Pilipinas (BSP) reported on Wednesday.

FDI net inflows amounted to $609 million for the month, the lowest since November and spelling a 38.2% plunge from the $986 million which the Philippines got in January 2018.

The BSP said that the lower net inflows came as equity investments slid from a year ago, and as more foreign businesses chose to withdraw their placements.

Equity capital amounted to a $45-million outflow during the month, a reversal from the $473-million year-ago inflows. This developed as gross equity inflows totaled $184 million, just a third of the $531-million placements in January 2018. At the same time, foreigners withdrew $229 million capital from the Philippines, nearly four times the $58 million repatriated previously.

The BSP said bulk of the withdrawn equity capital was from Japan-based investors, while the biggest sources of investments during the month were Mauritius, South Korea, the United States, Singapore and the Netherlands.

The central bank noted that equity capital went mainly to finance and insurance; administrative and support services; real estate; electricity, gas, steam and air-conditioning supply; and information and communication.

Meanwhile, foreign companies chose to reinvest $76 million of their local earnings in January, compared to the year-ago $71 million, marking the biggest such amount logged since September.

Foreign firms’ loans to their Philippine units grew 31% to $577 million from $441 million.

Sought for comment, one observer attributed the sustained drop in FDI net inflows to market jitters over the tariff war between the United States and China, now involving billions of dollars’ worth of merchandise exports. “It’s really the negative perception about the lingering effects of the trade squabble between the US and China, the two biggest economies today. In fact, almost all the multilaterals are convinced that this trade issue is the biggest threat to global economic growth,” said Ruben Carlo O. Asuncion, chief economist of the Union Bank of the Philippines. “I see no other underlying mover that is actually impacting global trade right now.”

US President Donald J. Trump has also threatened tariffs on $11 billion worth of European Union exports in retaliation for aircraft subsidies.

“This statement has implications for FDI levels and it may continue to put downward pressure on FDIs for the rest of 2019 and impact risk appetite moving forward,” Mr. Asuncion said.

“Investors will probably continue to stay on the sidelines and may hold back with planned investments and expansions.”

The International Monetary Fund said in its latest World Economic Outlook report that world output will ease further this year, as the global economy reels from the Sino-US trade war.

FDIs are a source of capital for the Philippine economy, spurring domestic activity by funding business expansion and generating more jobs.

BSP Governor Benjamin E. Diokno has said that he was not worried about the lower FDI haul last year, noting “a lot of interest” in the Philippines for being among the fastest-growing economies in the world.

From a record high of $10.256 billion in 2017, FDIs dropped 4.4% to settle at $9.802 billion last year. Foreign business groups attributed the paler investor appetite to jitters over higher commodity prices, the proposed changes to tax incentives and the global trade tensions.

The BSP sees foreign investments reaching $10.2 billion this year. — Melissa Luz T. Lopez