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Net FDI inflows tumble in March as virus spooks investors

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George Washington is seen with a printed medical mask in a dollar note in this illustration taken March 31. -- REUTERS

By Luz Wendy T. Noble, Reporter

FOREIGN DIRECT investment (FDI) inflows tumbled in March as the coronavirus disease 2019 (COVID-19) pandemic escalated around the world, further dampening investor sentiment.

Data from the Bangko Sentral ng Pilipinas (BSP) showed FDI net inflows slid 18.5% to $507 million in March from the $622 million recorded a year ago. The March figure was $2 billion higher than the $505 million recorded in February.

“The progression of the COVID-19 crisis into a full-scale pandemic and its adverse impact on the global economy dampened investor sentiment and investment activity during the month,” the BSP said.

The lower FDI net inflows was mainly due to a 33.5% plunge in net investments in debt instruments, including intercompany borrowings to $278 million in March.

Reinvested earnings also slipped 37.9% to $57 million in March from the $91 million a year ago.

On the other hand, equity other than reinvestment of earnings surged by 53.1% to $172 million from the $112 million a year ago. This was attributed to a 50% rise in placements to $196 million, while withdrawals jumped by 31% to $24 million.

Placements mainly came from Japan and Taiwan, and infused in industries such as administrative and support service; manufacturing; and financial and insurance industries, the BSP said.

Inflows to equity and investment fund shares also went up by 12.3% to $228 million from the $203 million in March 2019.

Year-to-date, FDI inflows contracted by 14.2% to $1.669 billion.

“This developed on account of the 41% decline in net investments in debt instruments to $828 million from $1.4 billion. Likewise, reinvestment of earnings dipped by 24.1% to $187 million from $247 million in the previous year,” the BSP said.

Asian Institute of Management economist John Paolo R. Rivera said investor sentiment in the country was improving at the start of the year, but was dampened by the Taal volcano eruption and coronavirus outbreak.

“Recall that FDI in January went up due to Philippines’ strong macroeconomic fundamentals resulting in continued investor confidence in the economy despite global economic risks driven by political and economic conflicts between major countries,” he said in an e-mail.

FDI inflows in January rose by 12% to $657.1 million from the $586 million level a year ago.

“Investor confidence is also being driven by how they [investors] benchmark our response to the pandemic relative to other economies,” Mr. Rivera added.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion also blamed the pandemic for the lower FDI inflows in March.

“The virus spread has clearly dampened planned investment expansion and activity by foreign investors,” he said in an e-mail.

In March, the World Health Organization declared the outbreak of COVID-19 a pandemic, as the disease spread around the world and sickened tens of thousands.

The BSP downgraded its 2020 FDI projection last week to $4.1 billion from its $8.8 billion outlook last year. FDI inflows stood at $7.647 billion in 2019.

Economists said an urgent response to the pandemic and the development of a vaccine will be the key factors for a recovery in foreign investments.

“FDIs may likely and slowly return once the economy is fully rebooted, particularly MSMEs (micro-, small, and medium-sized enterprises), tourism, and infrastructure. This will likely stimulate investor confidence,” Mr. Rivera said.

“However, timing is of the essence as other countries are also racing to attract FDIs,” he added.

Meanwhile, Mr. Asuncion stressed the importance of containment efforts to boost investor confidence in the Philippines.

“As the economies around the world begin to reopen, even as the threat of a second wave of infections hovers over the horizon, a major support to FDI inflows recovery in the coming months hinges on the importance of the COVID-19 containment efforts by the authorities,” he said, noting fiscal and monetary response may even come a secondary factor for investors to consider.





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