Q3 FDI pledges end 4 quarters of decline

By Arianne Kristel R. Pelagio

FOREIGN direct investment (FDI) commitments rose in the third quarter, partially recovering from four straight quarters of decline.

Preliminary Philippine Statistics Authority (PSA) data show that approved FDI pledges — which are commitments until capital actually flows in — registered with the country’s seven investment promotion agencies (IPAs) grew 61.1% year-on-year to P43.018 billion in the third quarter from P26.711 billion a year ago.

Combined investment pledges by both foreigners and Filipino nationals totalled P274.368 billion, 105.1% more than the year-ago’s P133.787 billion.

IPAs are government agencies that by law are authorized to grant tax and non-tax incentives to investors putting up businesses or expanding existing ones in priority sectors. The seven IPAs are the Board of Investments (BoI), Clark Development Corp. (CDC), Philippine Economic Zone Authority (PEZA), Subic Bay Metropolitan Authority (SBMA), Authority of the Freeport Area of Bataan (AFAB), BoI-Autonomous Region in Muslim Mindanao (BoI-ARMM) and Cagayan Economic Zone Authority (CEZA).

The three months to September saw PEZA contributing the most to FDI pledges at 79.2% with P34.052 billion, up fivefold from last year’s P6.374 billion.

This is followed by the BoI with a 16.3% share at P7.014 billion, though 64.4% less than a year ago.

Rounding the rest of the IPAs were CDC’s P1.064 billion with a 2.5% share, BoI-ARMM’s P690 million (1.6% share), AFAB’s P142.194 million (0.3%), SBMA’s P51.138 million (0.1%) and CEZA’s P4.95 million (0.01%).

Foreign investment pledges from CDC and AFAB in the third quarter saw significant increases from their 2016 figures of P79.418 million and P7.004 million, respectively.

On the other hand, foreign investment commitments to SBMA and CEZA were both down 90.4% and 77.9% year-on-year, while previous data from BoI-ARMM were not available.

Actual net FDI inflows in the third quarter — tracked separately by the central bank — climbed 35.8% year-on-year to $2.264 billion from $1.667 billion. That brought nine-month net FDI inflows to $5.839 billion, still down 0.2% from the past year.

Economists attribute the investment inflows to the country’s bright overall economic prospects.

“The latest foreign investments report provides evidence of investors’ continued confidence in the Philippines’ growth story, which is primarily fueled by the country’s growing middle class and young population,” said Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines (Landbank).

This view is shared by Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines (UnionBank), who said that the factor for this surge “has always been the strength, resiliency and robustness of Philippine economic growth in the last decade or more.”

“Note that there is a momentum that is building up in favor of increasing infrastructure spending and important structural reforms that support investment growth through sustained and increasing government spending, particularly on infrastructure, education, and other social services,” he said.

By industry, manufacturing continued to make up bulk of the foreign investment pledges with a 58.2% share of the total at P25.053 billion, 395% higher than the past year’s P5.061 billion. Real estate activities followed with a 23.5% share or P10.097 billion while administrative and support service activities came third with 6.7% or P2.861 billion, a 25.9% increase from P2.273 billion a year ago.

Meanwhile, investment pledges in information and communication technology was P1.186 billion, 356.3% more than P259.9 million previously.

The other industries with foreign investment pledges during the quarter were, in order of magnitude: electricity, gas, steam and air conditioning supply; accommodation and food service activities; construction; wholesale and retail trade, repair of motor vehicles and motorcycles; financial and insurance activities; agriculture, forestry and fishing; transportation and storage; arts, entertainment and recreation; professional, scientific and technical activities; other service activities; and education.

Japan was the biggest source of investment commitments in the third quarter with P21.374 billion, increasing 784.2% year-on-year and accounting for 49.7% of the total for that period. It was followed by Taiwan and Australia, pledging P8.852 billion (20.6% share) and P2.763 billion (6.4% share).

CALABARZON — the region immediately south of Metro Manila that consists of Cavite, Laguna, Batangas, Rizal and Quezon — got the most FDI commitments in the third quarter at 50.4% of the total at P21.699 billion. This was 691.9% bigger than the amounts recorded in 2016’s comparable three months. “The fact that majority of foreign investments are focused in CALABARZON is a positive sign, as it suggests that growth is branching outside of the National Capital Region — a trend which is supportive of inclusive growth,” Landbank’s Mr. Dumalagan noted.

Economists remained positive on foreign investment commitments in the months ahead.

UnionBank’s Mr. Asuncion said he expects “year-end level for FDI” pledges to exceed last year’s total. “The Philippines has been at the top of mind of various sophisticated investors. In the first half of the year, investment inflows were rather soft, but I still expect 2017 to top the investment level last year,” he said.

For Landbank’s Mr. Dumalagan: “Moving forward, foreign investments might remain strong, especially if the government is able to roll out its ambitious infrastructure projects, which are expected to improve the country’s productive capacity and consumer spending.”