Committed investments surge

COMMITTED foreign direct investments (FDI) approved by the government’s seven main investment promotion agencies (IPAs) grew more than fourfold to the biggest amount in nearly seven years last quarter, helping to fuel a year-to-date surge, according to preliminary data the Philippine Statistics Authority reported on Thursday.

Pledged FDI increased by 327.9% to P182.44 billion in the third quarter from P42.64 billion in the same three months last year.

The latest tally was the biggest amount since the P230.22 billion recorded in the fourth quarter of 2012.

The seven IPAs tracked by the PSA are the Philippine Economic Zone Authority (PEZA), Board of Investments (BoI), Clark Development Corp. (CDC), 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).

Third-quarter inflows brought year-to-date committed FDIs to P278 billion, 216.6% more than the year-ago P87.79 billion.

Approved committed investments from Filipinos and foreign nationals totaled P515.71 billion last quarter, 187.7% more than the P179.26 billion committed in the same three months last year. Domestic investors accounted for P333.27 billion or 64.6% of the total.

Should they materialize, foreign and local investments pledged in the third quarter are expected to generate 50,575 jobs across industries, 22% more than the 41,447 prospective jobs from investments pledged a year ago.

Foreign investment commitments differ from the actual capital inflows monitored by the central bank for balance of payments purposes. Investments tracked by the Bangko Sentral ng Pilipinas (BSP) also go beyond projects and include other categories like reinvested earnings and lending to Philippine subsidiaries and affiliates through their debt instruments.

With the wider definition, latest BSP data showed that foreign direct investment net inflows sank by 39.7% to $4.535 billion in the eight months to August from $7.526 a year ago.

“The growth in investment pledges were mainly driven by investments in the information and communication industry,” said the PSA, which grew 11,109.6% to P134.51 billion in the third quarter.

This was followed by electricity, gas, steam and air-conditioning supply, with a share of 19.2%, got P35.01 billion; manufacturing’s P7.06 billion; and administrative and support services’ P2.59 billion.

The three months to September saw BoI contributing the biggest chunk of the foreign investment pledges at P170.98 billion or 93.72% of the total. PEZA followed far behind with P10.29 billion or 5.643%, SBMA with P476.33 million, BoI-ARMM with P306.81 million, CDC with P152.9 million, AFAB with P150.77 million and CEZA with P72.35 million.

BoI reported separately on Thursday that total committed investments it has so far approved more than doubled to P1.04 trillion as of October from P434 billion in last year’s comparable 10 months, with FDI pledges surging 818% to P331 billion and domestic investments growing 78% to P709 billion.

Among regions, Cavite-Laguna-Batangas-Rizal-Quezon (Calabarzon) just south of Metro Manila got bulk of total foreign pledges in the third quarter with P40.30 billion or 22.1% of the total, followed by the National Capital Region with P2.68 billion and Central Luzon with P2.16 billion.

By country of investor, Singapore sent the most committed FDIs during the nine months to September with P174.33 billion (62.7%), followed by South Korea with P35.52 billion and Japan with P17.33 billion.

ING Bank NV Manila Branch Senior Economist Nicholas Antonio T. Mapa said in an e-mail that the surge in pledges might have come from “corporates [that] may have expressed interest in the Philippines but are awaiting clarity on the CITIRA bill before they actually translate these pledges into FDI flows into the country.”

He was referring to the proposed Corporate Income Tax and Incentives Rationalization Act that will gradually cut the corporate tax rate to 20% in 10 years from 30% currently and overhaul fiscal incentives.

For UnionBank of the Philippines, Inc. (UnionBank) Chief Economist Ruben Carlo O. Asuncion, foreign investors considered the country for “positive” reasons as the “challenge” of protectionism in global trade rises.

“Aside from its resilient growth story in 2018 and now 2019, there are economic reforms that help the country be a great investment destination,” Mr. Asuncion said in an e-mail.

“The country’s investment climate improvement is seen in the World Bank’s Ease of Doing Business report, where the Philippines jumped 29 places from ranking 124th to 95th among the 190 economies surveyed.”

For his part, Rizal Commercial Banking Corp. (RCBC) Economist Michael L. Ricafort attributed the surge in foreign investment commitments to the sharp decline in the local inflation and key interest rates as well as the higher government spending and infrastructure during the quarter.

“Thus, some bottoming out in local interest rates already encouraged more FDI commitments that will be funded with much lower borrowing or financing costs,” he said.

“Furthermore, government spending and infrastructure spending posted sharp growth rates in the latter part of [the third quarter], thereby benefiting some related FDIs that form part of the supply chain,” Mr. Ricafort added.

In the third quarter, inflation further decelerated to 1.7% from three percent in the second quarter. This brought the year-to-date average inflation to 2.8%, still within the government’s target of 2-4%.

Inflation slowing from last year’s near-decade-high 5.2% has enabled the BSP to partially dial back 2018’s cumulative 175-basis-point hike in benchmark interest rates, by 75 bps so far. The BSP will hold its eighth and last policy review for 2019 on Dec. 12, where it is widely expected to hold fire on further cuts for now.

“On external factors, the US and China agreed to resume talks in the latter part of the [third quarter], increasing the chances of a partial or phase-one trade deal between the two countries, thereby improving risk appetite in the financial markets and economy…” Mr. Ricafort added.

Looking ahead, UnionBank’s Mr. Asuncion said, “FDI pledges may actually grow further the fourth quarter as better prospects come forth regarding the future of institutional and game-changing reforms being undertaken by the current administration.”

“Reforms that will clarify investment themes, communicate a specific industrial policy and the emphasis to improve connections and the decongestion of business and financial centers in the country that can further create investment opportunities and demand creation,” Mr. Asuncion said.

RCBC’s Mr. Ricafort said that approval of the final version of corporate income tax reforms will lend “more certainty to both foreign and local investors,” encouraging “them to become more decisive in their investments into the country.”

He added that “FDI pledges could continue to go up further especially if financing or borrowing costs for FDIs have indeed bottomed out in the third quarter this year… This would prompt more aggressive borrowings to finance some FDIs after waiting over the past couple of months for interest rates to go down further.” — Carmina Angelica V. Olano