Q1 FDI pledges grow more than threefold

FOREIGN direct investment (FDI) commitments grew more than threefold last quarter, the Philippine Statistics Authority (PSA) reported on Thursday.

Preliminary data showed approved FDI pledges — which are commitments until capital actually flows in — registered with the country’s seven main investment promotion agencies (IPAs) grew 223.6% year-on-year to P45.98 billion in the first quarter from P14.21 billion in 2018’s first three months.

Investments committed by foreigners and Filipinos totaled P274.2 billion, 48.1% more than the year-ago P185.1 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 main IPAs monitored by PSA 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 first quarter saw the BoI contributing the most to FDI pledges at 67% of the total with P30.82 billion, around 39 times bigger than last year’s P792.8 million.

It was followed by PEZA with a 28.2% share at P12.97 billion, roughly a tenth of a percentage point more than the P12.96 billion in the same period last year.

The rest consisted of SBMA’s P1.563 billion with a 3.4% share, CDC’s P380.3 million (0.8% share), AFAB’s P174.3 million (0.4%) and CEZA’s P79.8 million (0.2%). Data from BoI-ARMM were not available.

SBMA’s P1.56 billion was around 136 times bigger than its previous figure of P11.5 million in the first quarter of 2018, while that of CDC was 11.9% higher than last year.

On the other hand, foreign investment commitments to CEZA were down 23.3% year-on-year.

Foreign investment commitments are different from actual capital inflows tracked by the Bangko Sentral ng Pilipinas (BSP) for balance of payments purposes.

Latest data available by the BSP showed that net FDI stood at $1.36 billion as of February, down 15.7% from $1.61 billion in the same two months in 2018.

Among regions, Central Luzon got the most foreign investment pledges in the first quarter at 48.1% of the total or P22.11 billion. This was around 42 times commitments to the region in the first quarter of 2018.

CALABARZON — the region immediately south of Metro Manila consisting of Cavite, Laguna, Batangas, Rizal and Quezon — was the second biggest contributor with a 34.1% share, while the National Capital Region came in third with 13.7%.

The Netherlands was the biggest source of FDI commitments in the first quarter with P10.1 billion, more than 11 times bigger than a year ago and accounting for 22% of the total for that period. It was followed by Japan and Thailand, pledging P9.43 billion (20.5% share) and P8.47 billion (18.4% share).

Commenting on the results, Union Bank of the Philippines, Inc. (UnionBank) chief economist Ruben Carlo O. Asuncion cited studies such as those by the Asian Development Bank (ADB) that identified the Philippines as “one of the potential beneficiaries” of ongoing trade tensions between the United States and China.

“This uptick in [the first quarter of 2019’s] total approved foreign investments may probably be the initial manifestation of the trade war impact. However, it cannot be taken away as well that the Philippines continues to be one of the preferred foreign investment destinations in Southeast Asia, hence, the threefold increase in approved investments,” Mr. Asuncion said.

The economist was referring to a December 2018 ADB study that said Southeast Asian economies may benefit from the US-China trade war through “trade redirections” towards countries unaffected spillovers from rising tariffs imposed by the two economic superpowers on each others’ goods.

For the first quarter, Chinese investment pledges to the Philippines amounted to P714 million, 69.2% more than the P421.9 million in the first quarter of 2018, while commitments from the United States were valued at P4.68 billion, eight times bigger than the past year’s P558.4 million.

Mr. Asuncion likewise noted the surge of commitments in manufacturing.

“[S]eemingly, the government has been focusing on the development of the manufacturing sector,” he said.

“But it may also be good to point out that the same ADB study that I have mentioned has concluded that for the Philippines, the manufacturing sector stands to gain from the trade conflict between the US and China… I believe that this may be one of the reasons why manufacturing investors have pledged the most recently.”

By industry, bulk of the foreign investment pledges went to manufacturing with a 76.1% share at P35 billion, followed by administrative and support service activities (P3.53 billion) as well as accommodation and food service activities (P2.93 billion).

Sought also for comment, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the Philippines is “poised to post a strong growth trajectory.”

“With the Philippines seen to bounce back from its recent hiccup in terms of growth, caused in part by delays in government spending and the BSP’s aggressive rate hike, more foreign players pledged to make investments to take part in the Philippine growth story,” Mr. Mapa said in a separate e-mail.

“With a young dynamic population, growth prospects remain bright with foreign investors keen to get in on the action. The bulk of investments appear to be geared towards power generation to help address the power supply issues in the country with projections for demand likely robust given the economic growth outlook,” he added.

Both economists are upbeat about growth prospects of investment pledges.

For Mr. Asuncion, there may be more manufacturing investments in the months to come. “As long as the trade war continues, firms, particularly in China, and the different supply chains will try to find to insulate themselves from the fall out of the protracted trade conflict,” Mr. Asuncion said.

For Mr. Mapa, “[i]nvestments that could easily opt to locate in other jurisdictions may be on hold until details on the proposed TRAIN law 2 become more apparent,” he said, referring to the proposed tax reform that seeks to cut corporate income tax rates but also streamline fiscal incentives by removing those deemed redundant.

“On the other hand, investments that cater to the local market may see continued growth as more foreign players want a piece of the [Philippine] action,” Mr. Mapa added. — KTM