FDI net inflows drop for second consecutive month in April — BSP

FOREIGN direct investment (FDI) inflows fell year-on-year on a net basis for the second straight month in April — which nevertheless posted the biggest net inflow in nearly a year — due to a significant cut in equity inflows that offset increases in reinvested earnings and intercompany lending, the Bangko Sentral ng Pilipinas (BSP) reported on Wednesday.

April saw $961 million in FDI net inflows that was the biggest amount since May 2018’s seven-month-high $1.625 billion, even as the latest tally was down 11.8% from April 2018’s six-month-high $1.089 billion.

An 85.5% drop in net equity other than reinvested earnings to $39 million in April from $272 million a year ago weighed on the overall picture, with a 49.8% fall in placements to $144 million from the year-ago $287 million adding to the negative impact of a sevenfold hike in withdrawals to $104 million from just $15 million the past year.

The BSP said equity capital placements in April came largely from Thailand, the United States, Singapore, Hong Kong and Japan and went mainly to the construction; manufacturing; real estate; financial and insurance; as well as electricity, gas, steam and air-conditioning supply industries.

At the same time, April saw a 12.6% year-on-year increase in foreign parents’ investment in Philippine affiliates’ debt instruments to $830 million from $737 million, while reinvested earnings grew 14% annually to $92 million from $80 million.

YEAR-TO-DATE FLOWS
April brought year-to-date net inflows to $2.903 billion, 14% less than the $3.377 billion recorded in 2018’s first four months.

This year’s first four months saw equity other than reinvested earnings drop 71.1% annually to $335 million from $1.159 billion, as withdrawals grew threefold to $377 million from $124 million while placements fell by 44.5% to $712 million from $1.283 billion.

Equity capital placements in the first four months came mostly from Japan, the United States, China, Singapore and South Korea and went primarily to manufacturing, real estate, financial and insurance, transportation and storage, as well as administrative and support service industries.

Intercompany lending grew 16.32% to $2.242 billion as of April from $1.927 in 2018’s first four months, while reinvested earnings rose by 12.07% to $326 million from $291 million.

Sought for comment, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said FDI net inflows’ “decline may have been due to the negative investment sentiment brought by continuing US-PRC (People’s Republic of China) trade tiff during the period covered.”

“In addition, the government’s fiscal reform proposal or the move to rationalize investment incentives for foreign companies is hanging like a dark uncertain cloud over plans and potentials to invest in the Philippines.”

For Nicholas Antonio T. Mapa, senior economist at the ING Bank Manila, the increase in reinvested earnings and investment in debt instruments showed that “firms have chosen to stay and plow back their earnings to already profitable ventures in the Philippines.”

At the same time, “the pullback in… fresh FDI may be tagged to some firms awaiting clarity on the election and maybe on possible legislation after the election.”

Robert Dan J. Roces, Security Bank Treasury Group assistant vice-president and economist, said revived global demand from improved Sino-US trade ties and an economic growth push from increased government spending after the four-month delay in national budget enactment should put “FDIs… on the upside in the second half of the year.”

Last year saw $9.802-billion FDI net inflows — below the central bank’s $10.4-billion projection for 2018 — that was 14.05% less than 2017’s record-high $10.256 billion. As of March, the central bank had kept its projection of $10.2-billion FDI net inflows for this year, an estimate first pencilled in November 2018. — Reicelene Joy N. Ignacio