By Jenina P. Ibañez
Reporter

THE Philippine Economic Zone Authority (PEZA) expects investments to drop this year due to the coronavirus pandemic.

“Definitely our investment projections will fall,” PEZA Director-General Charito B. Plaza said in a mobile message.

Ms. Plaza said PEZA is still recalculating its projections, but added that exporters have become vulnerable as the pandemic affects production capability, supply chain and worker availability.

PEZA earlier projected a 5-10% growth in foreign investment pledges in 2020. In 2019, it recorded a 16% decline to P117.54 billion as domestic and foreign investors face tax reform uncertainties. Of the full-year total, investments registered by foreigners slumped 28% to P49.25 billion.

A “rapid deterioration” in global investment flows is anticipated this year, the United Nations Conference on Trade and Development (UNCTAD) said in a report released late March amid the pandemic.

UNCTAD said foreign direct investment (FDI) flows are projected to decline by 30-40% this year, from the earlier forecast of a 5-15% drop. It said the earlier assessment was based on February data, and on expectations that the primary impact would be on East Asia, with some effect on other regions through global supply networks.

“Now, the rapid worldwide spread of the pandemic and the implementation of mitigation and lockdown measures across much of the world have made a far larger demand shock and supply distribution inevitable and the consensus is that most if not all major economies will experience a deep recession,” UNCTAD said.

It said multinational enterprises have warned of pandemic-caused global demand shocks in addition to earlier concerns on supply chain disruptions.

The top 5,000 multinational enterprises, which account for a significant share of global FDI, reported 2020 earnings revisions of 30%, with the energy and basic materials, airlines, automotive industries seeing the biggest impact.

Economists are now uncertain if the Philippines would see some redirected FDI flows from other countries that have been more badly affected by the coronavirus disease 2019 (COVID-19).

“The Philippines enjoying increasing trade redirections may be difficult to say at this point. Trade flows lately have been highly restricted around the region, and this is highly dependent on when the pandemic and infections eventually wind down,” UnionBank of the Philippines Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

He said FDI inflows will take a “significant” hit in 2020.

FDI net inflows to the Philippines fell 23% to $7.647 billion last year. The central bank initially set an $8.8-billion target this year.

ING Bank N.V.-Manila Senior Economist Nicholas Antonio T. Mapa in an e-mail said foreign investors will be shying away from investments anywhere, including the Philippines, given the “impending economic gloom due to COVID-19.”

But he also said the Philippines would likely be least affected by the crisis as other economies are expected to fall into deep recessions.

“However, the Philippines has generally lagged our peers in FDI flows mainly due to lower infrastructure development. So we’ll possibly see an early surge in FDI to the Philippines but we’ll have to improve our infrastructure in the very near term to keep them coming,” Mr. Mapa said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said global FDI flows will decline in response to slower demand and less business activity due to the lockdowns, but FDI redirection to the country is still possible.

“Diversification of FDIs to different countries in ASEAN/Asia, such as the Philippines, which has a relatively large consumer market…by some global/multinational companies to better hedge their global supply chains and distribution channels could still continue as part of contingency and business continuity plans,” he said in an e-mail.

The continuity plans, he said, are responses to better deal with the lingering effects of the US-China trade war, the adverse effects of the COVID-19 outbreak, as well as other potential geopolitical, disaster, and other unforeseen risks in the future.

Mr. Ricafort said sharp reduction in interest rates, cuts in reserve requirement ratios, infusion of liquidity by central banks, and lower borrowing costs present opportunities for multinationals to invest in different parts of the world.

“Borrowing and other costs are relatively lower, as encouraged by the aggressive monetary easing and even substantial quantitative easing by many central banks around the world, as part of the initiatives by governments and central banks, on top of fiscal stimulus measures to forestall/prevent the recession risks,” he said.

Mr. Asuncion said that there are still investment opportunities in terms of domestic demand for essential goods and health products.

“Of course, if and when the COVID-19 pandemic is eventually controlled globally, there are various other opportunities to recover global trade.”

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