FDI net inflows drop to $793M in November

By Keisha B. Ta-asan, Reporter

FOREIGN DIRECT investments (FDI) in the Philippines plummeted 43.6% in November to $793 million and 13.4% to $8.43 billion in the 11-month period, suggesting a weaker global economic outlook.

FDI net inflows also fell 14.1% from the $923-million inflows in October, data released by the Bangko Sentral ng Pilipinas (BSP) on Friday showed.

The November figure was the lowest monthly FDI inflow since the $626 million in September 2022.

“This resulted from the drop in non-residents’ net investments in debt instruments and reinvestment of earnings. Meanwhile, net placements of equity capital rose year-on-year for the third consecutive month,” the central bank said in a statement.

Non-residents’ net investments in debt instruments of local affiliates dropped 55.2% to $540 million in November, from $1.21 billion in the same month in 2021.

Reinvestment of earnings also decreased 12.6% year on year to $73 million in November.

Meanwhile, investments in equity and investment fund shares rose 25.1% to $253 million in November, from $202 million a year earlier.

Non-residents’ net investments in equity capital (other than reinvestment of earnings) increased 51.8% to $180 million in November, from $118 million in the same month a year prior.

Broken down, equity capital placements grew 47.3% to $195 million, while withdrawals increased 8.8% to $15 million.

The equity placements were mainly from Japan, Singapore, and the United States, and invested mostly in manufacturing, information and communication, and real estate industries.

The decrease in FDI net inflows is likely driven by the weaker global economic outlook for 2023, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a Viber message.

“Although these were 2022 numbers, it may be possible that global firms have already started factoring in the said outlook already even before moving into the new year,” he said.

“The backdrop of higher interest rates and the uncertainty of monetary policy brought about by elevated inflation,” he added.

In the country alone, the Monetary Board raised borrowing costs by 75 basis points (bps) on Nov. 17 last year, bringing the overnight reverse repurchase rate to 5% in order to curb red-hot inflation and mirror the US Federal Reserve’s tightening.

Headline inflation rose to 8% in November from the 7.7% in October and 3.7% in November 2021.

The year-on-year decline in FDI net inflows is also due to higher base effects, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

FDI net inflows stood at $1.41 billion in November 2021, which was one of the largest net inflows in the country since the pandemic started, he said.

“The slowdown in the net FDI data may also have to do with higher short-term interest rates and the peak in long-term interest rates in the US…(and a) risk of recession in the US, which is the world’s largest economy,” Mr. Ricafort added.

The US Federal Reserve at its Nov. 1-2 2022 meeting hiked interest rates by 75 bps, which brought the key rate to 3.75-4% at that time.

YEAR TO DATE

For the first 11 months of 2022, FDI net inflows fell 13.4% to $8.43 billion from $9.74 billion in the comparable year-ago period.

“By component, non-residents’ net investment in debt instruments and reinvestment of earnings declined while their net placements of equity capital increased during the period,” the BSP said.

BSP data showed foreign investments in debt instruments declined 17.7% year on year to $5.90 billion in the January-to-November period.

Reinvestment of earnings fell by 8% to $1.08 billion in the 11 months through November 2022.

Investments in equity and investment fund shares also declined 1.4% to $2.53 billion in the 11-month period.

Meanwhile, net foreign investments in equity capital grew 4.2% to $1.44 billion.

Most of these placements were also from Japan, Singapore, and the United States.

The BSP expects FDI net inflows at $8.5 billion by end-2022 and at $11 billion by end-2023.

The country is still on track to hit the government’s projection for 2022, according to Mr. Ricafort.

“Market sentiment had improved since November 2022 when US inflation/consumer price index data eased further and long-term interest rates started to ease, thereby leading to some easing of long-term borrowing costs/financing costs for investments/FDIs,” he said.