Net FDI inflows on track to target

October 11, 2016 at 10:04

Net FDI inflows on track to target

By Melissa Luz T. Lopez, Senior Reporter | Posted on October 10, 2016 11:01:04 PM

NET foreign direct investments (FDIs) recovered to a three-month high in July just as President Rodrigo R. Duterte formally occupied Malacañang, according to data the central bank released yesterday, riding on confidence in the newly seated administration.

FDI netted a $503-million inflow for the month, more than double the $238 million seen in June and 7% higher than the $470 million recorded in July 2015, data from the Bangko Sentral ng Pilipinas (BSP) showed.
The figure is also the highest since a record $2.244 billion in net inflows posted in April.

July brought net inflows to $4.695 billion year-to-date, 79.1% above the $2.621 billion recorded in 2015’s comparable seven months.

That means these flows are just $1.305 billion shy of BSP’s $6-billion projection for 2016 with five months remaining in the year. The official forecast is roughly 4% more than 2015’s actual $5.835 billion.

July alone saw a surge in inflows from foreign parent firms buying debt instruments of their Philippine subsidiaries and affiliates — largely to help finance the latters’ existing operations and business expansion — fueling the increase that month.

Such debt increased by 79.4% to $417 million — the biggest single contributor to total flows that month — in July from $232 million a year ago.

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Net equity investments plunged 85.5% in July to $23 million from a year-ago $159 million, as placements that fell 74.6% to $46 million from $180 million were offset by $23-million outflows that grew 8.4% to $223 million from $21 million.

Earnings reinvested dropped by nearly a fifth to $63 million from $79 million in the same comparable months.

FDIs are a key source of capital and a major generator of quality jobs needed to lift more Filipino households out of poverty.

For the month, the biggest capital flows came from Germany, the United States, Singapore, Japan and Korea, and were channelled to real estate, wholesale and retail trade, manufacturing, financial and insurance, and construction activities, the BSP said in a statement.

Most FDI segments bared increases year-to-date.

Foreign firms’ investment in their Philippine units’ debt remained the biggest single contributor to inflows in those seven months, more than doubling to $2.781 billion from $1.317 billion a year ago.

Net equity inflows surged 74.7% to $1.468 billion from $841 million as gross placements that rose by 55.7% to $1.657 billion from $1.064 billion offset outflows that fell 15.7% to $189 million from $224 million.

Reinvested earnings, however, slipped by 3.9% to $446 million from $464 million.

Sought for comment, two analysts discerned foreign investors’ confidence in the face of a smooth transition in the nation’s leadership at the end of June.

“The BSP report clearly indicates that foreign investors are able to discern the economic fundamentals from the usual political noise that accompanied the recent electoral contest,” said Emmanuel A. Leyco, public finance professor at the Asian Institute of Management, while noting a front-loading of investments that led to April’s record-high $2.224-billion net inflows just ahead of the May 9 national elections.

“The stronger FDI data seen in July is likely attributed to the Duterte administration’s entry into office in addition to hopes of a growth pickup for the Philippines amid slowing global growth,” added Jingyi Pan, market strategist at IG Singapore.

Shortly after assuming their posts, Mr. Duterte’s economic managers vowed to spend more on infrastructure and social services in order to sustain robust growth while reducing poverty rate towards the end of President Rodrigo R. Duterte’s six-year term at the end of June 2022.

The months ahead, however, could see a tempering of inflows, analysts said.

“Investors are nevertheless cautious as seen in the mild pickup of equity investments from the previous month. Layered with lingering Fed woes and the controversial remarks from President Duterte, the upcoming FDI is unlikely to be on the rosy side,” Ms. Pan said, referring to the President’s outbursts against key strategic, trade, investment and aid partners, particularly the United States, the European Union and the United Nations.

Mr. Duterte’s harsh rhetoric has been partly blamed for shaking local financial markets since September which were already straining amid a protracted guessing game on when the United States Federal Reserve will hike interest rates next after doing so for the first time in nearly a decade last December. Such US rate uncertainty has been blamed largely for the exodus of foreign funds from emerging markets.

Central bank officials have repeatedly called on foreign investors to focus on the Philippines’ macroeconomic fundamentals — strong economic growth, low inflation and ample reserves — in deciding on their bets here.

Net FDI flows to the Philippines have been consistently less than those that have flocked to most of the five original members of the Association of Southeast Asian Nations. Latest available central bank data show the Philippines bagging $4.192 billion last semester, compared to Malaysia’s $5.832 billion, Indonesia’s $7.885 billion and Singapore’s $29.032 billion. Thailand — still reeling from political uncertainty — got less net inflows amounting to $483 million. Second-quarter data for Vietnam were not available, but that economy raked in $2.86 billion in the first quarter alone, more than double the $1.345 billion the Philippines got in the same three months.


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