Investment pledges still falling by Q3

FOREIGN FIRMS continued to avoid making investment pledges last quarter, uncertain of domestic and global growth.

Approved investments, which are commitments until they materialize, totaled P91.8 billion in the nine months ended September, 35.4% less compared to the same period in 2013.

Combined investment pledges by both foreigners and Filipino nationals totaled P159.6 billion in the third quarter, 15.7% lower compared to last year.

Nicholas Antonio T. Mapa, associate economist at the Bank of the Philippine Islands, said investors were unwilling to commit amid uncertainty over domestic economic growth and Federal Reserve monetary policy.

After the Philippines notched a 7.2% gross domestic product expansion in 2013, growth thereafter has been patchy: 5.6% in the first quarter, 6.4% in the second quarter and 5.3% in the third quarter. Agriculture reeled from strong storms while state spending slowed as the government adopted new processes to enhance transparency and after the Supreme Court struck down a fast-disbursing spending program.

Global growth was not rosy either. In April, the International Monetary Fund gave a 3.7% global growth projection for 2014, up from 3.6% in October the previous year. It cut its projection to 3.4% in July and to 3.3% in October. It noted strengthening growth in the US but weak growth in China and Japan and stagnant growth in the euro area.

The Federal Reserve, meanwhile, cut its monthly bond purchases as it withdrew the massive stimulus it unleashed to boost US economic growth. Investors, however, remained jittery over US monetary policy, particularly over the timing of interest rate hikes — which would be the first after the Fed slashed the federal funds rate to nearly zero in 2008 in response to the 2007 financial crisis.

“We need foreign investments as well as local investments to help spur economic growth,” Mr. Mapa pointed out.

To be sure, central bank data showed that actual foreign direct investments (FDI) had surged by 61.3% annually as of September to $4.876 billion, although still far less than what the Philippines’ neighbors had attracted.

But foreign portfolio investments — differentiated from FDI in that the former are placed in securities and can be invested and withdrawn quickly and constitute a stronger gauge of investors’ fickleness — registered net outflows of $1.077 billion as of October, a reversal of the $3.597 billion in inflows the year before due to lower global growth forecasts and the end of the Fed’s bond purchase program.

The PSA claimed the investment pledges by both foreign and local investors last quarter were expected to generate 54,606 jobs, 39% more than last year. About “74.3% (of the total) would come from projects with foreign interest,” it said.

Most of the approved committed foreign investment will go to manufacturing, which is enjoying a revival; to administrative and support service activities, next; and to real estate, which is still booming, third.

Nearly a fourth of pledges came from the Netherlands. Japanese investors accounted for 20.1% and US investors, 15.3%, of the total. – Dianne Orendain