Foreign direct investments nearly halved in first semester
NET VALUE of foreign direct investments (FDI) — a key source of jobs and credit for the economy — was nearly halved last semester as inflows dropped for a fourth straight month in June — a development analysts blamed on current aversion towards emerging markets and, closer to home, cautiousness ahead of a change in national leadership in the middle of next year.
First- half data, provided by the Bangko Sentral ng Pilipinas ( BSP), paled in comparison to even just the first-quarter flows of Southeast Asia’s four other biggest economies.
The central bank yesterday reported that net FDI declined by 30.9% to $383 million in June from the $554 million in 2014’s comparable month. June’s tally was also lower than May’s $403 million.
Net inflows were logged across all FDI components in June, BSP noted, although some of these were lower than flows a year ago.
Net equity capital investments made up bulk of inflows in June at $214 million, almost four times the $ 54 million seen the previous year as $308 million in gross placements offset $ 94- million withdrawals.
Bulk of these placements — largely from the United States, Singapore, Germany, Japan and
Taiwan — went to manufacturing, real estate, wholesale and retail trade, administrative and support services, as well as information and communication activities.
Non-residents’ placements in debt instruments of local affiliates recorded a net $102 million that was three-fourths less than a year ago, while reinvested earnings fell 11.6% annually to $67 million.
The latest net FDI flows brought the firstsemester tally to $2.019 billion, down 40.1% from the $3.373 billion logged in 2014’s comparable six months “as all FDI components posted lower net inflows,” BSP said.
Foreign firms’ lending to local affiliates fell 55.6% annually to $ 981 million, reinvested earnings dropped 18.4% to $385 million, while net equity capital placements slipped 5.7% to $654 million.
The country’s net FDI intake last semester was lower than even just the first-quarter tally of its peers. Latest available data on BSP’s Web site showed that Singapore got $16.88 billion in the first quarter; Indonesia received $5.293 billion; Thailand, $5.104 billion; and Malaysia, $2.368 billion.
Sought for comment, Nicholas Antonio T. Mapa, associate economist at the Bank of the Philippine Islands, said: “FDI flows have slowed in large part because of the change in sentiment.”
“With the Fed set to hike and global growth threatened by China’s economic struggles, investors may be holding off on investments especially in markets like the Philippines,” Mr. Mapa explained in an e-mail.
“We’ve also noted that although the Philippines has made strides in terms of economic growth, the expansion has been driven largely by consumption and the private sector... much has been left to be desired in terms infrastructure development which is needed in order to address the raft of concerns foreign investors have about the Philippines,” he added.
“Power is still exorbitantly expensive. Port quality is terrible. Flooding is a problem. Airports are inadequate. All these are factors that investors are looking at and they may have chosen to invest in other shores that have better addressed these areas.”
Institute for Development and Econometric Analysis, Inc. Research Director Remrick E. Patagan for his part said: “The slowdown in our foreign direct investment haul can be attributed to… heightened uncertainty on both domestic and global economic prospects [which] may have increased risk aversion and dampened real investment inflows.”
“On the domestic front, the upcoming presidential elections represent a crucial juncture that will determine whether the country’s reform efforts and growth momentum will continue beyond the present administration’s term. Investment decisions can be put on hold as investors may adopt a wait-and-see attitude before making major commitments in the country,” Mr. Patagan said in a separate e-mail.
“At the international level, recent developments — Chinese slowdown, falling commodity prices and exports, uneven monetary policy normalization particularly among the US, EU and Japan and continued weakness in overall global economic activity — have contributed to increased volatility in the flows of funds and weighed on investor sentiment,” he added.
“Foreign investment commitments declined by almost a third in 2014. Given investment commitments may follow a considerable lag before being realized as actual inflows; it may be that the lower investment flows we are seeing only reflects the decrease in commitments seen last year,” he continued.
“Lastly, base effects are also at play considering that 2014 was an exceptional year in terms of foreign direct investments. The current slowdown may also thus be seen as normalization or a return to more normal levels of investment inflows — around $3-4 billion — as seen in previous years.”
The central bank expects net FDI inflows to reach $6 billion this year, up from the initial estimate of $5.3 billion that was tipped last November. Last year, net FDI to the Philippines surged to an all-time high of $6.201 billion, up 65.9% from $3.737 billion registered in 2013 and beyond the upwardly revised $4.4-billion forecast of the BSP for 2014.