FDIs’ year-to-date fall persists despite May hike

FOREIGN direct investments (FDI) to the Philippines surged anew in May on the back of substantial lending to local affiliates, but they were still not able to curb a year-to-date drop of more than a fifth, according to data the central bank released yesterday.

Net foreign fund inflows amounted to $ 572 million that month, up 57% from the $ 364 million that entered the country in May 2016 although 35% less than April 2017’s one-year-high $874-million haul.

In a statement, the central bank attributed the FDI climb to the “continued positive outlook” on the Philippine economy in the face of “strong” macroeconomic fundamentals.

FDIs are a key source of capital for the local economy, which in turn generate more jobs for Filipinos through business expansion.

Bigger intercompany borrowings fuelled the leap in net investments in May, with bets on debt instruments doubling to $ 459 million from the year-ago $220 million, though 37% less than April 2017’s $723 million.

Economists have said that foreign players may be leaning

towards debt instruments at a time of rising uncertainty in the global market, as they view debt as the “safer” alternative rather than betting on equities.

Reinvested earnings likewise picked up by 7.8% to $71 million from $65 million a year ago, though 14% less than the preceding month’s $81 million.

Increases in these two components offset the 45.6% year-on-year fall in net equity placements to $43 million from $79 million.

The same comparative months saw gross placements slide 3.9% to $ 83 million from $86 million, while withdrawals grew fivefold to $40 million from $8 million.

The net increase in FDI flows — as well as the fall in equity placements — took place as President Rodrigo R. Duterte on May 23 placed the entire Mindanao island under martial law to contain within Marawi City the battle between government troops and extremists who have pledged allegiance to the Islamic State. The military rule initially spanned two months, but Congress opted to extend its validity until yearend as the fighting has stretched to a third month.

YEAR-TO-DATE FALL

The strong growth in investments seen in May was not enough to pull the year-to-date tally higher than the $3.946 billion recorded in 2016’s comparative five months.

Net FDIs amounted to $ 3.006 billion from January to May, down 23.8% from the previous year and less than half the government’s full-year projection for 2017.

The same comparative five months saw inter-company lending increase by 12.8% to $ 2.448 billion from $ 2.171 billion and reinvested earnings grow 7.5% to $345 million from $321 million.

Net equity capital investments, however, fell by 85.4% to $213 million from $1.454 trillion, as gross placements dropped 77.3% to $358 million from $1.578 billion and withdrawals grew by 16.1% to $145 million from $125 million.

The central bank expects net FDIs to reach $8 billion this year, slightly higher than the $7.93 billion that entered the country in 2016.

Japan, US, Hong Kong, Singapore, and Germany were the biggest sources of foreign capital, bulk of which went to real estate, manufacturing, financial and insurance sectors, as well as wholesale and retail trade. —