ASEAN FDI inf lows at record $155B in 2018; PHL fifth

THE Philippines was fifth among regional economies in attracting foreign direct investment (FDI) in 2018, with the region taking in a record $155 billion overall, equivalent to 11.5% of the global total, up from 9.6% in 2017.

The data were contained in the Association of Southeast Asian Nations (ASEAN) ASEAN Investment Report, which showed increased FDI inflows for a third year. The Philippines was fifth among the 10 ASEAN economies, taking in $9.8 billion.

Around half of FDI inflows in 2018 went to Singapore, with $77.6 billion. Indonesia, Vietnam, and Thailand rounded out the top four.

The Bangko Sentral ng Pilipinas has said that Philippine FDI inflows have been increasing since 2014, hitting $10.2 billion in 2017 from $5.7 billion three years before.

According to the ASEAN report, FDI to the Philippines was flat due to a significant decline in investment from Europe and the United States.

Investment from Europe, according to central bank data, fell to $347 million in 2018 from $1.8 billion in 2017. FDI inflows from the US fell to $160 million in 2018 from $473 million in 2017.

These declines, the report said, were offset by a rise in FDI from three economies, led by a 2.5 times increase from Hong Kong, a threefold increase from Japan, and a seven-fold rise from China.

“FDI in finance, real estate and other services rose, which compensated the decline in investment in manufacturing (to $1 billion); FDI to the power industry dropped from more than $1 billion in 2017 to $193 million,” according to the report.

FDI from the United States to ASEAN, according to the report, fell to $8 billion in 2018 from $25 billion in 2017, “in line with the global fall in United States investment due to the 2017 tax reform.”

The Tax Cuts and Jobs Act in 2017 encouraged US companies to move regional headquarters back to the US.

The top sources of FDI in the region were intra-ASEAN investment ($25 billion), the European Union (rising 45% to $22 billion), and Japan (rising 30% to $21 billion).

FDI from China fell 26% to $10 billion. The most intra-ASEAN FDI–flows were captured by Indonesia with $11.82 billion in 2018. The Philippines was sixth with $990 million.

The majority of intra-ASEAN investment went into the services sector (48%) followed by manufacturing (33%).

“Intra-ASEAN manufacturing investment rose from $7.3 billion in 2017 to $8 billion, suggesting an increasing industrial connectivity among ASEAN Member States through ASEAN MNEs (multinational enterprises),” according to the report.

By source country, Singapore made the most intra-ASEAN investments at $17.21 billion. The Philippines was fourth with $1.22 billion.

SERVICES

The services sector is the largest recipient of FDI in ASEAN, a bulk of which came from the European Union ($16.8 billion) and the United States ($14.8 billion) from 2014 to 2018.

In the four years to 2018, a significant bulk of services FDI flows went to Singapore at $314.7 billion out of the $442.5 billion ASEAN total.

The Philippines came in eight out of the ten countries with $7.7 billion. Most of the services investments in the Philippines went to financial and insurance activities ($3 billion), followed by electricity, gas, steam, and air conditioning supply ($1.4 billion).

“Foreign banks were expanding in the country, including through mergers and acquisitions. Capital One Financial Corporation (United States) opened a business process outsourcing (BPO) subsidiary in the Philippines in 2016,” the report said.

FDI in services, the report said, may be driven by efficiency-seeking considerations such a labor, overhead, and administration costs.

“Because of the availability of language skills and low-cost skilled labour for IT-BPO operations, the Philippines has attracted many such MNEs. Australian IT-BPO companies have invested in the country to supply BPO services, including call center operations,” the report said.

The 2019 report focused on FDI flows in health care services, with the sector accounting for a small but rising percentage of total FDI.

Low-cost production had attracted pharmaceutical companies to the region to produce medicines, and investors have been tapping into rapidly growing health care industries, including hospitals.

The report said that the private sector can contribute to health care services further to cater to the growing ASEAN population. —