Foreign fund inflows seen picking up
Nomura Securities Ltd said foreign direct investment (FDI) inflows in the Philippines would continue to pick up in the near - term despite the decline in the first seven months of the year sue to a large base effect.
In a report titled “Philippines: Dispelling some FDI fears”, Euben Paracuelles, economist at Nomura, said equity capital would pick up further in the near term due to two large impending acquisitions. He identified the transactions as the $1.3 billion investment of Macquarte and GIC to Singapore Singapore to acquire renewable power producer Energy Development Corp. (EDC) and the $1 billion buyout deal of Mighty Corp. by Japan Tobacco Inc. (JTI).
A consortium called Philippines Renewable Energy Holdings Corp. composed of Macquarie Infrastructure Management (Asia) Pty Ltd and GIC’s Arran Investment Pte Ltd, has offered to acquire up to 31.7 percent of EDC.
Latest data from the Bangko Sentral ng Pilipinas (BSP) showed net FDI inflows declined 16.5 percent to $3.9 billion in the first seven months.
Equity placements fell 61.4 percent to $641million from January to July while withdrawals almost doubled to $369 million.
During the period, investments in debt instruments increased 13.9
percent to $3.14 billion while reinvestments of earnings climbed 9.3 percent to $487 million.
The BSP attributed the significant inflow last year to a large investment flow that went to the financial and insurance industry.
The Philippines booked a monthly record level of $2.24 billion net FDI inflows in April last year after The Bank of Tokyo – Mitsubishi UFJ Ltd infused P37 billion in fresh equity in exchange for a 20 percent stake in Security Bank Corp.
“Given the chunky nature of FDIs, we prefer to gauge underlying trends by looking at FDI levels on a 12-month rolling sum basis, which are still clearly showing a pickup despite the political transition,” Paracuelles said.
In the longer term, the economist said equity FDI would continue to pick up “given rising potential growth and more FDIfriendly reforms.”
Paracuelles cited the liberalization of the country’s bank industry through Republic Act 10641 or the Foreign Bank Liberalization Act passed in July 2014 that paved the way for the entry of 10 more foreign banks so far.
“Other reforms such as the shortening of the negative investment list and the rollout of some foreign-funded infrastructure projects are also likely to be implemented,” he added.
He said Nomura will continue to watch political risks particularly from a decline in President Duterte’s popularity that can impact on the execution of reforms.
The BSP, on the other hand, said there is a huge potential in attracting further FDIs, which can put the country at par with the large levels of FDI seen in neighboring Asian countries.
The BSP expects the Philippines to sustain FDI inflows this year at a record $8 billion from $7.9 billion a year ago.
Finance Secretary Carlos Dominguez said the country may attract more direct investments in the years ahead as the Duterte administration steps up its efforts to modernize infrastructure and reform business policies to sustain the growth momentum, create more jobs, alleviate poverty and achieve a more inclusive economy.
The Philippines has been actively wooing foreign investors via roadshows in Singapore, Tokyo, Shanghai and New York over the past few months.
In the Philippine Economic Briefing in New York, Dominguez informed the American business community the Philippines has started to deliver on its anticipated economic breakout, turning the country into one of Asia’s engines of growth despite the political noise and the recent terrorist attack in Marawi City.
He also cited the US as the Philippines’ “ally of long-standing” that has helped the country not only beef up its defense capability but also build effective institutions of governance.
Dominguez said the US has also supported the government with projects to help the Philippines meet its Millennium Challenge targets and, just recently, provided financial assistance for the rehabilitation of Marawi City following an attack last May by Islamic State-aligned terrorists.
The central bank has vowed to continue to promote an enabling environment for investments to thrive in line with its primary mandate of maintaining price and financial stability.
Prospective FDIs will be channeled mainly to the manufacturing sector such as electronics and motor parts that could help create employment and more growth opportunities.