Foreign direct investments continue to drop in October

January 11, 2019 | 7:24 pm

By Melissa Luz T. Lopez, Senior Reporter

Foreign investments to the Philippines sustained a three-month slide in October, the central bank reported on Friday, casting doubt on forecasts of another banner year amid a slump in sentiment.

Foreign direct investments (FDI) plunged to $491.37 million for the month, marking a 74.2% plunge from the $1.904 billion tallied in October 2017.

This sustains a third straight decline in inflows, and is the lowest level logged since July 2017 when investments shored up just $344.19 million.

FDIs infuse additional capital for the Philippine economy, which open up more jobs and spur domestic activity by supporting business expansions.

The drop was attributed to a sharp decline in equity inflows, with the net investments plunging to $98 million from $1.529 billion a year ago. October saw gross placements at $112 million but cancelled out by $14 million in outflows. This is a far cry from the $1.595 billion investments a year ago, which was only met by $66 million in withdrawn capital.

Reinvested earnings, or funds which foreign businesses chose to keep here to fuel business expansions, slightly rose to $62 million from $57 million previously.

Investments in debt instruments or inter-company borrowings also rose to $331 million from $318 million, up 4.2% year-on-year.

In a statement, the BSP said bulk of the investments went into manufacturing; real estate; financial and insurance; electricity, gas, steam and air-conditioning supply; and wholesale and retail trade activities.

October’s plunge brought the 10-month FDI tally amounted to $8.53 billion, just 1.8% higher than the $8.376 billion received during the comparable period in 2017.

The biggest investment sources are Singapore ($905.65 million), Hong Kong ($263.97 million), China ($189.33 million), Japan ($183.51 million) and United States ($120.21 million), the central bank added.

The sustained decline in FDI inflows cast doubt on the BSP’s $10.4-billion forecast for 2018, which was revised from the initial $9.2-billion estimate and is higher than the $10.049 billion tally in 2017.

One analyst said the slump may be due to global geopolitical tensions, which kept investors wary of making big bets.

“I think the general sentiment on the uncertainties brought about by the US-China trade war has momentarily affected investor sentiment for the Philippines. Even as studies assert that a continued trade war may actually be beneficial for countries like the Philippines, the uncertainties are seemingly strong and forcing potential investors to wait and see again,” said Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines.

“However, recent developments on the trade showdown showing improvement on general sentiment, may sway the negative tide of uncertainty,” he added.

Still, Mr. Asuncion flagged that while FDI inflows may improve, it “may not be enough” to realize the full-year estimate.

Michael L. Ricafort, economist at the Rizal Commercial Banking Corp., also noted that lower FDIs may have been due to the passage of package two of tax reform, which prompted a “wait-and-see” stance among investors as they seek clarity on the fate of fiscal incentives scheme in the country which the bill wants to revamp.

Rising inflation, higher interest rates and a weaker peso may have also turned foreign businesses away, but Mr. Ricafort said that FDIs “could start to pick up” now that prices are easing.

Source: https://www.bworldonline.com/foreign-direct-investments-continue-to-drop-in-october/