Investment pledges hit record high

By Lourdes O. Pilar
Researcher

Foreign investment pledges received by the country’s investment promotion agencies (IPAs) surged to a record high in 2019, data by the Philippine Statistics Authority (PSA) showed.

Approved commitments climbed by 17.3% to P112.11 billion in the fourth quarter, bringing the 2019 total to P390.11 billion — the highest since 1996, the earliest year for which data were available.

Many of the commitments were approved in the second half, with the fourth-quarter level only trailing behind the third quarter’s approved amount of P182.44 billion.

The full-year 2019 figure was 112.8% higher than the P183.35 billion worth of investment pledges in 2018. This was also the fastest recorded annual growth since the 411.3% growth posted in 2004.

On the other hand, combined investment pledges by both foreigners and Filipino nationals totaled P412.2 billion, 32% less than the year-ago P605.07 billion.

Should these materialize, foreign and local investments pledged in the fourth quarter were expected to generate 55,946 jobs, 23% lower compared to the 72,630 projected jobs a year ago.

The government counts investment pledges from seven IPAs, which are authorized by law to grant tax and non-tax incentives to investors putting up businesses or expanding existing ones in priority sectors.

The seven main IPAs monitored by the PSA are the Board of Investments (BoI), Clark Development Corp. (CDC), Philippine Economic Zone Authority (PEZA), Subic Bay Metropolitan Authority (SBMA), Authority of the Freeport Area of Bataan (AFAB), BoI-Autonomous Region in Muslim Mindanao (BoI-ARMM) and Cagayan Economic Zone Authority (CEZA).

BoI contributed 86.1% of total FDI pledges last year at P335.74 billion, 3.2 times more than the previous year’s P103.97 billion.

It was followed by PEZA with a 12.6% share at P49.26 billion. However, it slumped 27.9% from P68.32 billion in the same period last year.

The rest consisted of SBMA’s P2.87 billion (0.7% share), CDC’s P1.26 billion (0.3% share), CEZA’s P340.6 million (0.1%), AFAB’s P340.2 million (0.1%) and BoI-ARMM’s P306.9 million (0.1%).

Among regions, Calabarzon (Cavite, Laguna, Batangas, Rizal, and Quezon) got the most foreign investment pledges in 2019 at P108.53 billion, or 27.8% of the total. This was around 2.6 times the commitments to the region in 2018.

Central Luzon was the second biggest contributor with a 7.4% share (up 12% to P28.75 billion), while the National Capital Region came in third with a 6.1% share (down 36.4% to P23.83 billion).

Last year saw pledges from Singapore grow more than eight times to P176.36 billion from P21.18 billion. These investments accounted for 45.2% of total pledges. It was followed by China, whose pledges grew 74.9% to P88.67 billion. Meanwhile, South Korea’s P41.48 billion was 22 times more than P1.88 billion previously.

By sector, information and communication (IC) made up 56.2% of the total pledges in 2019 with P219.38 billion. This was 70.4 times more than the P3.12 billion a year ago. This was followed by electricity, gas, steam and air-conditioning supply’s 18.6% share at P72.64 billion, up 141.7% from 2018’s P30.05 billion. Manufacturing was third at P61.95 billion with a 15.9% share, but the amount of total pledges was 27.2% less than a year ago.

“Sustained growth in investment pledges reflects a keen interest in the Philippines given its solid growth prospects. Still, solid growth momentum coupled with expectations for an improvement in credit standing all make the Philippines a viable investment destination,” said ING Bank NV- Manila Senior Economist Nicholas Antonio T. Mapa in an e-mail.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the Philippines remains an attractive investment destination.

“Despite the uncertainties due to the trade war between the two largest economies (US and China), the threat of a global economic slowdown, and domestic national budget execution problems, the Philippines’ healthy macroeconomic fundamentals, compared to other emerging markets within the region, still remains an attractive investment proposition,” he said.

Mr. Asuncion noted the decline in investment pledges in manufacturing reflected conditions in the global economy.

On the other hand, the “surprise growth” of foreign commitments in the IC sector “may have been a deliberate effort from the government to target such type of investments.”

“We still have a long way to go when we compare ourselves with our peers in the region in terms of FDI inflows. Much needed fiscal reforms and improvements in the ease of doing business are the order of the day,” Mr. Asuncion said.

For ING Bank’s Mr. Mapa, the IC sector will need investments given the country’s exposure to business process outsourcing.

However, he pointed to central bank data which showed actual net FDI being lower last year.

Foreign investment commitments are different from actual capital inflows tracked by the Bangko Sentral ng Pilipinas (BSP) for balance of payments purposes.

Latest data available by the BSP showed that net FDI stood at $6.413 billion as of November 2019, down by 29.9% from a year earlier.

“This could show that although interest in the Philippines remains high, some corporates may be awaiting certainty on select issues, such as tax legislation or the recent review of contracts by the government. We may see these pledges translate into actual flows once these issues are sorted out,” ING’s Mr. Mapa said.

For UnionBank’s Mr. Asuncion, FDI inflows may experience a dip in the first quarter of 2020 due to the COVID-19 (coronavirus disease 2019) scare.

“This unexpected event has forced many foreign investors to put expansion plans on hold. Some, though, are pushing through with plans as soon as the virus is clearly contained,” he said.