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GLOBAL foreign direct investments (FDI) could return to pre-crisis levels by yearend, possibly reaching $1.6 trillion and continuing to grow as overseas expansion prospects improve, a United Nations (UN) agency said.
The Philippines, however, will have to attract higher value investments if it is to join the Southeast Asian trend, considering a decline in FDI last year even as the region posted record flows, officials yesterday said at the launch of the UN Commission on Trade and Development’s (UNCTAD) 2011 World Investment Report.
Global FDI grew by 5% to $1.24 trillion last year, the UNCTAD said, below the annual average of $1.47 trillion between 2005-2007. It predicted 2011 FDI of $1.4-1.6 trillion and 2012 and 2013 should see inflows of $1.7 trillion and $1.9 trillion, respectively.
“The record level of cash holdings, low rates of debt financing and rising stock market valuations of transnational corporations should encourage them to expand overseas,” the UN agency explained.
Corporate restructuring, privatizations, and the emergence of developing economies should create new investment opportunities, it added.
Developing Asia, excluding its western region, saw a 24% rise in FDI inflows to $300 billion in 2010.
The Philippines, however, bucked the trend as inflows fell by 12.74% to $1.71 billion from $1.96 billion the year before.
“[T]he Philippines is relatively less attractive as an investment destination compared to our ASEAN-5 neighbors, namely, Indonesia, Malaysia, Thailand and Vietnam,” University of the Philippines economist Benjamin E. Diokno, said in an e-mail.
“The decline in FDI inflows … only highlights the challenge President [Benigno S. C. Aquino III] is facing in attracting foreign investment,” added Mr. Diokno, a former Budget secretary.
“There is the credibility and policy consistency issue. Investors want to be assured that the decision of a Philippine president will be honored by his or her successor,” he continued.
The Philippines, a central bank official yesterday said, should seek to attract investments requiring higher capital inputs if it wants to take a bigger share of FDI going to the region.
“We should rely less on non-equity modes of investment and rely more on knowledge-based and industrial modes of development,” Diwa C. Guinigundo, Bangko Sentral ng Pilipinas deputy governor, suggested during the report’s launch.
Non-equity investments such as contract manufacturing, services outsourcing, contract farming, and management contracts are volatile, according to the UNCTAD.
The government, however, can maximize benefits from such low-capital investments if the country can “develop [its] technological capabilities and improve [the economy’s] absorptive capacity” to ensure FDI surges will not destabilize inflation and interest rates, Mr. Guinigundo said. — Eliza J. Diaz
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Source: Business World, July 27, 2011
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