By Luisa Maria Jacinta C. Jocson, A reporter
NET INFLOWS of foreign direct investment (FDI) fell to a four-year low in September, data from the Bangko Sentral ng Pilipinas (BSP) showed.
The central bank on Tuesday reported that FDI inflows fell 36.2% to $368 million in September from $577 million in the same month last year.
This was also the lowest monthly FDI inflow in 53 months or since the $314 million recorded in April 2020. To recall, the strict lockdown to prevent the spread of the coronavirus disease 2019 (COVID-19) came into force in April 2020.
Month-over-month, total revenue also fell 54.8% from $815 million.
“The decline in FDI inflows in September 2024 was mainly due to the decline in non-residents’ investment in debt instruments,” the BSP said.
Net investment by non-residents in corporate debt instruments fell 32.8% to $277 million in September from $413 million a year earlier.
Total investment in equity capital excluding reinvestment of profits fell 91.2% to $7 million in September from $83 million last year.
Equity inflows fell 53.4% year over year to $82 million, while withdrawals fell 19.7% to $75 million.
According to the source, allocations were mainly from Japan (60%), followed by the United States (25%), and Singapore (8%).
These are mainly invested in manufacturing (58%), real estate (19%), information and communication (8%), and wholesale and retail trade (5%).
Meanwhile, investment in stocks and mutual funds stood at $91 million in September, down 44.6% from $164 million last year.
On the other hand, reinvestment income rose 3.6% to $84 million in September from $81 million a year ago.
FDI for nine months
In the first nine months of the year, net FDI inflows increased by 3.8% to $6.66 billion from $6.42 billion in the same period last year.
Investments in mutual fund stocks jumped 20.4% to $2.3 billion in the period ending September from $1.91 billion a year earlier.
Total foreign investment in equity capital rose 46.9% to $1.36 billion at the end of September from $923 million a year earlier.
Equity inflows increased 28.1% to $1.79 billion, while withdrawals decreased 8.5% to $434 million.
Over the nine-month period, the top ranked locations came from the United Kingdom (43%), Japan (37%), the United States (9%), and Singapore (4%).
Meanwhile, foreign investment in debt instruments fell 3.3% to $4.35 billion in the January-September period from $4.5 billion.
Reinvestment of earnings fell 4.2% to $949 million at the end of September from $991 million a year earlier.
“The low income compared to FDI may be largely caused by the wait and see of other foreign investors while they are waiting for CREATE MORE to pass the law,” said Rizal Commercial Banking Corp chief economist. Michael L. Ricafort in a statement. Viber message.
In November, President Ferdinand R. Marcos, Jr. signed the Corporate Recovery and Tax Incentives for Enterprises to Increase Opportunities for Economic Recovery (CREATE MORE), which extends financial incentives and lowers corporate income taxes for certain foreign businesses.
Mr. Ricafort also noted that interest rates are “still high”, which may limit foreign investment.
The BSP started its rate cut cycle in August this year with a 25 basis point (bp) cut. It later delivered another 25-bp cut in October, bringing the key rate to 6%.
“Continuously high interest rates around the world, led by the US Fed have made investments in emerging markets like the Philippines less attractive,” John Paolo R. Rivera, senior researcher at the Philippine Institute for Development Studies, said.
“Investors tend to choose safer assets in advanced economies under these conditions,” he added.
The US Federal Reserve began its tapering cycle with a 50-bp rate cut in mid-September.
Mr. Rivera also noted that “political tensions and economic uncertainty may further reduce investor confidence around the world.”
“Similarly, the slow growth of the economy would cause concern for foreign investors. Economic growth was slightly weaker than expected in the third quarter of 2024, which may have impacted investment sentiment,” he added.
The Philippine economy grew a weaker-than-expected 5.2% in the July-September period, its slowest growth in five quarters or since growing 4.3% in the second quarter of 2023.
“In the coming months, the CREATE MORE rule will now make international investors decide to acquire a country with better incentives that can better compete with other Asian countries,” said Mr. Ricafort.
Further rate cuts by the BSP and the Fed will also increase demand for loans and attract more FDI going forward, he added.
The Monetary Board is scheduled to have a final review of the policy on Dec. 19. BSP Governor Eli M. Remolona, Jr. noted the possibility of lowering or keeping the rates firm.
Meanwhile, Reuters reported that traders are pricing in an 86% chance of another quarter-percentage-point rate cut by the Fed at its Dec. meeting. 17-18.
On the other hand, Mr. Ricafort flagged US President Donald J. Trump’s protectionist trade policies.
“Many protectionist policies implemented by the Trump administration starting in 2025 could discourage some American companies from investing and creating jobs outside the US, and a possible trade war between the US and China or other countries could slow down the global economy and global trade, ” he added.
Mr. Trump has pledged to slap an additional 10% tariff on Chinese goods in a bid to force Beijing to do more to stop the smuggling of chemicals used to make fentanyl, Reuters reported.
Mr. Trump has said he will introduce tariffs of more than 60% on Chinese goods.
BSP expects to record FDI net income of $10 billion this year.
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