By Luisa Maria Jacinta C. Jocson, A reporter
NET inflows of foreign direct investment (FDI) in the Philippines fell in August mainly due to a sharp decline in investments in debt instruments, data from the central bank showed.
It enteredffell 14.5% to $813 million in August from $951 million a year ago, the Bangko Sentral ng Pilipinas (BSP) reported on Monday.
Month-over-month, revenue fell 0.9% from $820 million in July.
“Decline in FDIfthe decrease during the month was mainly due to a 21.6% reduction in non-residents’ investments in debt instruments,” said the BSP statement.
Total investment in debt instruments fell 21.6% to $529 million in August from $675 million in the same month last year.
This mainly included borrowing or lending by joint ventures between foreign direct investors and their subsidiaries or affiliates.ffAllies in the Philippines, said the central bank.
“The rest of the net investment in debt instruments is the investment made by subsidiaries/resident partners to direct resident investors, i.e. reverse investment,” it added.
The BSP data also showed a 9.4% drop in reinvestment of non-residents’ earnings to $217 million from $240 million last year.
On the other hand, investments in stocks and mutual funds rose 2.8% year-on-year to $284 million in August from $276 million.
Total investment in equity excluding reinvestment of earnings increased (83.6%) to $66 million in August from $36 million last year.
Equity inflows fell 52.5% to $103 million, while withdrawals fell 79.8% to $36 million.
According to the source, the majority of equity investments came from Japan (72%), followed by the United States (17%).
These are mainly invested in manufacturing (63%); wealth (20%); electricity, gas, steam and air-conditioning (9%).
A PERIOD OF EIGHT MONTHS
In the first eight months, net FDI inflows increased by 3.9% to $6.07 billion from $5.84 billion in the year-ago period.
Investments in equity fund stocks and investments jumped 26 percent to $2.2 billion from $1.75 billion.
Total foreign investment in equity capital increased by 59.4% to $1.34 billion in the January-August period.
Deposits increased 38.8% to $1.7 billion and withdrawals decreased 6.6% to $356 million.
These positions mainly come from the United Kingdom (45%), followed by Japan (36%) and the United States (8%).
Investments were mostly poured into manufacturing industries (75%), real estate (11%) and wholesale and retail industries (4%).
Meanwhile, net investment in debt instruments fell 5.5% to $3.86 billion from $4.09 billion. Reinvestment of profits also decreased by 4.8% to $866 million.
Chief Economist Rizal Commercial Banking Corp. Michael L. Ricafort said the drop in FDI may be due to higher interest rates, as the central bank began its easing cycle in mid-August.
The Monetary Board has cut rates ffor the first time in nearly four years at its August 15 meeting, it delivered a 25-basis-point (bp) rate cut. Since then, it has lowered the cost of borrowing by a total of 50 bps, bringing the rate down to 6%.
John Paolo R. Rivera, a senior researcher at the Philippine Institute for Development Studies (PIDS), said that global investors are very cautious amid the uncertainty in the United States and European countries.
“High global interest rates and inflationary concerns are also causing investors to take a conservative approach, reallocating capital to safer and less volatile markets,” he added.
Mr. Rivera said the Philippines continues to face structural challenges that make it difficult for investment to flow in, such as “regulatory issues, high operating and energy costs, and persistent infrastructure problems.”
“Relatively low FDI may be brought about by waiting and seeing some foreign investors while waiting for CREATE MORE to be passed into law,” said Mr. Ricafort.
On Monday, President Ferdinand R. Marcos, Jr. signed into law the Business Recovery and Business Tax Incentives Act to Boost Economic Recovery Opportunities (CREATE MORE). The law expands capital gains and continues to reduce corporate income taxes.
“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.
“Therefore, there will be more FDI in the country in the coming months due to more CREATION and also due to further rate cuts expected by the Fed which can be matched by the BSP,” he added.
The Monetary Board will have it fannual internal policy meeting on Dec. 19. BSP governor Eli M. Remolona, Jr. indicated the possibility of another 25-bp cut.
Meanwhile, Mr. Ricafort noted risks such as additional protectionist policies of the Trump presidency starting in 2025 “will discourage other American companies from investing and creating more jobs outside the US.”
“However, eliminating the risk factors of future FDI data would be an additional protection by the Trump administration that in 2025 would discourage some US companies from investing and creating more jobs outside the US,” said Mr. Ricafort.
US President-elect Donald J. Trump is expected to return to office in January. One of the main policy proposals of Mr. Trump’s tough restrictions on trade, including plans to hit global tariffs.ff and tariffs in Chinese goods.
The central bank expects to end this year with a total of $10 billion in FDIfdown.
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