June FDI bounces back

By Beatrice M. Laforga, Reporter

Foreign direct investments (FDI) rebounded in June on base effects and an improving economic landscape, according to the latest central bank data.

FDI net inflows surged by 60.4% to $833 million from a year earlier, based on preliminary data from the Bangko Sentral ng Pilipinas (BSP). The net inflows nearly doubled from $433 million a month earlier.

This pushed first-half FDI net inflows higher by 40.7% year on year to $4.298 billion.

“Concerns over the spread of a more transmissible Delta variant may have prompted investors to remain on the sidelines,” the central bank said in a statement on Friday.

FDIs spiked from a low base in the first half of 2020, when lockdowns across the country were more stringent, spooking investors, said Cid Terosa, a senior economist at the University of Asia and the Pacific.

“The economic revival in many developed countries and the intense effort to vaccinate more Filipinos must have buoyed investor sentiment about the Philippines,” he said in an e-mailed response to questions.

Nonresidents’ net investment in debt instruments, consisting mainly of inter-company borrowings between foreign direct investors and their units in the country, grew by 152% to $630 million in June.

Meanwhile, nonresidents’ net investments in equity capital went down by 48.4% to $93 million in June, as a 38.2% drop in equity capital placements to $119 million offset a more than double jump in equity capital withdrawals worth $26 million.

Majority of equity capital placements came from Singapore, Japan and the United States, and were channeled into manufacturing; financial and insurance; and the electricity, gas, steam and air-conditioning sectors.

Reinvestment of earnings also grew by 23.4% to $110 million in June.

In the six months to June, foreign net investments in debt instruments grew by 86.5% to $2.805 billion.

Net investments in equity capital fell by 48.4% to $971 million, with equity capital placements dropping by 10.4% to $1.14 billion and equity capital withdrawals falling by 18.3% to $165 million.

Reinvestment of earnings, on the other hand, rose by 7.7% year on year to $522 million in the first half.

The BSP expects FDI net inflows to hit $7.5 billion by year-end.

Foreign investors would probably remain cautious due to renewed lockdowns as the pandemic drags on, Mr. Terosa said.

More targeted lockdowns could ease the negative effect on investor sentiment, he added, apart from credit rating companies not drastically changing their outlook for the Philippines.

The enactment of a measure that lowered the corporate income tax and reformed the country’s fiscal incentive system, coupled with low interest rates and a pickup in global demand had also helped buoy foreign investments, said Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC).

“Relatively lower cost of inputs for investments as a result of softer demand conditions due to the COVID-19 pandemic may have also made FDIs cheaper from the point of view of global companies that constantly invest around the world,” he said.