October FDI net inflows drop by 29%

By Keisha B. Ta-asan, Reporter

NET INFLOWS of foreign direct investment (FDI) slumped in October amid heightened global economic uncertainties, the Philippine central bank said.

Data released by the Bangko Sentral ng Pilipinas (BSP) on Wednesday showed FDI net inflows dropping by 29.6% to $655 million in October from $930 million a year earlier.

Month on month, it was 55.2% higher than the $422-million net inflows in September.

Despite the year-on-year decline, the October figure was the highest monthly net FDI inflow in two months, or since $790 million in August.

“FDI continues to come into the country. However, the pace has admittedly been on the decline,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.   

“Slower FDI inflows can be tagged to the global slowdown in growth, linked to substantial policy tightening both here and abroad,” he added.

In late October, the BSP delivered a 25-basis-point (bp) off-cycle rate hike, bringing the benchmark interest rate to 6.5%, the highest in 16 years. The BSP tightened rates by 450 bps from May 2022 to October 2023 to curb inflation.

“With rates at these levels, financing costs will be more difficult and thus we can expect overall investment activity to moderate,” Mr. Mapa added.

In a statement, the BSP said the annual drop in FDI net inflows was due to the drop in net investments in debt instruments.

Nonresidents’ net investments in debt instruments of local affiliates fell by 26.1% to $504 million from $682 million a year earlier. 

Investments in equity and investment fund shares slid by 39.3% to $150 million from $248 million a year ago.

Equity other than reinvested earnings slumped by 54.4% year on year to $74 million from $163 million a year ago. Gross placements went down by 44% to $101 million, while withdrawals rose by 50.9% to $27 million.

Equity capital infusion mostly came from Japan, the United States and Singapore, the BSP said. These were mostly invested in industries such as manufacturing (54%), real estate (18%), as well as financial and insurance (15%).

Meanwhile, reinvestment of earnings declined by 10.3% to $76 million from $85 million a year ago.

“The lower net FDI inflow compared with last year was still likely due to challenging economic conditions. Hamas’ attack on Israel last October and subsequent concerns of regional escalation also added to global uncertainties,” China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message.

For the January-to-October period, FDI net inflows declined by 17.5% to $6.533 billion, BSP data showed.

Foreign investments in debt instruments slipped by 18.3% to $4.57 billion in the first 10 months from $5.59 billion a year earlier.

Investments in equity and investment fund shares declined by 15.7% to $1.96 billion.

Net foreign investments in equity capital decreased by 22.9% to $1.019 billion. Equity capital placements dipped by 2.8% to $1.494 billion, while withdrawals surged by 120% to $475 million. 

Most of the placements during the 10-month period were from Japan, the United States, Singapore and Germany.   

Reinvested earnings for January to October fell by 6.4% year on year to $945 million.

“Looking ahead, the continued slowdown of the global economy this year may keep FDI inflow to emerging markets such as the Philippines subdued,” Ms. Velasquez said.

“Hence, government support such as improving the ease of doing business, implementing investment-friendly policies, and further developing key infrastructure are crucial to boost the country’s prospects as an investment destination,” she said.

Ms. Velasquez added that the recently signed law simplifying tax payments and slowing inflation could boost investor sentiment in the coming months.

President Ferdinand R. Marcos, Jr. has signed into law the Ease of Paying Taxes bill, which seeks to update the country’s taxation system and boost government revenues.

Inflation slowed to 3.9% in December, bringing the full-year average to 6%, higher than 5.8% in 2022. It marked the second straight year that average inflation breached the BSP’s 2-4% target.

“We hope that the bevy of investment pledges collected over the past few months can eventually translate to actual FDI given the still robust growth prospects for the economy,” Mr. Mapa said.

The BSP expects FDI net inflows to have reached $8 billion at the end of 2023, and $10 billion by end-2024.