July flows worsen FDIs’ year-to-date fall

October 11, 2017 - 1:53 AM
Makati City skyline
Skyline of Makati City, the country's main business district. (Interaksyon file photo)

MANILA – Net foreign direct investment (FDI) inflows fell for the first time in three months in July to the smallest amount in over a year, according to central bank data Tuesday that also showed investors rebalancing to equity capital from debt instruments.

Net FDI dropped to $307 million for the month, less than half June’s $674-million inflow and down 37.9% from July 2016’s $493 million. It was the smallest net inflow since a $238-million haul in June 2016.

In a statement, the Bangko Sentral ng Pilipinas (BSP) attributed July’s net FDI inflow drop to foreigners’ move to scale down investments in debt papers of their Philippine affiliates that “outweighed the more-than-fivefold increase in net equity capital.”

FDIs are a key source of capital for the economy that, in turn, generates jobs for Filipinos as these fuel business expansion.

Equity capital investments recorded a $131-million net inflow in July, turning around from June’s $72-million net withdrawals and more than fivefold the year-ago $23 million.

July saw foreigners investing $170 million in equity capital — up more than threefold from a year-ago $46 million — and pulling out $39 million that was 70.7% more than $23 million a year ago.

The Philippine Stock Exchange index returned to the 8,000 level in July following President Rodrigo R. Duterte’s second State of the Nation Address and the US Federal Reserve’s decision to keep interest rates steady.

Companies also chose to reinvest more funds this time, with $71 million in foreign capital retained in the country, 11.5% higher than the $63 million recorded a year ago.

Foreign firms also lent $105 million to their units here in order to support operations and expansion. However, the amount was 84% less than June’s $674 million in intercompany borrowings and is just a fourth of the $407 million invested a year prior.

The July haul placed the seven-month net FDI tally at $3.904 billion, down 16.5% from the $4.677 billion capital that entered the country during the comparable year-ago period.

The seven-month drop was bigger than the first semester’s 14% fall.

Bulk of equity capital infusions in the seven months to July came from Singapore, the United States, Japan, Hong Kong, and the Netherlands, the central bank said. The funds were channelled to companies engaged in real estate; manufacturing; financial and insurance; electricity, gas, steam and air conditioning supply; as well as wholesale and retail trade activities.

One economist described the latest FDI figures as “relatively poor,” while another noted that the shift in investment platforms likely signalled a greater degree of comfort in betting on the Philippines.

“Foreign investments in debt instruments for July were subpar, as it is the lowest monthly level for the year and is below the January-June average,” Angelo B. Taningco, economist at Security Bank Corp., said in an e-mail.

“I think FDIs attaining $8 billion for the full year is still doable, but its chances have gone down in light of relatively low July figure,” Mr. Taningco added, referring to the central bank’s 2017 forecast.

For Ruben Carlo O. Asuncion, chief economist of Union Bank of the Philippines, Inc., the shift in preference to equity capital from debt may reflect improving confidence in local prospects.

“This may be an indicator that investors are no longer in wait-and-see mode, compared to the first six months of 2017,” Mr. Asuncion said.

“The scaling down of placements in debt instruments and favoring equity placements may mean investors are more comfortable in the existing investment climate. Although there are structural reforms that are on line, the general investment sentiment is positive, lending credence to the robust Philippine economic growth story.”

Reacting to the first semester’s net FDI inflow drop, the National Economic and Development Authority on Tuesday cited 2016’s high base, especially in terms of net equity capital. The socioeconomic planner also assured that work continues to improve the local business climate, with efforts to further ease restrictions on foreign ownership by amending the Foreign Investment Negative List that will be released via an executive order before yearend.