FOREIGN direct investments (FDI) to the Philippines declined in the first 11 months of 2018 due to a substantial decline in investments in equity capital during the period, the Bangko Sentral ng Pilipinas (BSP) reported on Monday.
FDI is the type of investment that is often more coveted, as it stays longer in the economy and creates job opportunities for locals. It is also not easily pulled out of the market unlike its shorter-term counterpart, the foreign portfolio investments.
FDI to the Philippines dropped 3.2 percent in the January-to-November period last year compared to the invesments made in the same 11-month period in 2017. FDI registered $9.1-billion net inflows in January to November 2018, from the $9.4 billion seen in the previous year.
This was traced to the 28.3-percent decline in net investments of equity capital during the period.
The drop in net investments of equity capital came largely from investors outside Asia, with investors from New Zealand and Australia posting a 12,246-percent drop in investments during the period resulting to a net outflow of $148.14 million during the period.
Investments from players in Europe also declined during the period by 79.86 percent, while North America—comprising the United States and Canada—posted a 71.42-percent decline in equity capital investments. Central America’s equity capital investments also declined 4.4 percent during the period.
The exodus from the country of long-term equity capital investments of Western countries could have been more damaging to the Philippines’s overall net FDI numbers, if not for the investments placed by Asian players.
Those dubbed Asia’s Newly Industrialized Economies (ANIEs) —South Korea, Hong Kong and Taiwan—posted the largest growth in their equity capital placements to the Philippines during the period, growing by 136.24 percent.
The rest of Asia followed with a 91.78-percent growth during the period.
The Association of Southeast Asian Nations (Asean), meanwhile, also posted growth during the period, jumping by 72.27 percent from the previous year’s level of investments.
The top five country investors for the period were also mostly Asian: Singapore, Hong Kong, Japan, China and the United States.
Equity capital placements during the period were invested mainly in manufacturing, financial and insurance, real estate, arts, entertainment and recreation, and electricity, gas, steam and air-conditioning supply activities.
In November alone, FDI to the Philippines took a beating with a 45.9-percent decline in recorded net inflows for the yea—hitting just $531 million during the month from the $982 million in the same month in 2017.
In a recent research note, HSBC observed a significant improvement in FDI flows to Southeast Asia after the global financial crisis, but “the lion’s share has gone to Singapore, Vietnam and Malaysia—not to countries like Thailand, Indonesia or the Philippines, where supply chains are expected to grow in future.
“The levers to attract investment to Asean more widely are clear: reasonable production costs, stable institutions, improved technological innovation, lowering tariffs and import barriers for production inputs, and increasing labor skills,” HSBC said.
Image credits: Nonoy Lacza