FOREIGN investors are holding on to their cash for now as they await the fate of fiscal reform measures, including the rationalization of tax incentives, pending in Congress, a local economist said.
ING Bank Manila economist Nicholas Mapa said firms will likely remain on the sidelines as they monitor developments related to key pieces of legislation following the midterm elections in May.
“Fresh equity flows have contracted 76 percent as prospective firms are likely on the sidelines until after the midterm elections awaiting developments on fiscal reforms, such as the much-anticipated Trabaho [Tax Reform for Attracting Better and Higher-quality Opportunities] bill,” Mapa told the BusinessMirror via e-mail.
The Trabaho bill has since been renamed Corporate Income Tax and Incentive Rationalization Act (Citira) bill. Voting 27-2, members of the House ways and means committee on Wednesday endorsed for plenary approval House Bill (HB) 313.
“Clarity on the issue on fiscal incentives and corporate taxes may likely be needed before investors push through with their investment decision,” according to Mapa.
The Bangko Sentral ng Pilipinas (BSP) reported on Tuesday that net foreign direct investments (FDI) that flowed into the Philippines fell by 37.1 percent in the first five months of the year. FDI in the January-to-May period reached $3.1 billion, lower than last year’s $5 billion.
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 usually an indicator of the long-term sentiment of the global community as it is not easily pulled out of the market, unlike its shorter-term counterpart, the foreign portfolio investments.
The BSP said lower net equity capital investments pulled down FDI in the five-month period. Figures from the BSP indicated that net equity capital investments fell to $787 million, from $1.5 billion recorded in the first five months of 2018. Withdrawals rose to $451 million, in 2019 from last year’s $139 million.
Reinvestment of earnings expanded by 12.9 percent to $418 million, from $371 million in the same period last year.
In the first five months of 2019, equity capital placements originated from Japan, the United States, China, Singapore and South Korea.
These were channeled largely to financial and insurance, real estate, manufacturing, transportation and storage, and administrative and support service industries.
Mapa said the rise of reinvestment of earnings amid the decline in the equity component of the FDI indicated that foreign companies that have set up shop in the Philippines remain upbeat about the country’s prospects as they plow back profits into existing operations.
“The silver lining in the trends show that firms who are currently set up are not leaving as they enjoy the benefits of conducting business in the Philippines’s vibrant economy,” Mapa said.
Image credits: Bernard Testa
