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Foreign direct investments post strong start for 2018

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Equity capital placements -- sourced largely from Singapore, China, Taiwan, Japan and the United States -- went mainly to manufacturing; financial and insurance; real estate; electricity, gas, steam and air-conditioning supply; as well as wholesale and retail trade.

By Melissa Luz T. Lopez
Senior Reporter

FOREIGN direct investments (FDI) surged in January, the central bank reported on Tuesday, saying it expected inflows to keep rising this year amid upbeat domestic activity and positive market sentiment.

FDIs to the Philippines started 2018 with $919-million net inflows, jumping by 56.7% from the $587 million that came in the past year, the Bangko Sentral ng Pilipinas (BSP) said. The figure is the highest since the $990 million received in November last year.

FDI

“Investor outlook on the country’s economic performance remained positive on the back of strong macroeconomic fundamentals,” the central bank said in a statement.

FDIs soared on the back of strong bets made on equity investments that resulted in $473-million net inflows that were eightfold more than the year-ago $58 million.

January saw gross equity placements reach $531 million versus $58 million withdrawn capital, data showed. This compares to just $71 million inflows partly offset by $13 million taken out by foreign investors a year ago.

Singapore, China, Taiwan, Japan and the United States were the biggest sources of capital that month.

Companies involved in manufacturing; financial and insurance; real estate; electricity, gas, steam and air-conditioning supply; as well as wholesale and retail trade activities received the biggest investments, the central bank said in its statement.

On the other hand, lending by foreign parents to their Philippine units shrank 16.7% to $381 million from the $458 million invested a year ago, while reinvested earnings dropped 8.4% to $65 million from $71 million in the same comparative months.

One analyst said implementation starting Jan. 1 of Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN) law, likely spurred positive market sentiment towards the Philippines, adding to stable optimism over the country’s robust growth momentum. “In particular, the enactment into law of TRAIN as well as bigger national budget for infrastructure spending, I think, are two recent developments that may have likely been partly responsible in attracting relatively large FDIs for the month of January,” Angelo B. Taningco, economist at Security Bank Corp., said when sought for comment.

Mr. Taningco added that the shift towards equity over debt showed increased investor preference “for foreign ownership and managerial control.”

Starting Jan. 1, TRAIN reduced personal income tax rates for those earning P2 million annually. Revenue losses — pegged at roughly P10 billion a month — are expected to be offset by the removal of some value-added tax breaks; higher fuel, automobile, mineral and coal excise tax rates, as well as new levies on sugar-sweetened drinks and cosmetic surgery, among other items.

BSP Governor Nestor A. Espenilla, Jr. said there is scope for the Philippines to see another banner year for FDIs this 2018, with local conditions proving more attractive for offshore investors. “[T]here are many drivers for more FDI. Among other things, the growth momentum is strong. We are opening new relationships across borders beyond ASEAN and greater Asia so we have more expectations of increased FDI,” he told reporters. “From an investment standpoint, it makes sense to look at the Philippines as an investment destination.”

Increased state infrastructure spending under the “Build, Build, Build” program is expected to stimulate activity in the private sector, Mr. Espenilla said.

The state plans to spend P1.068 trillion on infrastructure projects this year alone, nearly double the P568.8 billion spent in 2017.

FDIs are a key source of capital for the local economy, creating more jobs for Filipinos as the government strives to make economic growth more inclusive.

The inflows likewise provided a strong start towards an $8.2-billion FDI forecast for 2018. Net inflows posted a record $10.049 billion last year, jumping by a fifth from $8.28 billion in 2016.