FDIs plunge 47% in January-October 2008

Foreign direct investments (FDIs) dropped by nearly 47 percent in the first 10 months of 2008, reaching only $1.418 billion from $2.653 billion during the first 10 months of 2007.

With only two more months worth of data expected, it would be unlikely that foreign investments would reach the $2.6-billion level projected by the central bank earlier in 2008.

Data from the Bangko Sentral ng Pilipinas (BSP) showed that foreign direct investments reached only $31 million in October last year, due mainly to equity capital infusion and reinvested earnings from non-resident investors.

The BSP said FDIs continued to flow into the country despite the financial turmoil but inflows were stalled by foreign investors’ concerns over the developments in financial markets, particularly in the weeks following the unfolding of the global financial crisis in late September.

The BSP said equity capital for the first 10 months recorded net inflows of $858 million, 50.1 percent lower than the $1.9-billion level a year ago. In contrast, equity investments surged by 51 percent in 2007 compared with the previous year.

The foreign direct investments that did come in last year, according to the BSP, were infused by investors coming mainly from the US, Japan, Singapore, South Korea, Germany, Malaysia, Taiwan, Hong Kong, United Kingdom, and the Netherlands.

The BSP reported that these inflows were primarily investment in the manufacturing sector, primarily shipbuilding and ship repair, auto electronics parts and components, paper, cigarette and tobacco products.

The BSP said inflows were also recorded in the services sector, going into recreational and cultural businesses. Likewise, there were investments in mining, construction (hotel/resort/water spa development, power plant facility, global gateway and logistics hub), utilities, real estate, trade and commerce, and financial institutions.

On the other hand, the BSP said there was a net inflow into the other capital account. This account reflects intercompany borrowing and lending between foreign direct investors and their subsidiaries and affiliates in the Philippines.

Net inflows into the other capital account reached $186 million during the 10-month period, lower than comparable period last year on account of lesser intercompany loan availments.

On the other hand, reinvested earnings rose by more than 10 percent to $374 million as foreign investors opted to retain earnings and profits in local banks.

Foreign investments are expected to bounce back strongly in 2009, with portfolio inflows recovery to $1.4 billion and direct investments soaring to $3.2 billion as confidence and sentiments recover from the 2008 crisis.

The BSP expects portfolio investments to post a dramatic 100-percent recovery this year from the projected $700-million net inflow in 2008.

On the other hand, a strong resurgence in foreign direct investments is also expected in 2009, with the full-year total increasing by 23 percent from the $2.6-billion level expected this year.

The BSP said steps being taken by financial institutions themselves, are expected to spur at least a mild recovery in much of the global market.

On the other hand, the BSP said the domestic conditions also pointed to a relatively stable macro-economic condition despite the challenges of the financial environment.

The BSP said continued public investments in infrastructure are expected to have the desired effect of spurring economic activities which would support further improvements in the government’s fiscal conditions.–Des Ferriols, Philippine Star