Foreign investments predicted to slide, may hurt job generation

The country’s investment promotion agencies are expected to post a slight contraction in investment pledges this year, hurting employment generation.

In a briefing, Efren Leaño, executive director for Management Services Group of the Board of Investment (BOI), told reporters that it was hard to achieve flat economic growth this year because of the global financial crisis.

“A slight contraction is [still] possible in approved [direct] investments this year,” he said.

Data from the National Statistical Coordination Board (NSCB) showed foreign direct investment (FDI) in the first quarter of the year declined by 80.9 percent to P4 billion from P20.7 billion during the same period in 2008. This was the biggest drop in investment commitments since the third quarter of 2002.

The country’s four investment promotion agencies are the Board of Investments, Clark Development Corp., Philippine Economic Zone Authority (PEZA) and Subic Bay Metropolitan Authority.

Last year, Leaño said total investment approvals generated by all investment promotion agencies, led by the BOI and PEZA in 2008, reached P464.2 billion (about $10.4 billion), up by 20 percent from the 2007 level of P385.8 billion (about $8.4 billion).

With investments dropping, the BOI official said employment generation was likely to suffer.

From January to March, a total of 19,596 jobs are expected to be generated from the investment projects approved by the four promotion agencies, down by 29.5 percent from the 27,779 jobs during the same period in 2008.

The total expected jobs in the first quarter of 2009 are the lowest since the first quarter of 2005 with 16,415 jobs.

Ideal investment level

Dennis Arroyo, director for national planning and policy staff of the National Economic and Development Authority (NEDA) said the ideal level of foreign investments to promote economic growth and create more jobs is $5 billion a year.

“I don’t see hitting $5 billon this year or even next,” Arroyo added.

According to the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2009, the Philippines’ recorded total FDI inflows of $1.75 billion in 2008, lower than the $6.4 billion in 2007.

The country’s foreign direct investments last year was weaker than Indonesia’s $13.8 billion and Thailand’s $12.8 billion.

Despite this, Leaño said the Philippines was relatively in a better position compared to other economies in the region.

“This resilience springs from the implementation of a policy agenda that is calibrated to insulate the economy from external vulne­rabilities,” he added.

Leaño said that the country’s P330 billion Economic Resiliency Plan has contributed significantly in establishing favorable conditions to help spring back foreign direct investment flows.

“The frontloading of various government infrastructure projects during the first semester of this year and the implementation of various programs to encourage exporting firms to diversify, innovate and upgrade their products to stimulate the export sector were undertaken primarily to enhance competitiveness in preparation for the global rebound,” Leaño said.

Leaño added that he expected investment approvals to slightly recover in 2010 and 2011 led by the Board of Investments and the Philippine Economic Zone Authority.

“We expect more investments to go into the booming sectors, like IT-BPO sector, which the Business Processing Association of the Philippines foresees to grow by 20 [percent] to 30 percent this year,” he said.

Agri investments

The government also target increasing investments in agribusiness (biotechnology), mining, health and wellness, and retirement, which Leaño said have proven to be resilient to crisis.

Arroyo also said agriculture could play a significant role in attracting foreign direct investments, a view which is supported by the UNCTAD report.

“Foreign participation in agriculture is increasing, and can play a significant role in the agricultural production of developing countries, which are in dire need of private and public investment to boost productivity and support development of their farming sectors,” according to UNCTAD.

The report also said foreign involvement in agriculture can be in various forms, with contract farming being one of the most important besides foreign investments.

The main factors for attracting agricultural investment are availability of land and water in target locations and the fast-growing demand for farm products in the countries where the FDI originates.

More investments

Director Arroyo added that two or three investments worth $1 billion were expected to pour into the country from China, Japan and the Middle East, and that a government investment mission would go to China in September and South Korea in November to attract more investors.

“The Chinese investors are looking to invest in car manufacturing, infrastructure, power and mining, while South Korea are also looking at power, IT and BPOs,” he said.

The UNCTAD’s 280-page report also said that while foreign direct investments will continue to slide in 2009, recovery will be seen in 2011, and that a number of other Southeast Asian countries, like Indonesia and Vietnam, have been able to maintain growth in foreign inflows despite the crisis. — Darwin G. Amojelar With Ira Karen Apanay, Manila Times