FDI stay positive but inflows for March down substantially

FIRST-QUARTER foreign direct investments (FDI) increased by nearly a fifth from a year ago but inflows in March were down substantially from a month earlier, the Bangko Sentral ng Pilipinas (BSP) yesterday said.

FDI yielded a net inflow of $396 million for the first three months of the year, up 19% from last year but still lower than 2008’s $488 million — when the global downturn had yet to make its full impact felt.

For March alone a net FDI inflow of $14 million was recorded, a reversal of the $258-million net outflow last year. The result, however, is significantly lower than the net inflows of $109 million and $273 million, respectively, in January and February.

Rosabel B. Guerrero, chief of the BSP’s economic statistics department, said one reason could be local units of foreign firms having posted lower profits or choosing not to reinvest earnings during the month. This, she said, accounted for a $13-million outflow in reinvested earnings from inflows of $12 million in February and $33 million in January.

Victor A. Abola, University of Asia and the Pacific economist, said March’s result was election-related.

“That’s to be expected due to the [May] elections as firms didn’t know what’s in store for the next government. At that time there were also many quarters who were doubting the success of the country’s automated elections,” Mr. Abola said.

The bulk of the first quarter result came from the other capital account which recorded net inflows of $319 million in contrast to a $48-million net outflow last year. This consists primarily of intercompany loans availed of by local units from parent firms abroad, which the BSP said benefited primarily the outsourcing and utilities sectors.

Concerns over the eurozone crisis, meanwhile, pulled equity capital investments down by 90% year-on-year to a net inflow of $45 million. Gross equity capital placements, in particular, decreased by 72% to $131 million. Most of investors for the period came from the United States, Switzerland, Japan, Netherlands, and Singapore.

“Investors remained risk averse on concerns about the sovereign debt problems in the euro-zone,” the central bank said.

Reinvested earnings for the quarter reversed to a net inflow of $32 million from a net outflow of $78 million last year.

University of the Philippines economist Benjamin E. Diokno said the first quarter figures were not something “to cheer about compared to the recent peak of $3 billion, full year, in 2006 and 2007, and compared to what our ASEAN counterparts are getting.”

“It’s mainly because of the poor image of the Philippines as an investment destination.”

FDI are long-term investments, as opposed to portfolio investments which are placed in bonds or stocks and also called “hot money” due to the ease with which they can be taken in and out of a country. — Jose Bimbo F. Santos, Businessworld