FDI inflows plunge 36.5% to $1.07 billion in 10 months

MANILA, Philippines – Total foreign direct investment (FDI) inflows plunged 36.5 percent in the first 10 months of last year as investors remained jittery over the fragile economic recovery in advanced economies led by the US.

The Bangko Sentral ng Pilipinas (BSP) reported yesterday that FDI inflows amounted to $1.07 billion from January to October last year or $161 million lower than the $1.686 billion registered in the same period in 2009.

BSP Governor Amando M. Tetangco Jr. said in a statement that the negative sentiment of foreign investors outweighed the stronger-than-expected economic growth recorded by the economy last year.

“Notwithstanding the favorable growth prospects in the domestic economy, investor sentiment remained cautious amid concerns on the sustainability of recovery of advanced economies particularly the US,” Tetangco stressed.

He pointed out that the economic growth outlook in the US continued to be fragile given the high government fiscal deficit and weak employment conditions.

The BSP said equity capital plumetted by 88.7 percent to $203 million in the first 10 months of last year from $1.796 billion in the same period in 2009 as equity placements plunged by 76 percent to $472 million while withdrawals surged 64 percent to $269 million.

The central bank cited the large investments in a local beverage company and a local power corporation resulted in huge equity placements in 2009. These included the investment made by China’s largest electricity provider State Grid Corp. and Monte Oro Grid Resources Corp. in state-owned National Transmission Corp. (Transco) that bagged a $3.95 billion concession contract as well as the decision of Japanese brewer Kirin Holdings to acquire a stake in San Miguel Brewery of San Miguel Corp. worth P65.8 billion.

From January to October last year, capital inflows were placed in real estate, financial institutions, mining, services, and manufacturing particularly pharmaceuticals, health products, semiconductors, air conditioners, refrigerators, and parts.

During the period, the BSP came primarily from the US, Japan, Ireland, Hong Kong, Singapore, the Netherlands, and Switzerland.

On the other hand, Tetangco said that reinvested earnings surged 488 percent to $259 million in the first 10 months of last year from $44 million in the same month in 2009 as foreign investors opted to retain their earnings in local firms given the country’s underlying sound macroeconomic fundamentals.

He added that other capital consisting largely of intercompany borrowings from foreign direct investors by subsidiaries and affiliates in the Philippines yielded an inflow of $608 million from a net outflow of $154 million.

“The net FDI inflows during the 10-month period were attributed largely to the other capital account, consisting mainly of intercompany borrowing or lending between foreign direct investors and their subsidiaries or affiliates in the Philippines,” Tetangco explained.

For October alone, the country’s FDI posted a net outflow of $23 million from a net inflow of $83 million in the same month in 2009. Equity placements plunged 54 percent to $21 million from $46 million while withdrawals fell 57 percent to $3 million from $7 million.

Reinvested earnings likewise fell by 47.8 percent to $12 million from $23 million while other capital posted a net outflow of $53 million from $21 million. –Lawrence Agcaoili (The Philippine Star)