FDI inflows slump 25% to $6.54 billion

by Lawrence Agcaoili (The Philippine Star), 11 Mar 2021

MANILA, Philippines — The net inflow of foreign direct investments (FDIs) slumped to its lowest level in five years after contracting by 24.6 percent last year as the country continues to struggle to contain the spread of COVID-19 cases, according to the Bangko Sentral ng Pilipinas (BSP).

Data released by the central bank showed net FDI inflows reached $6.54 billion last year, lower than the $8.67 billion booked in 2019. This was the lowest since the $5.64 billion recorded in 2015.

“The disruptive impact of the pandemic on global supply chains and the weak business outlook adversely affected investor decisions in 2020,” the BSP said in a statement.

COVID-19 cases in the country breached the 600,000 level on Tuesday with more than 12,500 deaths despite imposing the longest and strictest lockdowns in the world when the entire Luzon was placed under enhanced community quarantine almost one year ago.

Despite the decline, the amount was higher than the revised $6 billion target set by the BSP for 2020.

Equity capital coming mainly from Japan, the Netherlands, US and Singapore channeled to manufacturing, real estate as well as financial and insurance industries plunged 37.8 percent to $1.87 billion last year from $3 billion.

Likewise, withdrawals fell 44.5 percent to $392 million from $706 million.

Net investments in debt instruments, consisting mainly of loans extended by parent companies abroad to their local affiliates, declined by 22 percent to $4.09 billion from $5.24 billion.

Reinvestment of earnings also declined by 13.6 percent to $978 million from $1.13 billion.

For the month of December alone, net FDI inflows fell 62.6 percent to $509 million from $1.36 billion in the same month in 2019.

ING Bank Manila senior economist Nicholas Mapa said the drop in FDIs mirrors to some extent both the deep recession faced by the Philippine economy and the general move by global investors to hold off on investments given the heightened uncertainty brought about by the pandemic.

“FDI flows slowed as the Philippines may no longer be as bright an investor destination given our fast fading economic prospects while investors are also likely holding on to cash to ride out the storm,” Mapa said.

Mapa said overall uncertainty would continue to weigh on FDI prospects in the near term.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said foreign investors adopted a wait-and-see attitude for fiscal stimulus to help the country recover from the pandemic-induced recession.

“Lower FDIs recently have reflected and in response to lower demand conditions due to COVID-19, amid cost-cutting measures by global companies to remain competitive,” Ricafort said.

Ricafort expects FDI inflows to recover amid further monetary easing measures and reopening of the economy with the roll out of COVID-19 vaccines as well as the passage of additional reform measures such as the Corporate Recovery and Tax Incentives for Enterprises (CREATE), Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) bills, among others.

“For the coming month, FDIs could pick up alongside with the expected reopening of the economy, as well as the possible signing of the CREATE that will outrightly reduce the corporate income tax rate to 25 percent from 30 percent and provide greater certainty on investment incentives.

The BSP expects a higher net FDI inflow of $7.5 billion this year as the economy is seen bouncing back with a gross domestic product (GDP) growth of 6.5 to 7.5 percent in 2021 and eight to 10 percent in 2022 after a record 9.5 percent contraction last year.