Philippine FDI Dips 18% in H1 Despite June Rebound

Foreign direct investment (FDI) inflows into the Philippines rebounded in June from a year earlier, but first-half inflows remained lower as foreign companies reduced lending to their local affiliates and reinvested less of their earnings. Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed FDI inflows rose by 35.1 percent to $447 million in June from $331 million in the same month last year. The latest figure, however, was about 30 percent lower than the $638 million recorded a month ago. FDI refers to actual investments made by foreign investors that establish a lasting interest in Philippine companies. This generally covers investments involving at least a 10-percent ownership stake and includes equity capital, earnings retained and reinvested in the business, as well as borrowings between foreign investors and their local affiliates. The June increase was driven by higher intercompany borrowings and reinvested earnings. Net investments in debt instruments, which mainly represent borrowing and lending between foreign investors and their Philippine subsidiaries or affiliates, climbed by 24.2 percent to $369 million from $297 million a year ago. Reinvestment of earnings, or the portion of profits foreign investors keep in their Philippine operations rather than remit abroad, rose by 43.1 percent to $130 million from $91 million. These gains more than offset a net equity outflow of $52 million in June, slightly narrower than the $57-million net outflow a year ago. Gross equity placements fell to $112 million from $130 million, while withdrawals declined to $164 million from $187 million. Despite the June pickup, net FDI inflows in the first six months fell by 17.8 percent to $3.38 billion from $4.12 billion in the same period last year. “The decline was driven by the decreases in both foreign net investments in debt instruments, which indicated lower inter-company borrowings and reinvestment of earnings,” the BSP said. Net debt investments declined by 25.8 percent to $2.06 billion in the first half from $2.78 billion a year earlier, while reinvested earnings fell by 19.4 percent to $829 million from $1.03 billion. Net equity capital investment excluding reinvested earnings, meanwhile, jumped by 59.4 percent to $489 million from $307 million. The increase in net equity investment, however, largely reflected fewer withdrawals rather than a surge in fresh capital placements. Gross placements slipped to $725 million from $747 million, while withdrawals nearly halved to $236 million from $439 million. The BSP said equity capital placements during the first half came primarily from Japan, the United States and Singapore. The funds went largely to manufacturing, financial and insurance activities and real estate. Reyes Tacandong & Co. senior adviser Jonathan Ravelas said investment weakness could remain subdued in the short term after the decline in FDI in the first half. “Near-term FDI flows may remain soft, but the longer-term story will depend on how effectively the country converts reforms into actual investment projects,” Ravelas said. The BSP’s FDI figures cover actual investment flows into the country and differ from approved foreign investments reported by the Philippine Statistics Authority. Investment approvals represent commitments that may not necessarily be fully realized within the period.