FDI inflows dive 58% in June

Foreign direct investments (FDIs) remained on a net outflow in June, dragging aggregate inflows in the first semester down to $813 million, 58 percent lower than the same period in 2007.

The Bangko Sentral ng Pilipinas (BSP) reported that FDIs in June registered a net outflow of $12 million, due largely to the repayment of loans owed by Philippine companies to their foreign principals.

This brought the first semester FDI inflow lower than last year’s $1.933 billion total, but officials said the outflow was not as worrying since there were net equity inflows in June.

The drastic slowdown in net FDI was not unexpected, however, and the BSP has already projected that total inflow this year would drop from $4.2 billion in 2007 to $2.6 billion or less.

According to the BSP, FDIs would suffer from the impact of slower demand in developing markets which had discouraged direct investments into industries that were originally expected to attract investors this year, such as mining.

Although net foreign direct investments have remained largely stable in the Philippines, Fitch Ratings said earlier that capital inflows to Asia have started slowing down because of risk aversion.

Fitch said the slowdown was caused by heightened risk aversion of global investors and the deteriorating economic fundamentals of the region along with the global economy.

Fitch said this year’s first quarter data suggested the region continued to enjoy strong net FDI inflows and was still receiving cross-border loans from international banks.

However, Fitch noted that foreign purchases into local equity markets have already recorded net withdrawals, while international issuances of debt securities also appeared to have slowed down.

“While capital market flows are bound to be volatile, Fitch doubts the proposition of ‘Asia decoupling’ and believes the sensitive capital market flows could be the forerunner to FDI and loan flows,” said Franklin Poon, director of the rating agency’s Sovereigns Group.

But BSP Governor Amando M. Tetangco said the BSP recorded a significant net inflow in foreign equity capital in June that amounted to $132 million. He said this was significantly higher than the level recorded in the same month a year ago which amounted to $86 million.

“This inflow arose largely from the infusion of foreign funds for the development of a large-scale tourism project, which involves the construction of leisure and entertainment facilities,” he said.

Tetangco said reinvested earnings also increased to $39 million from the year-ago level of $19 million.

However, BSP data showed that these inflows were wiped out by $183-million net outflow in the other capital account as a result of intercompany loan repayments to foreign direct investors and trade credit extended to affiliates abroad.

As a result, the actual net FDIs in June registered a net outflow of $12 million which brought the FDI in the first half of 2008 to a net inflow of $813 million.

The BSP said net inflows of FDI for the six-month period this year came largely in the form of equity capital amounting to $487 million.

Gross equity capital placements for the first six months of the year amounted to a total of $669 million and were channelled mainly to manufacturing activities such as shipbuilding and repair, auto electronics parts and components and paper products.

Tetangco said some funds also went to services (recreational/cultural), mining, construction (hotel/leisure and resort/water spa development, power plant facility), real estate and financial institutions.

The BSP said investments came primarily from the US, Japan, Singapore, South Korea, Germany and Malaysia.

Reinvested earnings during the first semester, on the other hand, amounted to $198 million, higher by 5.3 percent compared to the level posted in the same period in 2007 as foreign investors opted to plow back part of their earnings to local firms. 

Other capital, consisting mainly of intercompany borrowing/lending between foreign direct investors and their subsidiaries/affiliates in the Philippines, posted a higher net inflow of $128 million.

The 11.3 percent increase over the $115 million net inflow in the comparable period last year was due primarily to higher loan and trade credit availments by local subsidiaries from their parent companies.