Economist sees lower FDI inflows this year

MANILA, Philippines - An economist from the University of Asia and the Pacific (UA&P) said prospects of more foreign direct investments (FDIs) flowing into the Philippines this year are not particularly bullish due to lower durable goods orders in the US and Japan.

Dr. Victor Abola, senior economist of UA&P, said in a study titled “With Minimal Fiscal Stimulus, What Can Be Done?” that major sources of FDI inflows particularly in advanced economies such as the US are still hard pressed for funds.

“Since firms in the US and other advanced countries are relatively cash strapped and are not keen on capital spending in their own countries, it is unlikely that they would put larger amounts in emerging countries like the Philippines,” Abola stressed.

He pointed out that durable goods orders in the US and Japan are still down.

“Traditionally, our biggest foreign investors had come from the US and Japan. In the US, which leads other advanced countries in the recovery, durable goods orders in December 2009 was still 3.1 percent lower than a year ago, and prospects of growth in 2010 are not particularly bullish,” he added.

Another major source of FDI inflows is China but the economist explained Chinese companies are hesitant on infusing fresh equity into the Philippines due to controversial project such as ZTE National Broadband Network deal and the Northrail project.

“Lately, there is more interest from capital-rich China, from where investors would like to get into agriculture, mining, infrastructure, and energy in the Philippines, but they are going about it gingerly, considering the unexpected problems they faced in such projects as the ZTE-NBN and the Northrail projects,” Abola said.

He added that non-governmental organizations (NGOs) and local government units (LGUs) are putting a lot of road blocks in the path of mining projects with poorly argued and outdated reasons for their opposition.

FDI inflows plunged by 74 percent to $101 million in January or $292 million lower than the $393 million registered in the same month last year due to lower equity placements and higher withdrawals.

Monetary authorities pointed out that a large inflow was booked in January of 2009 due to 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.

The consortium made an upfront cash payment of $987.5 million representing 25 percent of the total contract in January last year.

The BSP said equity capital posted a net outflow of $27 million last January, a complete reversal of the $417 million inflow posted in the same month last year.

Equity placements plumetted by 96 percent to $17 million from $423 million. The amount came largely from the US and was directed to the manufacturing, real estate, and financial intermediation sectors.

On the other hand, equity withdrawals jumped by 633 percent to $44 million from $6 million due to uncertainties brought about by the May 10 elections.

The BSP reported that reinvested earnings surged by 177 percent to a net inflow of $27 million in January from a net outflow of $35 million in the same month last year due to better-than-expected performance of local companies last year.

Statistics showed that other capital account consisting largely of inter-company borrowing or lending between foreign direct investors and theur subsidiaries and affiliates in the Philippines rose by 818 percent to $101 million from $11 million. The increase was traced to an inter company loan availments from a foreign direct investor in the US.

FDI inflows went up by 26.2 percent or $404 million to $1.95 billion last year from $1.54 billion in 2008 on the back of strong equity inflows as investors continued to plough back earnings to the country in recognition of the resilient domestic economy.

Net equity inflows soared by 46.2 percent to $1.806 billion last year from $1.236 billion in 2008. This after equity capital net inflows jumped 38.1 percent to $2.013 billion from $1.468 billion while withdrawals retreated by 7.2 percent to $207 million from $223 million.

The BSP sees FDI inflows hitting $1.8 billion this year. This would result to higher gross international reserves (GIR) of about $47 billion to $48 billion this year from a record high of $45.03 billion last year.