Foreign investments drop in 2018

MANILA, Philippines — Foreign direct investment (FDI) inflows declined by 4.4 percent to $9.8 billion last year from $10.3 billion in 2017 due to a sharp drop in equity placements as investors were spooked by external headwinds led by the US-China trade war and accelerating inflation in the domestic front.

The latest figure was lower than the $10.4 billion target set by the Bangko Sentral ng Pilipinas (BSP) for 2018. The central bank originally expected FDI inflows to hit only $8.2 billion last year, but was raised to $9.4 billion, and finally to $10.4 billion.

Data released by the BSP yesterday showed equity from the US, Singapore, Hong Kong, Japan, and China dropped 30.4 percent to $2.7 billion last year from $3.88 billion in 2017.

The funds were invested in manufacturing, financial and insurance, real estate, electricity, gas, steam and air-conditioning supply as well as arts, entertainment and recreation industries.

Likewise, the BSP said outflows declined by 10.4 percent to $436 million from $487 million.

The Philippine Stock Exchange index (PSEi) plunged by 12.8 percent to close 2018 at 7,466.02 due to jitters on local inflation and the series of rate hikes by the US Federal Reserve. This was the worst annual performance of the stock market barometer since 2009.

The BSP said the bulk of the net FDI inflow last year was in the form of intercompany borrowings or lending between foreign direct investors and their subsidiaries in the Philippines.

Investments in debt instruments recorded a double-digit growth of 11.3 percent to $6.67 billion last year from $5.99 billion in 2017, while reinvestment of earnings remained steady at $859 million from $863 million.

Investors remained concerned about the rising trade tension between Washington and Beijing, while closely monitoring the actions of the BSP as inflation breached the two to four percent target, averaging at 5.2 percent last year from 2.9 percent in 2017 due to elevated oil and food prices as well as weak peso.

This prompted the central bank to lift rates by 175 basis points in five straight rate-setting meetings from May to November last year to prevent inflation from spiraling out of control.

For December, the BSP said net FDI inflows decreased by 4.8 percent to $677 million from $712 million in the same period last year as net investments of equity capital plunged by 57.6 percent to $132 million from $312 million.

Placements dropped 51.8 percent to $161 million from $334 million, while withdrawals grew 29.3 percent to $29 million from $22 million.

For 2019, the BSP sees FDI inflows reaching $10.2 billion.