Foreign investments notch highest level so far this year in July

MANILA, Philippines — Foreign direct investments to the Philippines rose for the third straight month to hit their highest monthly level so far this year in July, the central bank said on Monday.

Investments from overseas went up 35.2% on-year to a net inflow of $797 million in July when the economy was in its second month of a slow reopening from widespread lockdowns. A net inflow indicates more investments entered than left.

“The FDI net inflows rose for the third consecutive month on the back of investors’ improving sentiment due in part to easing of containment measures…,” the Bangko Sentral ng Pilipinas (BSP) said in a statement.

With quarantines getting lifted, the BSP said foreign investors tried to cash in on “some signs of gradual improvements in economic activity,” which at a larger scale, remained heavily disrupted by the pandemic.

That said, an uptrend in FDI is a positive outlier from a string of bad economic data recently, foremost of which was the economy contracting a record 16.5% year-on-year in the second quarter. Sanjay Mathur, chief economist at ANZ Bank, said the recovery in FDI that started May may prove sustainable.

From January to July, net FDI inflows amounted to $3.8 billion, down 10.9% year-on-year but getting closer to the BSP’s downwardly revised forecast of $4.1 billion. FDI is set for its third straight year of drop under the Duterte government since peaking in 2017.

“I do think so. See first, we are starting from a very low base of under $1 billion. Second, even though the recovery has been quite slow, I feel that macro stability of the Philippines economy is quite a draw and progressively FDI should improve,” he said in an e-mail. 

“We should however, bear in mind that FDI numbers can be quite volatile but in aggregate the trend is one of improvement,” he added. 

Nicholas Antonio Mapa, senior economist at ING Bank in Manila, however was more pessimistic. “We attribute the pick-up of late to some pent up investment outlays but we remain skeptical of a sustained strong influx of equity investments sans an economic rebound both in the Philippines and abroad,” Mapa said in a separate e-mail.

When broken down by components, Mapa also said the FDI performance appears not to be too stellar. Data showed that in July, equity investments or new FDI went down 18% to $154 million. Reinvested earnings, meanwhile, also dropped 16.1% to $73 million.

The bulk of FDI remained in the form of debt securities, hardly job-generating, rose 60.1% annually to $643 million and were also responsible for the general uptick in investments.

The FDI picture turns better when the 7-month tally is considered however. Equity placements were currently running up 34.9% to $1.5 billion, the bulk of which came from Japan, the Netherlands, Singapore and the US.

By sector, majority of equity inflows entered manufacturing, property, financial and insurance as well as administrative and support services. Reinvestments, on the other hand, shrank 20.9% year-on-year to $506 million as of July.

Investments on debt securities declined 27.1% to $2.3 billion, data showed.