Pandemic worsens already declining FDI under Duterte

MANILA, Philippines — Foreign direct investments (FDI) to the Philippines sank last year after investors held back from growing their cash to keep themselves liquid amid the pandemic.

However while the drop was expected, last year’s net FDI inflow of $6.5 billion still marked a grim milestone of being the lowest in 5 years, data from the Bangko Sentral ng Pilipinas (BSP) showed on Wednesday.

On top of that, its 24.6% annual decrease was also the third straight year of decline under the Duterte administration since peaking at $10.26 billion in 2017. If any, the pandemic only exacerbated the scale of decreases from 12.8% in 2019 and 3% in 2018. 

Last year’s total FDI nonetheless beat a downwardly revised BSP forecast of $6 billion for the year.

The bulk of fresh capital came from Japan, the Netherlands, US and Singapore and were invested in companies engaged in manufacturing, real estate and financial, data showed.

“The disruptive impact of the pandemic on global supply chains and the weak business outlook adversely affected investor decisions in 2020,” the central bank said in a statement.

Apart from the health crisis, Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said investors chose to remain on the sidelines while awaiting the outcome of legislative deliberations for the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill. 

That bill, which has been sitting on President Rodrigo Duterte’s desk awaiting his signature, was touted as a stimulus meant to attract foreign investment through lower corporate taxes, and better tax breaks. The assumption is, with these benefits, local and foreign firms would invest savings to help workers get back on their feet.

“Still near record low interest rates/borrowing costs would also help attract more FDIs into the country, as also supported by the country’s improved credit ratings in recent months,” Ricafort said in a commentary.

Yet projections of a bigger FDI this year— which BSP places at $7 billion— may be in jeopardy with some Metro Manila cities reverting to tighter lockdowns and strict enforcement of curfews to arrest a spike in coronavirus cases. At the same time, a slow rollout of COVID-19 vaccines, which is moving slowly in hospitals, is dimming the outlook. 

“Offsetting risk factors include the recent increase in new COVID-19 local cases, new coronavirus strains/variants that are more contagious, and any delay in the arrival and rollout of COVID-19 vaccine doses that could lead to slower economic recovery…,” Ricafort said.