‘Philippines needs to catch up with region on FDI’

MANILA, Philippines — The Philippines needs to catch up with the rest of the Association of Southeast Asian Nations (ASEAN) region where foreign direct investments (FDI) inflow is seen growing by six to eight percent until 2030.

DBS senior economist Radhika Rao and economist Chua Han Teng said FDI inflows into ASEAN-6, as a proportion of world inflows, have exceeded China in the past two years,

In a research note titled “ASEAN-6: Tailwinds from supply chain reconfiguration,” Rao and Teng attributed the feat to the de-risking since the onset of the US-China tensions in 2017 and 2018 as well as the supply chain reconfiguration brought about by the COVID-19 pandemic.

“Vietnam and Indonesia attracted the most, while the Philippines is catching up with the rest of the region,” the authors said.

Aside from the Philippines, ASEAN-6 is comprised of Indonesia, Malaysia, Singapore, Thailand, and Vietnam.

Despite its advantages in terms of low labor cost and young labor force, the Philippines has tallied the smallest FDI inflow in the region.

The country also has an edge in terms of expertise in the services sector, particularly the business process outsourcing (BPO) industry.

“(The) Philippines has been a market leader in business process outsourcing activities, spurred further by the pandemic, marked by the presence of several multinational companies, including global banks, insurance, and technology companies,” Rao and Teng said.

They added that investors have maintained a strong presence in the industrial and electronics value chain, notwithstanding moderation in the quantum of inflows in 2022 versus 2021, which slowed further into January to June this year.

“While FDI into Philippines has been more modest than its ASEAN neighbors, recent reforms, including the removal of restrictions of selected sectors, have been timely, with the renewable industry in particular a key focus area,” the authors said.

DBS said German-owned offshore wind farm projects worth P392.4 billion were approved in Cavite, Negros Occidental and Guimaras earlier this year.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed FDI inflow declined by 14.7 percent to $4.66 billion from January to July versus the $5.47 billion booked in the same period last year on concerns over slowing global growth.

Latest data showed that investments in debt instruments consisting mainly of intercompany borrowing between foreign direct investors and their subsidiaries or affiliates in the Philippines decreased by 15.2 percent to $3.28 billion  in the first seven months  compared with $3.87 billion in the same period last year.

Total reinvestment of earnings also declined by 13.1 percent to $573 million from $517 million.

The BSP said equity other than reinvestment of earnings likewise contracted by 14 percent to $808 million.

Equity infusions from Japan, Germany, the US and Singapore slipped by four percent to $1 billion from $1.05 billion. The inflows were channeled into manufacturing with 54 percent, real estate with 15 percent as well as financial and insurance with 10 percent.

The BSP reported that equity withdrawals jumped by 83 percent to $196 million in the first seven months of the year from $107 million in the same period last year.

In 2022, the Philippines managed to exceed its FDI inflow target of $8.5 billion despite the 23.2 percent plunge in net inflow to $9.4 billion from an all-time high of $11.98 billion in 2021.

The BSP further lowered its projections for the net inflow of FDIs to $8 billion from $9 billion this year and to $10.5 billion from $11 billion next year.