FDI inflow down 17.5% in 10 months

MANILA, Philippines —  The net inflow of foreign direct investments (FDI) fell by 17.5 percent from January to October 2023, reflecting the adverse impact of persistent inflationary pressures and slowing global growth prospects on investor sentiment.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed the net FDI inflow reached $6.53 billion during the first 10 months of 2023, $1.39 billion lower than the $7.92 billion recorded in the same period in 2022.

“While FDIs continued to record net inflows, the recent decline in levels reflect the adverse impact of persistent inflationary pressures and slowing global growth prospects on investor decisions,” the BSP said.

It said investments in debt instruments consisting mainly of intercompany borrowing between foreign direct investors and their subsidiaries or affiliates in the Philippines decreased by 18.3 percent to $4.57 billion during the 10-month period in 2023 from $5.59 billion a year ago.

Total reinvestment of earnings also slipped by 6.4 percent to $945 million from $1.01 billion.

According to the BSP, equity other than reinvestment of earnings plunged by 22.9 percent to $1.02 billion from $1.32 billion.

Equity infusions mainly from Japan, the United States, Singapore and Germany slipped by 2.8 percent to $1.49 billion in the 10-month period last year from $1.54 billion a year earlier.

These inflows were channeled into manufacturing (50 percent), real estate (14 percent) as well as financial and insurance (12 percent).

On the other hand, equity withdrawals soared by 120.3 percent to $475 million from January to October 2023 from $216 million in the same period in 2022.

China Bank chief economist Domini Velasquez said the lower net FDI inflow was likely due to challenging economic conditions.

She said Hamas’ attack on Israel last October and subsequent concerns of regional escalation of the conflict added to global uncertainties.

“Looking ahead, the continued slowdown of the global economy this year may keep FDI inflow to emerging markets, such as the Philippines, subdued. Hence, government support, such as improving the ease of doing business, implementing investment-friendly policies, and further developing key infrastructure, are crucial to boost the country’s prospects as an investment destination,” Velasquez said.

She said the recently signed ease of paying taxes law and slowing inflation are positive developments in boosting investor sentiment.

For October alone, net FDI inflow dropped by 29.6 percent to $655 million from $930 million in the same month in 2022.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the slowdown in net FDIs last year may be attributed to still relatively higher global and local interest rates that raised borrowing/funding costs and weighed on demand for new investments, including FDIs.

Ricafort added that the still relatively higher inflation also partly slowed down new investments.

He said the risk of US economic slowdown after the aggressive rate hikes by the US Federal Reserve to tame inflation also damped the entry of  FDIs into the Philippines.

  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 lowered its projections for the net inflow of FDIs to $8 billion from $9 billion for 2023 and to $10 billion from $10.5 billion for 2024.