Lower investment numbers merely a pause
Credit to Author: The Manila Times| Date: Fri, 29 Mar 2019 16:14:00 +0000
AT first glance, data released by the Department of Trade and Industry (DTI) this week showing that approved investment pledges plummeted in February may be alarming. As we have pointed out on different occasions, however, accurate conclusions about the state of the economy can be drawn by examining the numbers in their proper context.
The DTI’s Board of Investments (BOI) reported that approved pledges by investors to put in money in local businesses fell by 95 percent in February, compared with the corresponding month a year ago, a sharp reversal of January’s 91-percent increase.
Just P3.85 billion in different investments were approved by the BOI in February, an almost insignificant amount compared with the P80.31 billion recorded in February 2018 and the P97.9 billion in investment pledges registered in January of this year.
February’s weak result pushed the total value of approved investment pledges for the first two months of 2019 down by 23 percent from the comparative 2018 level, in spite of the strong start to this year.
Taken on their own, the February numbers are alarming. But as the DTI explained, they are neither completely unexpected nor worrisome as part of the still very attractive big picture.
“Approved investments” are more volatile than most other economic indicators, and this is due almost entirely to timing.
On the side of investors, there is a preference for “front-loading” major capital investments in a budget year, or putting in the greater proportion of a planned investment at the beginning of the business operation. Although the 2019 national budget has not yet been enacted — something that investors would not have anticipated in December or January — the shift to a cash-based, from obligation-based, budgeting system probably encouraged more investors to follow a similar plan, especially those who have projects related in some way to the government’s “Build, Build, Build” infrastructure drive.
On the government side, the “timing issue” that the DTI described as a factor in February’s downturn is simply that: approvals for many investments can take up to 60 days or more, depending on their complexity. An investment proposal made now, for example, may not be reflected in the “approved investment pledges” data until May or June.
According to the DTI, the BOI is currently assessing a number of large-scale investments, and these are expected to raise the investment numbers in the coming months.
Therefore, the February approved investment figures, while much lower than might have been hoped, are simply part of a normal cycle. All indications are that investment interest in the Philippines remains robust and reflects an overall positive outlook on the economy.
In fact, a bit deeper examination of the February investment data reveals a couple of other positive developments that may not be immediately apparent. First and most importantly, the overwhelming majority of approved investments — about 91 percent — were from domestic investors rather than foreign sources. This indicates strong confidence in the economy by our local investors, something also reflected in the first-quarter upturn in business and consumer sentiments.
Second, there is an indication that foreign investments are becoming somewhat more diversified. Of the small amount of approved foreign investments during February, none were from the sources the Philippines traditionally relies on the most, China and the US.
This may also be an indication that the trade war between those two countries is having a negative effect, but at this point that seems of little consequence to the Philippines. Other countries such as the United Kingdom, Singapore and even Myanmar, are stepping in to fill the gap.
While February’s disappointing investment numbers make for a discouraging headline, there is nothing in them to suggest that they have any greater negative impact on our economy for this year. We remain confident that the economy will continue to grow and strengthen, despite numerous challenges.
The post Lower investment numbers merely a pause appeared first on The Manila Times Online.