Net FDI misses target, drops to two-year low
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Mon, 11 Mar 2019 16:30:30 +0000
NET foreign direct investment (FDI) inflows hit a two-year low in 2018, the Bangko Sentral ng Pilipinas (BSP) reported on Monday, also missing the full-year target.
At $9.802 billion — short of the central bank’s $10.4-billion goal and the lowest since 2016’s $7.933 billion — net inflows were down 4.4 percent from 2017’s $10.256 billion.
An analyst called the result “decent” but said slower economic growth and uncertainties over the government’s tax reform program could have been limiting factors.
Broken down, net investments of equity capital recorded the biggest fall of 33.3 percent even as the total remained positive at $2.267 billion, albeit lower than 2017’s $3.398 billion.
The BSP, in a statement, said equity capital infusions last year came mainly from Singapore, the United States, Hong Kong, Japan and China, and were invested in manufacturing; financial and insurance; real estate; electricity, gas, steam and air-conditioning supply; and arts, entertainment and recreation.
Reinvestments of earnings, meanwhile, dipped by 0.4 percent to $859 million, from $863 million in 2017, while net availments of debt instruments rose by 11.3 percent to $6.676 billion from $5.996 billion.
“FDI still registered a decent print in 2018,” ING Bank Manila Branch senior economist Nicholas Antonio Mapa said when asked to comment on the full-year data.
He pointed out that growth in debt instruments meant parent companies were still sending money to subsidiaries in the Philippines, while the slight drop in reinvested earnings could be attributed to the economy.
“[T]hese subsidiary companies have plowed back a good amount of their earnings back into local operations, albeit at a slightly slower pace from 2017, likely due to slowing growth in the Philippines,” Mapa said.
Gross domestic product growth eased to 6.2 percent last year — short of the government’s downwardly-revised goal of 6.5-6.9 percent — from 6.7 percent in 2017.
The substantial contraction in net equity placements, meanwhile, was attributed to base effects but Mapa also said “uncertainty over the tax reform program may have [had] some investors … [adopt a] wait and see attitude.”
The Tax Reform for Acceleration and Inclusion (Train) law, implemented at the start of 2018, raised taxes on petroleum products and car sales, among others, in exchange for lower personal income tax rates.
The government wanted to follow this up last year with the Tax Reform for Attracting Better and High Quality Opportunities (Trabaho) bill, which calls for the gradual lowering of the corporate income tax rate and the streamlining of investor incentives, but the measure remains mired in Congress.
Mapa said he expected FDI flows to stay steady in 2019 given upbeat prospects for the Philippines, with onshore firms continuing to plow money back into the economy and parent companies sending funds to subsidiaries.
“[But] as for fresh FDI, we may need to get some more clarity on tax reform or substantial improvements in infrastructure quality before we see this account rise again,” Mapa added.
For December alone, net FDI inflows dropped by 4.8 percent to $677 million from $712 million a year earlier. It was an improvement, however, from November’s $535 million and the highest since August’s $756 million.
“The decline in FDI was due largely to the 57.6 percent drop in net investments of equity capital to $132 million from $312 million a year ago,” the Bangko Sentral noted.
Equity capital placements during the month came mainly from Thailand, the US, Japan, Singapore, and the Netherlands. These were
invested largely in the financial and insurance; electricity, gas, steam and air-conditioning supply; wholesale and retail trade; manufacturing; and real estate industries.
Reinvestment of earnings also declined by 6.9 percent to $61 million, from $65 million a year ago, while net investments in debt instruments increased by 44.7 percent to $484 million from $335 million.
The post Net FDI misses target, drops to two-year low appeared first on The Manila Times Online.