FDI falls 20.4% amid investor concerns

In a report released by the Bangko Sentral ng Pilipinas (BSP) on Monday, foreign direct investments (FDI) into the Philippines exhibited a marked decline during the first semester of the year. Citing concerns over the nation’s growth prospects and global economic challenges as underlying causes, the BSP’s findings indicated a worrisome trend in this critical economic indicator.

During the period spanning January to June, net FDI inflows reached a total of $3.9 billion, registering a substantial 20.4 percent decrease when compared to the previous year’s figure of $4.9 billion. In an official statement, the central bank addressed the situation, asserting that the deceleration in FDI could be chiefly attributed to investor apprehensions arising from subdued growth prospects amidst persistent global uncertainties.

Within the specific categories of FDI, net equity capital placements experienced a decline of 7.2 percent, falling from $802 million in the preceding year to $744 million in the current reporting period. Simultaneously, reinvestments of earnings exhibited a notable 11.2 percent contraction, declining from $517 million to $459 million, while net investments in debt instruments suffered a substantial 24.6 percent drop, plummeting from $3.6 billion to $2.7 billion.

Geographically, the primary contributors to equity capital placements during the first half of 2023 emanated predominantly from Japan, Germany, the United States, and Singapore. The sectors that attracted the most significant investments were manufacturing, which absorbed 54 percent of the FDI, followed by real estate (15 percent), financial and insurance (10 percent), with the remaining 21 percent allocated to various other sectors.

For the month of June alone, net FDI saw a decline of 3.9 percent, decreasing from $503 million to $484 million when compared to the same month in the previous year. This contraction was driven by an 11.8-percent reduction in net investments in equity capital, from $126 million to $111 million, and a substantial 26.8 percent drop in reinvestments of earnings, declining from $122 million to $89 million. Conversely, net investments in debt instruments displayed an 11.0 percent increase, rising from $255 million to $283 million.

The origins of the June FDI contributions were primarily attributed to Japan, the United States, and Singapore, with the bulk of investments directed towards manufacturing (54 percent), real estate industries (15 percent), and information and communication industries (7.0 percent).

Leading economists weighed in on the FDI decline, with ING Manila Bank’s senior economist, Nicholas Antonio Mapa, concurring with the BSP’s assessment. Mapa suggested that concerns regarding global economic growth, coupled with anxieties regarding a slowdown in the Philippines’ own economic expansion, likely prompted investors to adopt a more cautious approach to investments.

Furthermore, Michael Ricafort, chief economist at the Rizal Commercial Banking Corp., pointed to elevated inflation rates and increased interest expenses as factors driving up borrowing costs, thereby impacting investment decisions negatively. However, he did express optimism for the months ahead, citing potential positive factors such as the lifting of the Covid state of public health emergency, which could stimulate sales, earnings, employment, and other economic activities, ultimately encouraging more FDIs into the country.