FDI inflows fall 20% in November

Net inflows of foreign direct investment (FDI) into the Philippines slumped in November, preliminary data from the central bank showed.

FDI net inflows fell by 19.8% to USD 901 million in November from USD 1.12 billion in the same month in 2023, the Bangko Sentral ng Pilipinas (BSP) said on Monday.

Month on month, inflows slid by 11.8% from USD 1.02 billion in October.

This was also the lowest FDI net inflow in two months or since the USD 368 million posted in September.

Net investments in debt instruments dropped by 17.9% to USD 791 million in November from USD 964 million in the same month in 2023.

These consisted mainly of intercompany borrowing or lending between foreign direct investors and their subsidiaries or affiliates in the Philippines, the central bank said.

“The remaining portion of net investments in debt instruments are investments made by nonresident subsidiaries/associates in their resident direct investors, i.e., reverse investment,” it added.

Meanwhile, net investments in equity capital other than the reinvestment of earnings plunged by 58.9% to USD 35 million in November from USD 85 million in the previous year.   

Equity capital placements fell by 37.8% year on year to USD 71 million. On the other hand, withdrawals rose by 24.3% to USD 36 million.

By source, the bulk of equity capital placements mostly came from Japan (49%), followed by the United States (24%) and Singapore (17%).

These were invested mainly in manufacturing (49%), real estate (25%), financial and insurance (9%), and administrative and support services (5%).

Central bank data showed investments in equity and investment fund shares slid by 31.2% to USD 110 million in November from USD 159 million in the same month in 2023.

“Nonresidents’ reinvestment of earnings remained broadly stable at USD 74 million,” it added.

11-month period

In the January-November period, FDI net inflows rose by 4.4% to USD 8.58 billion from USD 8.22 billion in the same period in 2023.

This accounted for 95.3% of the BSP’s full-year forecast of USD 9-billion FDI net inflows for 2024.

Investments in equity and investment fund shares jumped by 16.4% year on year to USD 2.6 billion from USD 2.2 billion in the same period in 2023.

Net foreign investments in equity capital climbed by 37.7% to USD 1.49 billion in the first 11 months from USD 1.08 billion in the year-ago period.

Placements increased by 23% to USD 1.98 billion, while withdrawals dipped by 7.1% to USD 493 million.

These placements mainly came from Japan (39%) and the United Kingdom (39%), followed by the United States (10%) and Singapore (5%).

Investments were mostly channeled into manufacturing (72%), real estate (12%) and wholesale and retail trade (4%) industries.

Meanwhile, net investments in debt instruments inched down by 0.1% to USD 5.98 billion. Reinvestment of earnings likewise slipped by 3.6% to USD 1.1 billion.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the decline in FDI flows could be attributed to uncertainties over US President Donald J. Trump’s protectionist policies.

“President Trump, who won the US elections on Nov. 5, encourages more investments and jobs in the US rather than outside the US that could reduce foreign investments globally,” he said.

Oikonomia Advisory & Research, Inc. economist Reinielle Matt Erece said foreign investors were hesitant in making decisions in November when Mr. Trump won the elections.

“His suggested protectionist policies caused investors to hold capital and reposition their investments as higher inflation expectations, higher interest rates, and potential trade wars may occur as a result of these economic policies,” he added.

Mr. Ricafort noted foreign investors were also on a “wait-and-see” mode as the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act was signed into law in November.

“But this would now make foreign investors more decisive on whether or not to locate in the country, going forward,” he added.

CREATE MORE expands fiscal incentives and lowers corporate income tax on certain foreign enterprises.

“The series of storms and floods caused some economic disruptions in some areas of the country and also partly disrupted some FDIs into the country,” Mr. Ricafort added.

The Philippines faced several typhoons in the fourth quarter, which resulted in billions of infrastructure and agriculture damage.

“Nevertheless, net FDI close to USD 1 billion is still decent and among pre-pandemic highs that could create more jobs and other business opportunities and also still contribute to further economic growth and development,” Mr. Ricafort said.

Further monetary policy easing would also lower financing costs and attract more investments, he added.

In 2024, the BSP reduced interest rates by a total of 75 basis points (bps). It delivered three straight 25-bp rate cuts each in August, October and December.

A BusinessWorld poll conducted last week showed that 19 out of 20 analysts expect the Monetary Board to cut rates by another 25 bps at its first meeting of the year on Feb. 13.

The central bank expects to end 2025 with a USD 10-billion net FDI inflow.

The BSP noted that its FDI data are distinct from the investment data of other government sources as it covers actual investment flows.

“By contrast, the approved foreign investments data that are published by the Philippine Statistics Authority, which are sourced from Investment Promotion Agencies, represent investment commitments, which may not necessarily be realized fully, in a given period.” — Luisa Maria Jacinta C. Jocson