FDI net inflows decline 14% in April   

Net inflows of foreign direct investments (FDI) dropped by 14.1% in April as investors remained concerned over an economic slowdown and elevated inflation, the Bangko Sentral ng Pilipinas (BSP) said.   

Data released by the BSP on Monday showed FDI net inflows declined to USD 876 million in April from USD 1.02 billion in the same month in 2022.

“The decline in FDI may be attributed to concerns over slowing economic growth and relatively high inflation levels globally,” the BSP said in a statement.   

The Philippine economy slowed to 6.4% in the first quarter, from 8% in the same period in 2022. The government set a 6-7% gross domestic product (GDP) growth target for this year.

Despite the annual decline, April saw the highest monthly net inflow of FDI in two months, or since the USD 1.05 billion in February.

Month on month, FDI inflows surged by 59.8% from the USD 548-million FDI net inflows in March.

“The month-on-month increase of FDI in April 2023 can be traced to the perceptible trust and confidence that investors have shown towards the improving macroeconomic environment, particularly aggregate production and prices,” Cid L. Terosa, senior economist at the University of Asia and the Pacific (UA&P), said in an e-mail. 

While economic growth slowed in the first quarter, Mr. Terosa noted it was still above 6%.

“Moreover, I believe investors have noticed the plunge in the inflation rate. The inflation rate was still high, but investors took note of the continuous decline in the inflation rate (8.7%) from January 2023,” he said.   

Headline inflation cooled to 6.6% in April from 7.6% in March. However, April marked the 13^th straight month that inflation was above the central bank’s 2-4% target range.

“In addition, institutional factors such as the passage of updated reform measures have generated positive signals of greater market openness and accessibility,” Mr. Terosa added.

These measures include the Corporate Recovery and Tax Incentives for Enterprises Act, the Public Service Act, the Foreign Investment Act, as well as the Retail Trade Liberalization Act.

Data from the BSP showed nonresidents’ net investments in debt instruments of local affiliates fell by 7.7% to USD 663 million in April, from USD 719 million in the same month in 2022.

Investments in equity and investment fund shares dropped by 29.3% to USD 213 million in April, from USD 301 million a year ago.

Reinvestment of earnings also declined by 19.4% year on year to USD 77 million in April.

Nonresidents’ net investments in equity capital (other than reinvestment of earnings) fell by 33.8% to USD 136 million in April, from USD 206 million in the same month last year.   

Broken down, equity capital placements contracted by 29.2% to USD 158 million, while withdrawals rose by 24.4% to USD 22 million.

The equity placements were mainly from Japan, the United States, and Singapore. Most investments were channeled to manufacturing, real estate, and financial and insurance industries. 

“The decline was broad-based, but the decline in equity investment was more pronounced, which better reflects the money coming in from new businesses. Slowing global economy likely kept the investors cautious to make fresh investments into the economy,” Makoto Tsuchiya, assistant economist from Oxford Economics Japan, said.

Slump
For the first four months of the year, FDI net inflows slumped by 18% to USD 2.92 billion from USD 3.56 billion in the comparable year-ago period.

BSP data showed foreign investments in debt instruments fell by 18.3% year on year to USD 2.24 billion in the January-to-April period. 

Investments in equity and investment fund shares also dropped by 17% to USD 676 million.

Net foreign investments in equity capital decreased by 23.1% to USD 397 million, as equity capital placements slipped by 7.1% to USD 535 million and withdrawals more than doubled (131%) to USD 137 million.

Most of these placements were from Japan, Singapore, and the United States.

Reinvestment of earnings slipped by 6.6% to USD 279 million as of end-April.

Mr. Terosa said foreign investments this year may continue to increase, as Philippine economic growth, slower inflation and improving employment figures will drive positive investor sentiment.

“Additionally, several international agencies and credit rating firms think that the Philippines will be among the pockets of economic boom in the next two to three years in a world economy characterized by intermittent gloom,” he said.

On the other hand, Mr. Tsuchiya said FDI inflows will likely remain tepid for the rest of the year, amid the global economic slowdown.

“That said, the economy is set to regain momentum in late 2024, by when the investors will be more confident in investing in the Philippines,” he said.   

The BSP expects USD 9-billion FDI net inflows by end-2023. — Keisha B. Ta-asan