June FDI inflows highest in 3 months

june fdi inflows highest in 3 months - June FDI inflows highest in 3 months

NET INFLOWS of foreign direct investments (FDI) to the Philippines rose for a second straight month in June as lockdown restrictions eased in the Philippine capital, but it was not enough to reverse the slump during the first half.

FDI net inflows reached $481 million in June, up 7.1% from the $449 million a year ago, data from the Bangko Sentral ng Pilipinas (BSP) showed.

The June inflows were 19.67% more than the $402 million seen in May, and the highest since the $563 million logged in March.

“This positive development was underpinned by the gradual reopening of advanced economies with investment interest in the Philippines, and the country’s sustained strong macroeconomic fundamentals, despite the COVID-19 pandemic,” the BSP said in a statement on Wednesday.

In June, the government eased lockdown restrictions in Metro Manila and nearby provinces for the first time since mid-March. More businesses were allowed to reopen, while public transportation partially resumed.

The normalization of supply chains allowed more FDIs to enter the country, said Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

The gains in June were not enough to boost the first semester FDI inflows, which declined by 18.3% to $2.997 billion.

“Despite the relatively lower interest rates resulting in a low cost of borrowing, investors’ sentiments remain at an all-time low, a spinoff of the recession,” Colegio de San Juan de Letran Graduate School Dean Emmanuel J. Lopez said in an e-mail.

The country entered into a recession after gross domestic product fell by a record 16.5% in the second quarter due to the pandemic and subsequent lockdown.

In June, net investments in debt instruments slid 28.8% to $229 million from $321 million a year ago. Reinvested earnings also dropped 19.4% to $80 million in June from $99 million.

“These [decreases] may still reflect the sharp year-on-year decline in sales and income of global businesses largely due to the lockdowns resulting to a reduction in capital expenditures, cost-cutting measures in response to slower business/economic conditions,” Mr. Ricafort said.

Meanwhile, equity other than reinvestment of earnings ballooned nearly sixfold to $173 million in June from $29 million a year ago. This as placements more than doubled to $185 million from $78 million while withdrawals plummeted 74.9% to $12 million from $49 million.

“The bulk of the equity capital placements for the month originated from Japan, the United Kingdom and the United States,” the BSP said.

The investments flowed mainly into industries such as manufacturing; human health and social work; financial and insurance; and real estate.

Foreign investments in equity and fund shares also nearly doubled to $253 million.

The BSP projects FDI net inflows to reach $4.1 billion in 2020, much lower than the $8.8-billion outlook it gave last year before the crisis.

Mr. Ricafort said the passage of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill will be key to attracting more foreign investments in the coming months. Under CREATE, corporate income tax will be immediately slashed to 25% from the current 30%.

Earlier, Michael Langham, Senior Asia Country Risk Analyst at Fitch Solutions, told BusinessWorld the government should speed up the passage of key reforms this year to help lure more investments.

Other reform measures include amendments to the Retail Trade Liberalization Act (RTLA) and Public Service Act (PSA) that are both still pending in the Senate.

Amendments to the RTLA will bring down the mandated minimum paid-up capital for foreign companies looking to set shop in the local retail market while revisions to the PSA would lift restrictions on foreign ownership in some sectors.

FDI inflows to the Philippines already dropped by 23.1% to $7.647 billion in 2019, amid global uncertainty, regulatory risks, and delays in the tax reform program that affected investor sentiment. — Luz Wendy T. Noble

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