April FDI swells 300%

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Foreign direct investment (FDI) in the Philippines surged 300 percent in April from a year earlier, pushed by a sharp rise in intercompany borrowings which the central bank simply attributed to investor confidence in the country’s economic fundamentals.

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Cumulative levels of FDI for the first four months of the year showed a 9.1 percent year-on-year gain. FDIs are direct capital investments, in contrast to hot money, which is invested through the local financial markets.

Data from the Bangko Sentral ng Pilipinas (BSP) on Thursday showed net FDI jumped to $597 million in April from $149 million a year earlier.

In the four months ending April, net FDI rose to a cumulative $2.4 billion from $2.2 billion in same period last year.

In its explanatory note, the BSP said the figures of FDI cover actual investment inflows that could be in the form of borrowings between affiliates, equity capital, and reinvestment of earnings.

Intercompany borrowings
The BSP said in a statement that the significant rise in FDI in April was driven by a spike in intercompany borrowings, or non-residents’ net placements in debt instruments issued by local affiliates.

Intercompany borrowings during the month soared to $518 million in April from $23 million in the same period last year, accounting for nearly 87 percent of the monthly net total of FDI.

The BSP did not cite specific factors behind the increase in non-residents’ net placements in debt instruments during the month. In a text message to The Manila Times, BSP Governor Amando Tetangco Jr. only said: “Intercompany borrowings are often to support current operations and/or the expansion of operations of the domestic affiliates of non-resident direct investors (e.g., parent companies). The increase in this account in April reflects the continued confidence of foreign investors in the country’s growth potential and its sound macrofundamentals.

Bank of the Philippine Islands associate economist Nicholas Antonio Mapa agreed with the BSP’s assessment. “The increase in intercompany borrowing may signify sustained confidence by parent companies in their subsidiaries operating in the Philippines as the economy continues to grow, albeit at a slightly slower pace in 2014,” Mapa said.

“The increase in FDI is definitely welcome as we attempt to catch up with the rest of the region,” he added.

Equity capital outflow
However, the central bank noted that equity capital placements yielded net outflows of $1 million in April as withdrawals of $79 million offset $78 in million gross capital placements. For the first four months of the year, however, equity capital placements remained in positive territory, with $954 million gross capital placements being reduced by only $320 million in withdrawals.

The central bank said the bulk of the equity capital investment originated mainly from the United States, Japan, Singapore, the United Kingdom, and Germany, and were channeled mainly to real estate; financial and insurance; accommodation and food service; and transportation and storage activities.

Reinvested earnings grew 26.2 percent year-on-year to $80 million in April from $63 million a year earlier.

On a cumulative basis, investment in debt instruments and reinvestment of earnings registered net inflows amounting to $1.6 billion and $265 million, respectively, during the January to April period, the BSP said.

This year, the central bank expects net FDI to reach $2.6 billion, much lower than the $3.9 billion recorded for full-year 2013.

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