June FDI swings back to net inflow of $588M

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FOREIGN direct investments (FDI) in the Philippines reverted to net inflows in June from net outflows a year earlier, with increases recorded across major components.

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Data from the Bangko Sentral ng Pilipinas (BSP) on Wednesday showed net FDI inflows rose to $588 million in June, a turnaround from the $26 million net outflows a year earlier. The net June net inflow this year was also higher than the net $473 million posted in the preceding month.

In the six months ending June, net FDI stood at a $3.572 billion inflow, up from $2.019 billion in same period the previous year, which continued to reflect strong investor confidence in the country’s sound macroeconomic fundamentals.

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

In contrast to hot money, FDIs are direct capital investments, which are invested through the local financial markets.

In its explanatory note, the BSP said the FDI figures 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 large bulk of the increase in FDI in June was due to the four-fold increase in intercompany borrowings, or non-residents’ net placements in debt instruments issued by local affiliates.

Intercompany borrowings in June swelled to $459 million from $108 million in the same period last year. Similarly, intercompany borrowings for the first six months of the year more than doubled to $2.4 billion from US$1.2 billion a year ago.

“This developed as a result of higher lending of parent companies abroad to their local affiliates to fund existing operations and business expansion plans in the country,” the BSP explained.

Equity capital inflows
At the same time, the central bank said that equity capital placements also helped boost the FDI level in June as these placements reverted to net inflows of $54 million from net outflows of $192 million a year earlier.

For the first half, these placements also posted net inflows of $762 million, or 30.7 percent higher than the year-ago level of $583 million, as placements of $1.1 billion offset the $356 million withdrawals.

The central bank said the bulk of the equity capital investment originated mainly from the United States, Hong Kong, Singapore, Japan, and the United Kingdom, and were channeled to activities related to financial and insurance; real estate; manufacturing; wholesale and retail trade; and transportation and storage activities.

Reinvested earnings increased to $75 million in June 2014 from $59 million in the same period last year. On a cumulative basis, reinvestment of earnings rose by 72.2 percent to $400 million from $232 million last year.

The central bank expects net FDI inflows to reach $1 billion this year, lower that the $3.9 billion recorded for full-year 2013.

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