Net foreign direct investments (FDI) in the Philippines fell 59 percent to $350 million in February from $854 million in the same month last year due mainly to a sharp drop in equity capital investments and lower inter-company borrowings, based on official data.
As a result, net FDI in January and February amounted to a cumulative $1.4 billion, down 24.7 percent from the same period last year, according to data released by the Bangko Sentral ng Pilipinas (BSP) on Monday.
Foreign direct investments are the type of investments that create jobs because they are used in setting up new businesses or expanding existing ones, unlike hot money or foreign capital that are invested in the stock market or in other financial assets but can also be withdrawn quickly without creating significant economic benefits for the host country.
In a statement, the BSP said there was a net inflow of $79 million in equity capital investments in February as gross equity capital placements of $110 million exceeded withdrawals amounting to $31 million during the month.
However, this figure was 85.4 percent lower than the $539 million equity capital investments posted in the same month last year. The BSP did not give an explanation for the sharp drop in the figure.
The central bank said bulk of the equity capital investments originated mainly from United States, Japan, Singapore, Germany and Hong Kong, and were channeled mainly to financial and insurance activities; real estate; transportation and storage; manufacturing; and mining and quarrying activities.
Meanwhile, intercompany borrowings, or non-residents’ net placements in debt instruments issued by local affiliates, decreased by 20.1 percent to $201 million in February from $251 million in the same period last year.
“This resulted from sustained lending by parent companies abroad to their local subsidiaries/affiliates to support existing operations and to fund the expansion of their businesses in the country,” the BSP said.
One bright note was in reinvested earnings, which increased by 11.3 percent to $70 million during the month. The BPS said this was because foreign investors opted to retain their earnings in local firms on the back of favorable prospects for the Philippine economy.
By FDI component, net inflow of equity capital investments in the first two months reached $357 million, as gross equity capital placements of $472 million more than offset withdrawals of $114 million during the period.
Gross equity capital placements during the period came mainly from Hong Kong, the United States, Japan, Singapore and the United Kingdom, and were channeled to financial and insurance activities; real estate; wholesale and retail trade; manufacturing; and transportation and storage activities.
Reinvestment of earnings and investment in debt instruments also registered net inflows amounting to $131 million and $888 million, respectively, during the January to February period, the BSP said.
Lower equity placements
“The lower print [in February]can be attributed to the starkly lower equity placements,” Nicholas Antonio Mapa, Bank of the Philippine Islands associate economist, said in an e-mail to The Manila Times.
Net inflow of equity placements for February 2014 amounted to $110 million, down 80.1 percent from the $555 million placements in February 2013.
“Although we still see foreign interest in the Philippine stock exchange, it is not at the same pace we witnessed last year,” Mapa said.
The economist noted that the strong equity market in February last year was a result of investors’ anticipation of the country’s upcoming investment grade status.
“February 2013 saw a sharp run-up in Philippine financial markets in anticipation of the eventual investment grade status, which was granted first by Fitch [Ratings]. Markets had been anticipating this event while growth expectations were strong, enticing foreign players to buy into the PSEi [Philippine Stock Exchange index],” he said.
Meanwhile, in its explanatory notes, the BSP said that the figures on FDI cover actual investment inflows which could be in the form of equity capital, reinvestment of earnings, and borrowings between affiliates.
In contrast to investment data from other government sources, the BSP said its FDI data includes investments where ownership by a foreign enterprise is at least 10 percent.
This year, the central bank expects net FDI to reach $2.6 billion, much lower than the $3.9 billion recorded in full year 2013.