NET foreign direct investments (FDI) hit a three-month low in August and fell from the figure posted in the same month last year, which according to an analyst may continue until such time that the proposed reform on tax incentives become clear.
The Bangko Sentral ng Pilipinas (BSP) data released on Monday showed the net FDI of $416 million in August was the lowest since May’s $242 million, and a 45.11-percent decrease from the $758 million in the same month last year.
The latest figure resulted in a year-to-date tally of $4.53 billion, 39.7- percent down from the amount in January to August 2018.
“The ongoing uncertainty in the global environment continued to dampen investor sentiment, which caused postponements in investment plans,” the BSP explained in a statement.
Net equity capital investments dropped by 55.3 percent to $77 million from $172 million in the same month last year.
The BSP said the decline in placements (from $187 million to $86 million) outweighed the decrease in withdrawals (from $16 million to $10 million).
Equity capital placements during the month mostly came from Japan, the United States, Hong Kong, Cayman Islands, and Singapore. These were largely invested in manufacturing, real estate, financial and insurance, information and communication, and wholesale and retail trade industries.
The Bangko Sentral added the bulk of the FDI net inflows for the month were in the form of investments in debt instruments. However, these intercompany borrowings dropped by 50.8 percent to $263 million from $534 million.
Meanwhile, reinvestment of earnings amounted to $77 million, 46- percent higher than the $53 million a year ago.
In a comment, ING Bank Manila senior economist Nicholas Antonio Mapa said the August figures sustained the trend in the past months where fresh FDI flows have gradually slowed down while reinvested earnings from firms already in the country continue.
“This pattern tells us two things: the companies that have set up shop here in the Philippines continue to believe in the long term viability of the Philippines as a market while prospective investors may not be jumping head long into the Philippines, perhaps as they remain guarded while the Citira bill and its implications on fiscal incentives remains unpassed,” he pointed out.
Possible effect of Citira
The Citira bill or the proposed Corporate Income Tax and Incentives Rationalization Act aims to cut the corporate income tax rate from 30 percent to 20 percent, while modernizing the country’s incentive system to make tax perks performance-based, time-bound, targeted and transparent.
Under the measure, firms enjoying the existing 5-percent tax on gross income earned would be allowed a transition period in which they can continue to benefit from this incentive for two to five years.
“We continue to expect that flows of these ‘fresh FDI’ will likely remain subdued until we see some clarity on the Citira bill,” Mapa said, going forward.
The Citira bill was approved by the House of Representatives in September and is now being discussed at the committee level in the Senate.
“Meanwhile, we expect corporates who have found their way to Philippine shores remain upbeat about the growing prospects of the Philippine economy as we seem to have turned the corner with growth prospects bright even amidst the brewing global headwinds,” Mapa added.
In the first seven months of the year, the BSP said the decline resulted from the contraction in debt instruments by 32.5 percent to $3.27 billion, and equity capital by 73.4 percent to $536 million.
Net equity capital investments declined as placements dipped by 49.6 percent to $1.11 billion, coupled with the 195.6-percent increase in withdrawals to $578 million, it added.
Equity capital infusions during the period came mainly from Japan, the United States, Singapore, China and South Korea, and were for the financial and insurance, real estate, manufacturing, transportation and storage, and administrative and support service industries.
On the other hand, reinvestment of earnings increased by 15.6 percent to $671 million from $581 million in the comparable period in 2018.
The BSP expects net FDI inflows to reach $10.2 billion this year.
In 2018, net FDI inflows hit a two-year low of $9.802 billion — short of the central bank’s $10.4-billion goal and the lowest since 2016’s $7.933 billion — and down 4.4 percent from 2017’s $10.256 billion.