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FDI net inflows at 2-month low

Foreign direct investment (FDI) net inflows dropped to a two-month low of $623 million in November 2019 despite rising from a year ago, central bank data showed on Monday.

The amount was the lowest since September’s $566 million, but up 14.6 percent from the $543 million in November 2018.

In a statement, the Bangko Sentral ng Pilipinas (BSP) attributed the year-on-year rise to the increase in all FDI components.

In particular, it said net investments in debt instruments recorded net inflows of $380 million, 11.4-percent higher than the $341 million in November 2018.

Similarly, net investments in equity capital grew by 12.9 percent as equity capital placements of $174 million more than offset equity capital withdrawals of $19 million, the BSP added.

Placements during the month mostly came from the United States, Thailand, Japan and South Korea. These were largely invested in the financial and insurance, and real estate industries.

Reinvestment of earnings also increased by 35.1 percent to $88 million during the month.

In a comment, Union Bank of the Philippines chief economist Ruben Carlo Asuncion said the marked consecutive improvements in FDI net inflows may be attributed to better investment prospects beginning October 2019, such as the first phase of the trade deal between the US and China, which was signed last month.

“It is significant that the potential of a trade deal between the two biggest world economies began in October and most likely affecting the general atmosphere of global trade including world markets,” he explained.

With improved global trade prospects, Asuncion added the likelihood of the BSP reaching its target of $6.8 billion for FDI net inflows is very high.

Moreover, he also highlighted that higher FDI net inflows can translate to more job opportunities for Filipinos.

“More opportunities means more opportunities to augment personal incomes,” the economist said.

The higher November net inflows, however, failed to boost the year-to-date tally, which dropped by 29.9 percent to $6.41 billion from $9.15 billion in the first 11 months of 2018.

“Concerns over the global economic outlook continued to curb FDI as investor confidence remained muted,” the BSP said.

For instance, it noted non-residents’ net investments in debt instruments declined by 25.2 percent to $4.65 billion from $6.22 billion.

Also, net equity capital investments contracted by 60.4 percent to $845 million from $2.13 billion.

Equity capital infusions in the 11-month period came mainly from the US, Japan, Singapore, China and South Korea, and were for the financial and insurance, real estate, and manufacturing industries.

Reinvestment of earnings, meanwhile, reached $913 million, up by 14.4 percent from the
$798 million registered in the first 11 months of 2018.

Looking ahead, Asuncion said many significant events have hampered the prospects for improved FDI this year.

“Although China is only 2.0 percent of total FDI in 2018, the novel coronavirus outbreak may impact investment flows not just from China, but also from other sources,” he pointed out.

As China is already four times bigger in terms of its economy compared to the time when the severe acute respiratory disease-coronavirus broke out in 2003, Asuncion added “the way that China is more intertwined with the global economy may spell softer FDI growth this year but may become in higher compared to 2019.”

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