Net FDI inflows surge 64% in May

Foreign Direct Investment (FDI) NET INFLOWS rose 64% in May as investors took a wait-and-see attitude after the presidential election.

Data released by Bangko Sentral ng Pilipinas (BSP) on Wednesday showed that net foreign direct investment inflows rose to $742 million in May from $452 million in the same month in 2021.

However, net FDI inflows fell 24.9% from $989 million in April.

Net FDI inflows in May were the lowest in two months or since March’s $727 million.

“Year-to-date growth is mainly driven by the increase in non-resident net investment in debt securities, which dampened the decline in net capital placements (other than earnings reinvestment),” the BSP said in a statement.

In an email note, Rizal Commercial Banking Corp. chief economist Michael L. Ricafort said net foreign direct investment inflows in May were “the lowest in two months or since March 2022, amid a wait-and-see attitude while looking at the result awaited presidential elections in May 2022, but still below pre-pandemic highs.”

The Philippines held their national elections on May 9th. President Ferdinand R. Marcos Jr. and his running mate, Vice President Sara Duterte-Carpio, won in a landslide victory.

Despite the monthly plunge in FDI, this was the fastest growth in monthly FDI since last November’s 98.2% surge.

“The increase in foreign direct investment reflects improving sentiment over the reopening theme, which has continued to perform well and supported the recovery,” said Robert Dan J. Roces, chief economist at Security Bank Corp., in a Viber message.

Metro Manila and most areas of the country have been under the mildest alert level since March as coronavirus infections have declined.

Mr Roces also said foreign direct investment has contributed to capital accumulation despite the slowdown in private consumption, according to Tuesday’s second-quarter gross domestic product (GDP) report.

The country’s GDP grew 7.4% in the second quarter, slower than the 12.1% a year ago and the 8.2% in the first quarter of 2022.

Quarterly, household spending fell 2.7%, reflecting the impact of rising prices.

The share of capital formation, the investment component of the economy, fell to 20.5% in the second quarter from 83.7% a year earlier.

“Foreign direct investment has contributed as the money invested is spent to create economic activity to build physical capital,” Mr. Roces said.

GNP data showed that net investments by non-residents in debt of local subsidiaries rose 93% to US$544 million in May, compared to US$282 million a year ago.

Investments in stocks and mutual fund units also rose 16% to $197 million in May.

Net investment in equity by non-residents (excluding reinvestment of earnings) rose 47.8% to $91 million from $61 million in the same month last year. Equity placements increased 25.1% to $104 million while disbursements declined 40.5% to $13 million.

The capital placements came primarily from Japan, the United States, Singapore and the Netherlands and invested primarily in the manufacturing, real estate, information and communications and transportation industries.

Earnings reinvestment in May fell 2% year over year to $106 million.

In the first five months of the year, total net foreign direct investment inflows rose 18.8% to $4.2 billion from the $3.5 billion net inflows recorded in the same period last year.

Earnings reinvestment rose 0.2% to $435 million for the January-May period.

Meanwhile, equity investments for the five-month period collapsed 31.3% to $607 million, while placements fell 34.2% to $679 million. Capital withdrawals also fell 51.4% to $72 million.

Net foreign direct investment inflows are expected to slow in the coming months amid external headwinds.

“Compared to other emerging markets, the Philippine economy remains one of the fastest growing economies,” Domini S. Velasquez, chief economist at China Banking Corp., said in a Viber message.

“External headwinds such as a potential slowdown in advanced economies may eventually dampen FDI growth, but for the year most of these economies are still growing beyond their productive potential and firms would have the capacity to invest in emerging economies such as the Philippines, ” She added.

Ms. Velasquez also said the new government should set specific investment priorities.

“As mobility constraints are still easing, foreign direct investment could continue to play a role in underpinning the recovery in the coming quarters,” Mr Roces said.

The central bank expects net foreign direct investment inflows to reach $11 billion this year. — Keisha B. Ta-asan