FDI Net Inflows Recover in May to Post 42.4 Percent Growth Year-on-Year; Reaches US$2.4 Billion in January-May 2020

Foreign direct investments (FDI) net inflows grew by 42.4 percent to US$399 million in May 2020 from the US$280 million net inflows posted in the same period last year.1,2  The positive growth represents a reversal from the last three consecutive months of decline attributed largely to the weak global outlook and investors’ confidence following the pandemic. The stronger FDI performance during the month relative to the level last year was on account of the increase in non-residents’ net investments in equity capital and debt instruments.3 In particular, net investments in debt instruments grew by 40.8 percent to US$236 million from US$168 million in May 2019.

 

Equity capital placements, likewise, increased by  8.1 percent to US$80 million (from US$74 million), while withdrawals decreased by 96 percent to US$3 million (from US$73 million). Equity capital infusions during the month came largely from Japan, Singapore, and the United States – economies which implemented gradual easing of containment measures. These were invested mostly in 1) manufacturing, 2) financial and insurance, and 3) real estate industries. Meanwhile,  reinvestment of earnings continued to be weak, dipping by 23.7 percent to US$85 million during the review period from US$111 million.

 

The double-digit growth in FDI net inflows in May reduced the cumulative decline in the January to May 2020 level to 25.6 percent (US$2.4 billion) from a contraction of 32.1 percent posted in the first 4 months of the year. Specifically, total placements in equity capital by May registered a growth of 4.8 percent from 4.4 percent in April. Meanwhile, total equity capital withdrawals for the first 5 months were lower compared to the same period in 2019. The cumulative net investments in debt instruments in May, while lower by 46.4 percent year-on-year, eased from 53 percent in April. Total reinvestment of earnings declined by 22.2 percent year-on-year by May.

 

Equity capital placements during the period originated mostly from the Netherlands, Japan, and Singapore during the period. Said investments were channeled largely to the 1) manufacturing, 2) real estate, and 3) administrative and support service industries.

 

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1 The BSP statistics on FDI are compiled based on the Balance of Payments and International Investment Position Manual, 6th Edition (BPM6).  FDI includes (a) investment by a non-resident direct investor in a resident enterprise, whose equity capital in the latter is at least 10 percent, and (b) investment made by a non-resident subsidiary/associate in its resident direct investor.  FDI can be in the form of equity capital, reinvestment of earnings, and borrowings.

 

2 The BSP FDI statistics are distinct from the investment data of other government sources. BSP FDI covers actual investment inflows. By contrast, the approved foreign investments data that are published by the Philippine Statistics Authority (PSA), which are sourced from Investment Promotion Agencies (IPAs), represent investment commitments, which may not necessarily be realized fully, in a given period. Further, the said PSA data are not based on the 10 percent ownership criterion under BPM6.  Moreover, the BSP’s FDI data are presented in net terms (i.e., equity capital placements less withdrawals), while the PSA’s foreign investment data do not account for equity withdrawals.

 

3  Net investments in debt instruments consist mainly of intercompany borrowing/lending between foreign direct investors and their subsidiaries/affiliates in the Philippines. The remaining small portion of net investments in debt instruments are investments made by non-resident subsidiaries/associates in their resident direct investors.

 

 

Source: Bangko Sentral ng Pilipinas (BSP)