FDI Net Inflows Continue to Rise Year-on-Year in June 2020; First Semester Level at US$3 Billion

Foreign direct investment (FDI) net inflows sustained its growth momentum, rising by 7.1 percent to US$481 million in June 2020 fr om US$449 million in June 2019 (Table 1).1,2  This positive development was underpinned by the gradual reopening of advanced economies with investment interest in the Philippines,and the country’s sustained strong macroeconomic fundamentals, despite the COVID-19 pandemic. In particular, net equity capital investments expanded to US$173 million from US$29 million a year ago, following the 137.6 percent increase in  equity capital placements to US$185 million (from US$78 million) and the decline in withdrawals by 74.9 percent to US$12 million (from US$49 million). The bulk of the equity capital placements for the month originated from Japan, the United Kingdom and the United States. By economic activity, these placements were invested mainly in 1) manufacturing, 2) human health and social work, 3) financial and insurance, and 4) real estate industries.

 

Meanwhile, net investments in debt instruments in June 2020 dropped by 28.8 percent  to US$229 million from US$321 million in June 2019.3  Reinvestment of earnings was also lower by 19.4 percent at US$80 million compared to US$99 million  a year ago.

 

The growth in FDI net inflows in June 2020 further eased the cumulative contraction in FDI to 18.3 percent in January to June (to US$3 billion from US$3.7 billion) from a cumulative decline of 21.9 percent in January to May (Table 2). All FDI components for January to June recorded improvements, led by net investments in equity capital, which registered a growth of 146.8 percent to US$910 million, from a 117.1 percent cumulative growth by May.  Net investments in debt instruments and reinvestment of earnings posted lower declines of 39.8 percent (from -41.3 percent by May) to US$1.7 billion and 21.7 percent (from -22.2 percent by May) to US$433 million, respectively.

 

The favorable performance in net investments in equity capital was attributed to the combined effects of an expansion in equity placements of 16.6 percent to US$1 billion (from US$881 million), and a contraction in  withdrawals of 77.1 percent to US$117 million (from US$512 million). Equity capital placements were sourced primarily from Japan, the Netherlands, Singapore and the United States. These were infused mainly in 1) manufacturing, 2) real estate, 3) financial and insurance and 4) 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)