Foreign direct investment (FDI) net inflows sustained its uptrend in July 2020, registering an increase of 35.2 percent year-on-year to US$797 million from US$590 million in the same period last year.1,2 The FDI net inflows rose for the third consecutive month on the back of investors’ improving sentiment due in part to easing of containment measures, and some signs of gradual improvements in economic activity based on high-frequency indicators. The growth in FDI net inflows in July 2020 was mainly on account of net investments in debt instruments, which rose by 60.1 percent to US$643 million from US$402 million in July 2019.3
Meanwhile, net equity capital investments declined by 19.6 percent to US$81 million in July 2020 from US$101 million a year ago. This was due primarily to lower equity placements of US$89 million vis-à-vis US$170 million in July 2019, but mitigated by a decline in withdrawals to US$8 million from US$69 million in July 2019. Equity capital placements during the month came mostly from Japan, China, and the United States. These were channeled largely to the 1) construction, 2) real estate, 3) wholesale and retail trade, and 4) manufacturing industries. Likewise, reinvestment of earnings decreased by 16.1 percent to US$73 million in July 2020 from US$87 million last year.
The increase in FDI net inflows in July 2020 further mitigated theye ar-to-date decline for the first seven months of 2020 to 10.9 percent (to US$3.8 billion from US$4.3 billion) from the 18.3 percent cumulative contraction in January to June 2020 (Table 2). Driving this development was the increase in net equity capital investments, which posted a cumulative growth of 111.1 percent to US$991 million from US$469 million. In particular, equity capital placements grew moderately by 6.2 percent to US$1.12 billion(f rom US$1.05 billion), while withdrawals declined by 78.5 percent to US$125 million (from US$582 million). Equity capital placements during the period originated mainly from Japan, the Netherlands, Singapore, and the United States. These were invested primarily in 1) manufacturing, 2) real estate, 3) financial and insurance, and 4) administrative and support service industries.
Net investments in debt instruments and reinvestment of earnings recorded lower reductions of 27.1 percent (from 39.8 percent by June) to US$2.3 billion and 20.9 percent (from 21.7 percent by June) to US$506 million, respectively.
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)