FDI inflows drop 60% to $960 M in 7 months

Despite a significant inflow in July, foreign direct investments into the country fell 60 percent in the first seven months of the year as capital outflow outpaced new investments coming in.

Data from the Bangko Sentral ng Pilipinas (BSP) revealed that net inflows for January-July totaled $960 million, compared to $2.4 billion in the same period of 2007.

Foreign direct investments (FDI) in July alone dropped 69.2 percent to $147 million from $478 million a year earlier.

BSP officer-in-charge Nestor A. Espenilla explained that gross inflows in July amounted to $310 million but there were net outflows amounting to $163 million.

According to Espenilla, the net inflow resulted from a 92-percent increase in equity capital placement which rose to $235 million in July as a result of investments for the rehabilitation of a hydropower facility in northern Luzon. 

Reinvested earnings also rose year-on-year to $81 million, almost six times higher than the year-ago level. 

However, Espenilla said these inflows were offset by outflows of $163 million in the Other Capital account because of intercompany loan repayments to foreign direct investors and trade credit extended to affiliates abroad.                 

Over the seven-month period, the BSP reported that continuing net inflows of equity capital and reinvested earnings shored up net FDI inflows of $960 million. This level was, however, less than half the level posted a year ago.

“The ongoing financial crisis, particularly in the major advanced economies continued to weigh down on investor sentiment,” Espenilla explained.

Gross equity capital placements amounted to $904 million during the period, down 51 percent from $1.844 billion last year. Net equity capital, as a result, dropped 59 percent from $1.7 billion last year to only $716 million this year.

The investments that did come in, according to Espenilla, were channelled mainly to manufacturing (shipbuilding and repair, auto electronics parts and components, paper products), services (recreational/cultural), mining, construction (hotel/leisure and resort/water spa development, power plant facility, hydropower facility rehabilitation), real estate, and financial institutions.

These investments came primarily from the US, Japan, Singapore, South Korea, Germany and Malaysia.

Reinvested earnings during the first seven months meanwhile rose to $279 million, higher by 38.1 percent compared to the level recorded in the same period in 2007, as foreign investors opted to retain their earnings in local firms given the country’s underlying sound macroeconomic fundamentals. 

The other capital account, consisting mainly of intercompany borrowing/lending between foreign direct investors and their subsidiaries/affiliates in the Philippines, reversed to a net outflow of $35 million, due to intercompany loan repayments and higher trade credit extended to affiliates abroad. 

The drastic slowdown in net FDI was not unexpected, however and the BSP has already projected that total inflow this year would drop from $4.2 billion in 2007 to $2.6 billion and possibly even less.