Foreign direct investment net inflow of $44 million in first quarter down 83.5% from last year

MANILA, Philippines – Foreign direct investment (FDI) outflows amounted to $27 million in March, a 118-percent decline compared with inflows amounting to $149 million in the same month last year.

Data from the Bangko Sentral ng Pilipinas (BSP) showed that the March outflow dragged down the total inflows for the first quarter to only $44 million, or an 83.5-percent drop from a year ago level.

FDIs have been on a steady decline since 2008 but this was the first time since October last year that the BSP reported a net outflow, indicating that more foreign investments were being pulled out than being invested in the country.

BSP data showed that foreign equity capital managed a net inflow of $19 million in March while reinvested earnings amounted to $27 million. But these inflows were not nearly enough to offset about $73 million worth of other capital that were pulled out.

This other capital represents repatriated income that Philippine companies returned to their parent companies abroad as well as payments for inter-company loans.

On a quarterly basis, the BSP reported that FDIs remained positive, albeit 83.5-percent lower than the 2008 level. Net inflows amounted to $44 million during the first quarter of 2009. 

Contributing to quarterly net inflows were the positive balances registered in equity capital and reinvested earnings which more than offset the net outflow in other capital amounting to $50 million.  

While investor sentiment continued to be marked by uncertainty and cautiousness given the recessionary conditions in the global economy, the BSP said the country remained a recipient of equity capital.

In the first three months of the year, equity capital posted a net inflow of $47 million. This was, however, lower by 79.4 percent than last year’s level. 

The BSP said equity capital inflows were channeled to the manufacturing (aluminum diecasts), real estate, financial intermediation, and trade/commerce sectors, mostly by investors from Japan and the US. 

Meanwhile, reinvested earnings also posted a net inflow in the first quarter amounting to $47 million, a reversal of the $249 million net outflow recorded during the same quarter in 2008. 

Investors opted to retain earnings/profits in local banks and enterprises as the country showed signs of stabilization in the midst of the global financial crisis and economic downturn.      

Meanwhile, the other capital account – consisting largely of intercompany borrowing/lending between foreign direct investors and their subsidiaries/affiliates in the Philippines – reversed to a net outflow of $50 million as a result of intercompany loan repayments and trade credits extended to affiliates abroad.

According to the BSP, foreign direct investments would fall to $700 million this year as investors hold back their plans to invest in the Philippines in the midst of the global economic recession.

Last year, foreign direct investments amounted to $1.4 billion, indicating that this year’s level would be half of the foreign direct investments that trickled in, going mostly to power and telecommunications.

The BSP announced earlier that it expected foreign direct investments to weaken significantly but inflows would remain positive for the whole year.

The BSP said fears of a dramatic economic decline had the same effect in the financial market but this year, monetary officials are expecting portfolio investments to recover from last year’s $3.7-billion outflow to a $600-million inflow for the whole year.

BSP Deputy Governor Diwa Guinigundo said the central bank is making a “conservative” projection for this year, counting only foreign direct investments that are already in the pipeline and scheduled to come in this year.

Guinigundo said the latest projections were already factored in to the projected gross international reserve level of $38 billion for 2009 and the balance of payments level of $700 million.

According to Cyd Amador, managing director of the BSP’s Monetary Stability Sector, the BSP would normally count pending applications in the various investment agencies.

“This time, because we know that risk aversion is pretty strong, we didn’t do that,” Amador said. “We only factored in the investments that were already scheduled to come in. These are inflows that were already in the pipeline that we were certain would come in this year.”