Foreign Investments to PH Still Smalltime

Posted on July 14, 2014

EVEN as inflows of foreign direct investments (FDI) rose four-fold in April on the back of higher capital inflows and reinvestment in the country, as the Bangko Sentral ng Pilipinas (BSP) reported Thursday, a private bank analyst said the amount is smalltime and not enough to compete with regional peers.
Metropolitan Bank & Trust Company (Metrobank) research head Ildemarc Bautista said the growth is welcome news, but it is still not enough to be competitive in the region. “It is welcome news, but those are still absolute numbers,” Bautista said.

FDI soared to US$597 million from US$ 149 million in 2013, BSP data showed. This was driven by a spike in investment inflows in debt instruments to US$518 million from US$23 million in the same comparable period.

Smalltime

“If we hit $4 billion by year-end, it’s still small compared to our peers in the region,” Bautista added.
The Philippines registered $3.86 billion in FDIs in 2013, low compared to Southeast Asian peers, according to United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2014. As of end-2013, FDIs in Malaysia reached $12.31 billion, $12.95 billion in Thailand and $18.44 billion in Indonesia.

Reinvested earnings also increased by 26.2 percent to US$80 million compared to last year’s US$63 million, the BSP noted. However, equity capital investments registered a net outflow of US$1 million as withdrawals of US$79 million offset US$78 million gross equity capital placements. FDI in January to April grew by 9.1 percent to $2.4 billion $2.2 billion net inflows last year as net inflows were recorded across all components.

“The sustained increase in net inflows continued to reflect strong investor confidence in the country’s solid macroeconomic fundamentals,” the BSP said.

Net investment inflows in debt instruments also increased by 42 percent: US$1.6 billion from the US$1.1 billion of the previous year. Reinvested earnings increased by 1.3 percent year-on-year to $265 million while net equity capital placements reached $635 million.

Most equity capital came from the United States, Hong Kong, Japan, Singapore, and Taiwan and was channeled mainly to financial and insurance, real estate, manufacturing, wholesale and retail trade, and mining and quarrying activities.

Greater Outlflows

Foreign direct investments (FDI) have been flowing out more than in since 2010, according to the UNCTAD report. In 2010, FDI reached US$1.07 billion but US$2.712 billion were withdrawn at the same time. Then in 2011, total inflows amounted to US$2.007 billion while withdrawals totaled US$2.350 billion. By 2012, total foreign direct investments in Philippines reached US$3.215 billion, but US$4.173 billion were also taken repatriated by foreign investors.

FDI inflows outpaced outflows only last year.

Economists cited foreign ownership limits as a major impediment to FDI growth.

“When they see the necessity of needing a 60-percent local partner, that diminishes the attractiveness of coming in,” Ateneo professor Cielito Habito said in a forum last month. “It’s really time to revisit our age old resistance to opening up because we are one of the few remaining around in the ASEAN who are still quite restricted. The sooner we do this, the better,” he added.

The 1987 Constitution limits foreign ownership in certain industries, particularly utility companies, to 40 percent. The Charter was written during the time of then-President Corazon C. Aquino, mother of President Benigno S. Aquino III. To amend the foreign ownership rule will require constitutional change.

“There are challenges since there are many bills pending and Congress is not taking action, as it is busy with other issues,” Habito said.

In February, the BSP reported that inflows of foreign direct investments (FDI) dropped nearly 60 percent, reflecting policy inconsistencies, lack of enabling laws and easing of equity placements. BSP data showed foreign direct investment (FDI) fell by 59 percent to US$350 million in February from U$854 million in the same month last year.

Enabling Laws

“The country needs enabling laws and environment, lower cost of doing business, more transparency and consistency to attract more foreign investments,” Bautista said.

Infrastructure – mainly the power situation and the condition of airports – also help ruin the investment climate, Bank of the Philippine Islands (BPI) economist Nicholas Mapa said in a separate interview.

There were also more equity placements last year as investors were anticipating credit rating upgrades from debt watchers, Mapa noted. “This year, there are still some inflows but not at the same pace as that of last year,” he said.
Though FDIs are improving, the Philippines remains a laggard among Southeast Asian peer markets, Mapa said. “The country has to address factors [related] to FDIs so we can attract more long-term investments”.