By means of Luisa Maria Jacinta C. Jocson, Reporter
NET INFLOW of foreign direct investmentForeign direct investment (FDI) to the Philippines rose 5.5% year-on-year in July, reaching 2012 levels FThe highest level in five months, the Bangko Sentral ng Pilipinas (BSP) said on Thursday.
Central bank data show net inward foreign direct investmentFThe low rose to $820 million in July from $778 million in the same month a year ago.
These were the highest foreign direct investments inFlow in Ffive months or since the $1.366 billion recorded in February.
Month-on-month, net FDI inflows more than doubled from $394 million in June.
Foreign direct investment inFlows are an important source of jobs and capital for the economy.
“The improvement in foreign direct investment was driven by higher net incomeFlows in all components,” the BSP said.
Net investment by non-residents in local branch debt instruments rose 2.7% to $610 million in July, compared to $594 million a year ago.
Meanwhile, investments in equities and mutual fund shares rose 14.2% from $184 million to $211 million.
Broken down, foreigners’ net equity investments, excluding the reinvestment of profits, increased 16.8% year on year from $65 million to $76 million.
This came as equity placements rose 65.8% to $135 million, while they were withdrawnas more than tripled (262.7%) to $59 million.
The majority of equity placements in July came mainly from Japan (73%), followed by the United States (13%) and Singapore (8%). These were mainly invested in the manufacturing and real estate sectors.
Earnings reinvestment, in turn, rose 12.8% to $135 million in July, compared to $120 million a year earlier.
SEVEN MONTH FDI
For the Ffirst seven months net foreign direct investmentFThe lows rose 7.5% to $5.256 billion, compared to $4.888 billion in the same period in 2023.
BSP data shows non-residents’ investments in equities and mutual fund shares rose 30.4% to $1.921 billion in the January-July period, compared to $1.474 billion a year ago.
Net foreign equity investment during the period amounted to $1.273 billion, up 58.3% from $804 million in the previous year.
Equity placements rose 58.5% to $1.592 billion, while withdrawals rose 59.4% to $319 million.
Most of these placements came from the United Kingdom (48%), Japan (34%) and the United States (7%).
Meanwhile, earnings reinvestment fell 3.2% to $648 million, compared to $670 million in the same period a year ago.
On the other hand, net foreign investment in debt instruments fell 2.3% to $3.335 billion in the first seven months, compared to $3.414 billion a year earlier.
The BSP expects net foreign direct investment inflows of $10 billion by the end of 2024.
“Improved economic conditions and positive growth prospects have likely boosted investor confidence,” Jonathan L. Ravelas, senior advisor at professional services firm Reyes Tacandong & Co., said in a Viber message.
“In addition, policy reforms aimed at creating a more business-friendly environment, such as relaxing regulations and providing tax breaks, played an important role.”
Michael L. Ricafort, chief economist of Rizal Commercial Banking Corp., said the higher foreign direct investment inflows were also driven by the country’s “attractive demographics and economic growth that remains among the fastest in Asia.”
The Philippine economy grew 6.3% in the second quarter, the fastest in five quarters or since 6.4% in the first quarter of 2023.
“Investment commitments arising from government foreign travel for more than a year would help improve FDI data in the future, if some of these investments eventually materialize,” he added.
The latest data from the Ministry of Trade and Industry shows that investment promotion agencies approved US$2.73 trillion in investment commitments in the first two years of the Marcos administration.
“Sectoral opportunities, especially in fast-growing areas such as technology and renewable energy, have attracted significant investment. Finally, strategic investments from companies looking to expand their global footprint and acquire new technologies have contributed to the strong increase in inflows,” Mr Ravelas added.
In the coming months, further cuts in interest rates could boost investment as they would lead to lower borrowing costs, he said.
The BSP started its easing cycle in August with a 25 basis point rate cut, bringing the key rate to 6.25%.
BSP Governor Eli M. Remolona Jr. has said the Monetary Board could cut rates by another 50 basis points this year by making two more cuts of 25 basis points during its next two meetings, scheduled for October 16 and December 19 .
“The Free Trade Agreement signed earlier in September 2023 between the Philippines and South Korea could further boost trade, investments from South Korea and other countries, employment and overall economic growth,” Mr. Ricafort added .
He added that the Bill on Business Recovery and Tax Incentives for Enterprises to Maximize Opportunities for the Recovery of the Economy (CREATE MORE) would also “attract more foreign direct investment with enhanced investment incentives for localization companies” once signed into law.
The CREATE MORE bill, a priority government action, was ratified by Congress in September. The measure is intended to address investors’ concerns about the allocation of tax and non-tax incentives to location seekers.