FDI net inflows up by 41% in January

Net inflows of foreign direct investments (FDI) grew by 41.5 percent to $961 million in January from $679 million a year ago, the Bangko Sentral ng Pilipinas (BSP) said.

In a report on Monday, the BSP said the increase was due to the 116-percent expansion in non-residents’ net investment in debt instruments to $535 million from $248 million a year ago.

“This development reflects the investors’ optimism at the start of the year due in turn to the gradual reopening of the economy under the ‘new normal’ condition, easing of lockdown measures, and positive news about the rollout of Covid-19 (coronavirus disease 2019) vaccines,” said the BSP.

component, net investments in equity capital slightly went up to $351 million from $350 million year-on-year.

According to the BSP, this is due to the continued inflows from new placements, amounting to $362 million in January 2021 (from $374 million last year), coupled with less withdrawals of $10 million from $24 million in January 2020.

Equity capital placements during the period came largely from Singapore, Japan and the Netherlands and were channeled mostly to financial and insurance, manufacturing, and professional, scientific and technical industries.

Meanwhile, reinvestment of earnings declined by 9.2 percent to $74 million from $82 million last year.

In a comment, Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael Ricafort said the increase in FDI net inflows could also be attributed to the Corporate Recovery and Tax Incentives for Enterprises (Create) Act.

“Some foreign investors may have started to come in view of the progress made on the Create law, which was finally [signed] on March 26, 2021 and reduces corporate income tax rates to 25 percent for large corporations (from 30 percent) retroactive July 1, 2020 and also provides greater certainty on investment incentives, thereby making some foreign investors on the sidelines in recent years to become more decisive and bring in more FDIs into the country,” said Ricafort.

He said the pick up in FDIs may also reflect some easing of supply chains both locally and worldwide as economies further reopen, thereby allowing more FDIs to flow into the country.

Moving forward, Ricafort said increased infrastructure spending could help attract more FDIs into the country.

“Thus, timely approval of the P4.5-trillion national budget and the extension of the validity of unused funds from the 2020 national budget until end-2021 from the Bayanihan 2 Law until end-June 2021 may fundamentally help further boost government spending especially for infrastructure and other Covid-19 programs to further support economic recovery prospects,” he said, referring to the Bayanihan to Recover As One Act.

“Preparations for the May 2022 presidential elections would also help accelerate/boost infrastructure spending especially in the latter part of 2021 to early 2022 before the election ban,” he added.