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Investor worries tagged as net FDI drops 30.7%

Net foreign direct investments (FDI) plunged in March, the Bangko Sentral ng Pilipinas reported on Tuesday, dropping by 30.7 percent to $548 million from $792 million a year earlier.

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The central bank attributed the decline to "lower net inflows across all major FDI components amid investor concerns over subdued global growth prospects."


Net investments in debt instruments, which accounted for the bulk of FDI, plunged by 37.2 percent to $389 million from March 2022's $620 million.


Equity capital placements totaled $94 million for the month, down 11.7 percent from the year-earlier $106 million while reinvestments of earnings also fell by 0.1 percent to $65 million.


Singapore, Japan and the United States accounted for the bulk of March FDI, which were mostly channeled to manufacturing (27 percent), information and communication (26 percent), real estate (23 percent), and others (25 percent).


Year-to-date net FDI inflows subsequently fell by 19.6 percent to $2.04 billion from the $2.54 billion recorded in January-March 2022.


First-quarter net investments in debt instruments dipped by 22.1 percent to $1.57 billion from January to March 2022's $2.02 billion.


Net equity capital placements for the period declined by 15.9 percent to $261 million from $311 million a year earlier and reinvestments of earnings dipped by 0.7 percent to $202 million from $204 million.


Equity capital placements for the first three months of 2023 also originated mostly from Japan, Singapore and the United States.


Manufacturing took in the bulk (39 percent), followed by real estate (18 percent), finance and insurance (15 percent), information and communication (9 percent), and others (19 percent).


Nicholas Mapa, senior economist at ING Manila Bank, said the decline might be because of investment pledges that had yet to materialize.


"Hopefully, we can see a turnaround given the relatively robust economic growth posted of late," he said.


China Banking Corp. chief economist Domini Velasquez, meanwhile, said conditions abroad remained bleak.


"The EU (European Union) has entered a technical recession already, which could affect companies' interest in expanding," she said.


"Likewise, conditions remain tight in export-driven economies such as Singapore," Velasquez added.


Still, she said that structural reforms such as changes to the Retail Trade Liberalization and Public Service Acts and allowing 100-percent foreign ownership of renewable energy ventures could eventually boost investments.


Velasquez said that while investor confidence was likely to be lower this year and the next, the Philippines' investment potential remained high for the medium to long term.


Michael Ricafort, chief economist at Rizal Commercial Banking Corp., also said that net FDIs could pick up amid an easing in inflation and the possibility of interest rate cuts.


"Membership of the country into the Regional Comprehensive Economic Partnership, which is the world's biggest free trade agreement and led by China, would help attract more FDIs to locate in the country as a production and/or marketing base," he added.


Ricafort also emphasized that increasing infrastructure expenditures to 5.0 to 6.0 percent of gross domestic product would also help attract foreign investments.


Source: Manila Times

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