FDIs slips to $394M in June

Net inflows of foreign direct investments (FDI) to the Philippines dipped to its lowest level in four years, amidst a backdrop of uncertainties arising from geopolitical risks and high inflation and interest rates environment.

Preliminary data released by the Bangko Sentral ng Pilipinas (BSP) showed that FDI net inflows stood at $394 million in June 2024, down by 29% from the $555-million net inflows recorded in June 2023.

This is the lowest FDI net inflows since April 2020, the height of COVID-19 lockdowns, when it clocked in at $314 million.

“The decline resulted from lower net inflows across all major FDI components,” the BSP said.

In a commentary, Rizal Commercial Banking Corp. chief economist Michael Ricafort said that the decline in FDI net inflows in June was “amid the still relatively higher prices/inflation and interest rates globally and locally.”

The high inflation and interest rates environment weighed on investments worldwide “due to higher financing or borrowing costs,” according to Ricafort.

The economist also cited geopolitical risks in recent months “such as the tensions in Middle East between Israel and Iran/other proxies; sentiment also partly weighed by recent China-Philippine tensions in disputed waters, as some international investors assess if there would be risk of war/conflict between China and the Philippines before investing billions of pesos or US dollars into the country as a matter of prudence and as part of due diligence for investments globally.”

The BSP, meanwhile, said foreigners’ net investments in debt instruments fell by 30% to $213 million from $304 million in June 2023.

Likewise, nonresidents’ net investments in equity capital —other than reinvestment of earnings—and their reinvestment of earnings decreased by 33.2% to $74 million from $111 million and 23.4% to $107 million from $140 million, respectively.

“Equity capital placements in June 2024 were sourced primarily from Japan, the United States, Sweden, and Singapore,” the BSP said.

“These were invested mainly to the manufacturing, real estate, wholesale and retail trade, and financial and insurance industries,” the central bank said.

Year-to-date, FDI net inflows amounted to $4.4 billion, up 7.9% from the $4.1 billion net inflows recorded in January to June 2023.

“Equity capital placements in June 2024 were sourced primarily from Japan, the United States, Sweden, and Singapore,” the BSP said.

“These were invested mainly to the manufacturing, real estate, wholesale and retail trade, and financial and insurance industries,” it added.

The central bank defines FDI as an investment by a foreign direct investor in a local enterprise, whose equity capital in the latter is at least 10% or an investment made by a foreign subsidiary in its resident direct investor.

FDI can be in the form of equity capital, reinvestment of earnings, and borrowings.

The BSP's FDI statistics are distinct from the investment data of other government sources as this covers actual investment inflows, as compared with approved foreign investments data published by the Philippine Statistics Authority (PSA) sourced from Investment Promotion Agencies representing investment commitments or pledges which may not necessarily be realized fully, in a given period. —VAL, GMA Integrated News