FDI inflows slip in February as investors turn wary

REUTERS

By Luz Wendy T. Noble, Reporter

INFLOWS of foreign direct investments (FDI) slipped anew in February, as investors turned cautious on emerging markets amid the prolonged coronavirus crisis.

FDI inflows fell by 2.2% to $608 million in February from $621 million a year earlier, based on data released by the Bangko Sentral ng Pilipinas (BSP) on Monday. It was also down 36.7% from the $961 million in January.

February’s FDI inflows were the smallest since the $509 million in December last year.

Investors were wary of channeling funds into emerging markets like the Philippines as business conditions remain weak due to the pandemic, Alvin P. Ang, an economist from the Ateneo de Manila University, said in a Viber message.

During the month, equity other than reinvestment of earnings plummeted by 88.3% to $20 million from $175 million a year ago. This as placements slumped 62.1% to $89 million while withdrawals increased 13.6% to $69 million.

“Equity capital placements for the month were sourced primarily from Japan, the United States, the Netherlands, Malaysia, and Singapore,” the central bank said.

These funds were mainly invested into businesses such as manufacturing; real estate; wholesale and retail trade; financial and insurance; and electricity, gas, steam, and air-conditioning supply industries.

Inflows through equity and investment funds shares likewise declined by 61.9% to $92 million from $243 million a year earlier.

On the other hand, investments on debt instruments jumped 36.1% to $515 million from $378 million in February 2020.

Meanwhile, reinvestment of earnings increased 6.1% to $72 million from $68 million FDI inflows increased 20.6% to $1.569 billion in the first two months of 2020 from the $1.301 billion logged in the same period last year.

“New investments will wait for better economic situation,” Ateneo’s Mr. Ang said, noting investor interest in the Philippines will depend on how they view the country’s management of the pandemic.

Metro Manila and some adjacent provinces are still under strict restriction measures at least until mid-May to curb the rise in coronavirus cases.

The economy contracted by 9.6% last year. Although economic managers expect the country to bounce back with a 6.5-7.5% growth this year, analysts have already warned of a “fragile” recovery due to the infection surge, restriction measures, and the slow pace of the vaccination program.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort is optimistic that recent tax reform will help spur FDI recovery in the coming months.

The Corporate Recovery and Tax Incentives for Enterprises Law was enacted into law in late March. It reduces the corporate income tax immediately to 25% from 30% and will continue to bring it down by 1 percentage point every year from 2023 to 2027.

This year, the BSP expects FDI inflows to reach $7.8 billion. Due to the pandemic, these inflows shrank by a quarter to $6.542 billion in 2020 from $8.671 billion 2019, marking the lowest FDI level since 2015.

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