First quarter foreign investments down 16 percent

Saturday, June 11, 2011

SOVEREIGN debt problems in Europe, political uncertainties in the Middle East, and natural disasters in Japan have cut foreign direct investments in the Philippines, falling by nearly a fifth from last year’s level in March.

These negative developments prompted investors to adopt a cautious stance at this point, the Bangko Sentral ng Pilipinas (BSP) said in its quarterly report on foreign direct investments (FDI), which include factories, equipment, long-term fund placements, and equity.

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During the three-month period, FDI net inflows for the first quarter of 2011 reached only $471 million from $565 million in the same period last year.

FDIs are long-term investments as opposed to portfolio investments which are placed in bonds or stocks and are easily convertible to cash.

However, investors can easily transfer investments or “hot money” anytime in search for short-term, high interest rate investment opportunities.

The bulk of FDI inflows for the three-month period was recorded in the other capital account, consisting mainly of intercompany borrowing/lending between foreign direct investors and their subsidiaries/affiliates in the Philippines.

This account registered net inflows of $277 million, lower than the level posted in the comparable period last year due to the decline in intercompany loan availments.

However, BSP recorded net inflows in March at $167 million, more than twice the $69-million level posted in the same month a year ago.

All FDI components yielded positive balances during the month, the BSP said.

Net inflows of equity capital amounted to $46 million, a reversal of the $4 million net outflows reported in March 2010.

Other capital and reinvested earnings realized net inflows of $96 million and $25 million, respectively.

Reinvested earnings dipped to $113 million in the first three months of 2011 from $183 million last year even as foreign investors opted to plough back corporate earnings to local enterprises due to the Philippine economy's resilience.

Gross placements in equity capital summed up to $121 million and were channeled to the real estate, manufacturing, and mining and quarrying sectors.

Major investors during the period were from the US, Singapore, and Hong Kong.

The BSP expects FDI to hit $2.2 billion in 2011 and $2.7 billion in 2012. This year’s estimate is 83.3 percent higher than last year’s $1.2 billion (Virgil Lopez/Sunnex)