Philippine investment inflows declined in 2023 — BSP data

Investment inflows continued to post double-digit growth in December 2023 but this was not enough to offset the declines recorded in the previous months, partly dragged by inflation and monetary policy tightening.

Data released by the Bangko Sentral ng Pilipinas (BSP) showed foreign direct investment (FDI) net inflows stood at $826 million in December 2023, up 29.9% from $636 million the same month in 2022, but lower than the $1.056 billion the previous month.

The central bank attributed the year-on-year increase to the 86.2% increase in nonresidents’ net investments in debt instruments to $527 million from $283 million the previous year.

Net investments in equity capital fell by 21.7% to $208 million from $266 million, while reinvestment of earnings increased by 4.1% to $91 million from $87 million.

“Bulk of the equity capital placements during the reference month came from Japan with investments directed mostly to the manufacturing industry,” the BSP said in an accompanying statement.

Japan accounted for 81% of the investments for the month, followed by Singapore with 5%, and the United States with 5%.

Some 79% of the gross equity capital placements went into manufacturing, 6% into real estate, 4% into wholesale and retail trade, and 11% to other industries.

The latest figures brought the full-year FDI net inflows to $8.864 billion, down by 6.6% from $9.462 billion in 2022.

“Notwithstanding the country’s sound macroeconomic fundamentals, concerns over subdued global economic growth and geopolitical risks continued to weigh on investors’ investment plans,” the BSP said.

Broken down, net investments on debt instruments increased by 1.3% to $6.334 billion, while net equity placements fell by 34% to $1.291 billion and reinvestment of earnings by 3.6% to $1.239 billion.

Japan was the biggest source of gross equity capital placements for the year, accounting for 51%. It was followed by the United States with 13%, Singapore with 12%, and Germany with 8%.

These were then channeled mostly into manufacturing with 53%, real estate with 13%, financial and insurance with 10%, and others with 23%.

Higher borrowing costs

Sought for comment, Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort said FDIs were affected by higher borrowing costs as central banks have tightened monetary policy.

“As FDIs may have been partly weighed or dragged earlier this year by higher prices or inflation and higher interest rates that increased borrowing costs or financing costs, all of which made investments more expensive locally and globally, thereby reducing investments  or FDIs in earlier months,” he said in a separate commentary.

Ricafort cited the decline in earlier months such as in May 2023 when net inflows dropped by 26.5% to $504 million, and in September when net inflows fell by 23.4% to $581 million.

Moving forward Ricafort said FDIs could improve due to investment commitments generated from overseas trips of the administration, along with the free trade agreement (FTA) with South Korea.

He noted, however, that offsetting risk factors include elevated inflation, risks of economic slowdown or even recession in the United States, and softer economic data in China. — RSJ, GMA Integrated News