Foreign direct investments yield net inflow of $6.5B in 2020, but down 24.6%

Foreign direct investments (FDI) in the Philippines yielded a net inflow in 2020, but posted a double-digit decline from a year earlier due to the economic impact of the COVID-19 pandemic, data released by the Bangko Sentral ng Pilipinas (BSP) on Wednesday showed.

BSP bank data showed that FDI —investments by foreign firms and individuals in the Philippines— stood at a net inflow of $6.542 billion, down 24.6% from $8.671-billion net inflow in 2019.

An FDI net inflow indicates that non-residents’ investments that entered (inflow) the country exceeded those that exited (outflow) or were withdrawn.

“The disruptive impact of the pandemic on global supply chains and the weak business outlook adversely affected investor decisions in 2020,” the central bank said.

Sought for comment, Rizal Commercial Banking Corp. chief economist Michael Ricafort said that the lower FDI net inflow is “in response to lower demand conditions due to COVID-19, amid cost-cutting/attrition measures by global companies/foreign investors to remain competitive.”

“Some foreign investors remained tentative/on a wait-and-see attitude before the possible signing of the CREATE Bill into law by President [Rodrigo] Duterte any time soon,” Ricafort added.

The Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which was recently ratified by Congress, is awaiting Duterte’s signature.

The measure seeks to lower the Philippines’ corporate income tax (CIT) rate from 30% to 25% and rationalize the country’s investment incentives, making them more competitive and transparent, time-bound, targeted, and performance-based. 

The law also provides businesses with economic stimulus measures that will help them recover from the COVID-19 pandemic. 

In particular, the BSP said foreigners’ net investments in debt instruments contracted by 22% to $4.1 billion in 2020 from $5.2 billion in 2019.

Likewise, non-residents’ net equity capital investments dropped by 35.7% to $1.5 billion last year from $2.3 billion year-on-year.

The BSP said bulk of the equity capital placements during the period came from Japan, the Netherlands, the United States, and Singapore.

Foreigner’s capital infusions were directed mainly to manufacturing, real estate, and financial and insurance industries.

Reinvestment of earnings, meanwhile, declined by 13.6% to $978 million in 2020 from $1.1 billion a year earlier.

“For the coming months, FDIs could pick up, alongside with the expected further re-opening of the economy, as well as the possible signing into law of the CREATE that will outrightly reduce corporate income tax rate to 25% (from 30%) and provide greater certainty on investment incentives, thereby would make  some foreign investors on the sidelines to become more decisive and bring in more FDIs into the country,” Ricafort said.

In December alone, FDI registered a $509-million net inflow, 62.6% lower than the $1.4-billion net inflow recorded in December 2019.

“The year-on-year decline in FDI in December 2020 was due mainly to base effects given significantly large inflows from net investments in equity capital and debt instruments in December 2019,” the BSP said. -MDM, GMA News