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FDI net inflows more than double in July

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NET INFLOWS of foreign direct investments (FDI) more than doubled in July, marked by strong inflows for both intercompany loans and equity capital, the Bangko Sentral ng Pilipinas (BSP) reported on Wednesday.

FDI net inflows reached $914 million for the month, improving from $831 million in June and jumping from $344 million received in July 2017. This also marks the biggest net inflows since May’s $1.645 billion.

“This reflected the continued positive investor sentiment on the Philippine economy on the back of strong macroeconomic fundamentals and growth prospects,” the BSP said in a statement.

FDIs infuse additional capital for the Philippine economy, which in turn creates more job opportunities and spurs domestic activity by supporting business expansions.

The July inflows also brought year-to-date FDI net inflows to $6.669 billion, 52.1% more than the $4.385 billion investments that entered the country in 2017’s first seven months. This also brings FDI inflows closer to the $9.2-billion forecast given by the BSP for the entire year, coming from the record $10.049 billion recorded last year.

Both equity and debt placements surged in July, data showed.

Net equity investments reached $261 million for the month, nearly double the $137 million a year ago.

Broken down, gross placements surged by 60.6% to $278 million, which was partly offset by $17 million worth of outbound capital. This compares to $173 million worth of inbound equity capital in July 2017, offset by withdrawals worth $36 million.

Reinvested earnings totalled $69 million, slipping 2.3% from $71 million in July last year.

Lending by foreign firms to their subsidiaries or affiliates in the Philippines quadrupled to $584 million in July from $136 million a year ago.

The central bank said foreign investments went mainly to manufacturing; financial and insurance; real estate; wholesale and retail trade; and administrative and support service activities. The biggest sources of capital in July were Singapore, Hong Kong, Japan, the United States and China.

One observer said that the surge in FDIs shows that the Philippines remains a “legitimate investment destination” in Southeast Asia.

“The economy has been growing, in spite of recent — I would say — economic hiccups or challenges (high inflation, in particular), but this latest FDI release describes a robust appetite for Philippine business opportunities,” said Ruben Carlo O. Asuncion, chief economist at the Union Bank of the Philippines, Inc.

Despite the steady climb in inflows, the Philippines continues to lag behind its neighbors in terms of attracting foreign capital. HSBC Global Research previously said this is because of Constitutional limits on foreign ownership plus market uncertainty over a new system for tax incentives which hold back investors from making big bets here.

The second tax reform package pending in Senate seeks to cut the corporate income tax rate gradually to 20% from 30% via two percentage-point reduction every other year starting 2021. The bill will also limit incentives to a single menu for all types of industries. Perks will be capped at five years and will replace all other forms of incentives granted by investment promotion agencies.

Business groups and ecozone locators have cautioned that changing the set of these investment “sweeteners” could dampen investor appetite towards the Philippines and derail expansion plans of foreign firms.

On the other hand, relaxation of the Foreign Investment Negative List that limits participation of offshore investors in select sectors awaits Malacañang’s approval more than a year after it had been expected. — Melissa Luz T. Lopez