Foreign direct investments (FDI) posted a net inflow of US$46 million in November 2006, with investor enthusiasm continuing to be strong following the string of positive news on the economy. Investor confidence was boosted by the solid macroeconomic fundamentals as evident in the much-improved fiscal position, steadily declining inflation, the favorable external payments position, strong corporate earnings and the upgrade in the country’s credit outlook in November by Moody’s Investor Service. The favorable November outturn brought total FDI for the first eleven months of 2006 to US$2.0 billion, the highest since 2001. It will be recalled that FDI was projected to reach US$2.0 billion for the full year. Given this development, the forecast level is likely to be exceeded.
Foreign direct investments consist of capital infusion in the form of equity investments, reinvested earnings and other capital flows such as loans extended by head offices to their subsidiaries in the Philippines. The resurgence in non-resident direct investments during the review period was explained mainly by sustained net inflows in the Equity Capital and Other Capital accounts, which amounted to US$1.99 billion.
Specifically, net equity capital inflows reached US$1.04 billion. These were channeled mostly to manufacturing (such as semiconductors, circuit manufacturing, health care/chemical/steel products, air-conditioning systems, cigarette paper mill), services (such as shipping crew training, business process outsourcing, medical research, construction and facilities management), real estate, financial intermediation, and construction. The Other Capital account-comprising of intercompany borrowing/lending between foreign direct investors and their local subsidiaries, branches and affiliates-recorded a net inflow of US$947 million, more than twelve times the level realized during the comparable period in 2005. The bulk of these intercompany borrowings were absorbed by the electronics and automotive firms. Meanwhile, reinvested earnings were minimal at US$14 million.
The Netherlands, the U.S., Japan, the United Kingdom, the Federal Republic of Germany and Switzerland were the major sources of FDI inflows.