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Foreign Direct Investments Reach US$436 Million in February 2013

05.10.2013

Foreign direct investments (FDI) rose to US$436 million in February 2013 from US$192 million posted in the same month last year.1,2   By FDI component, gross equity capital placements aggregated US$230 million, significantly higher by 74.2 percent from its year-ago level of US$132 million. The bulk of these equity capital investments—which came from Japan, the U.S., and Hong Kong—were directed to water supply, sewerage, waste management and remediation activities; manufacturing; arts, entertainment and recreation; and real estate.  These gross equity capital placements were partly offset by the US$15 million withdrawals of investments, resulting in US$215 million net inflows of equity capital during the month.  The sustained inflows of FDI reflect investors’ increasing optimism over the country’s growth potential notwithstanding the uncertainties on the strength of the global economy.  These developments are also an indication of improved investment climate in the country on the back of sound macroeconomic fundamentals. 

Reinvestment of earnings amounted to US$60 million in February 2013 as foreign investors opted to retain their earnings locally on account of favorable domestic economic prospects amid low and stable inflation, as well as a strong external payments dynamics. 

Non-residents’ net placements in debt instruments issued by local affiliates (or intercompany borrowings between foreign direct investors and their subsidiaries/affiliates in the Philippines in the form of loans and debt securities) reached   US$161 million in February 2013.  This level was more than five times the US$30 million intercompany borrowings recorded in the same period last year.  Parent companies abroad continue to lend funds to their local subsidiaries/affiliates to sustain existing operations or expand their businesses in the country. 

As a result of these developments, cumulative FDI for the first two months of 2013 totaled US$1 billion.  This was slightly lower however by 18.7 percent relative to the    US$1.2 billion recorded in the same period last year.  In particular, cumulative net inflows of equity capital settled at US$377 million, down by 55.8 percent compared to the US$852 million posted in the same period in 2012.  This came about as gross equity capital placements of US$1.1 billion for the first two months of 2013 were offset by equity capital withdrawals of US$726 million.  Gross equity capital placements came mostly from Mexico, Japan, the U.S., Malaysia and the Netherlands and were channeled mainly to manufacturing; water supply, sewerage, waste management and remediation activities; financial and insurance activities; and real estate sectors.  Meanwhile, reinvestment of earnings summed up to US$145 million, also lower by 19 percent than the year-ago level of US$179 million.  By contrast, non-residents’ placements in debt instruments issued by local affiliates reached US$490 million, more than twice the US$214 million registered in the comparable period a year ago. 

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1 BSP statistics on FDI covers actual investment inflows, which could be in the form of equity capital, reinvestment of earnings, and borrowings between affiliates.  In contrast to investment data from other government sources, the BSP’s FDI data include investments where ownership by the foreign enterprise is at least 10 percent. Meanwhile, FDI data of Investment Promotion Agencies (IPAs) do not make use of the 10 percent threshold and  include borrowings from foreign sources that are non-affiliates of the domestic company. Furthermore, the BSP’s FDI data are presented in net terms (i.e., equity capital placements less withdrawals), while the IPAs’ FDI do not account for equity withdrawals.

The BSP adopted the Balance of Payments, 6th edition (BPM6) compilation framework  effective 22 March 2013 with the release of the full-year 2012 and revised 2011 BOP statistics.  The major change in FDI compilation is the adoption of the asset and liability principle, where claims of non-resident direct investment enterprises from resident direct investors are now presented as reverse investment under net incurrence of liabilities/non-residents’ investments in the Philippines (previously presented in the Balance of Payments Manual, 5th edition (BPM5) as negative entry under assets/residents’ investments abroad).  Conversely, claims of resident direct investment enterprises from foreign direct investors are now presented as reverse investment under net acquisition of financial assets/residents’ investments abroad (previously presented as negative entry under liabilities/non-residents’ investments in the Philippines). 

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