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Foreign Direct Investments Post US$1.3 billion Net Inflows in First Quarter of 2013

06.10.2013

Foreign direct investments (FDI) continued to register net inflows amounting to US$1.3 billion in the first three months of 2013.  This level was slightly lower by 8.5 percent than the US$1.4 billion recorded in the same quarter last year.  The decline in cumulative FDI was due mainly to lower net equity capital investments in the first quarter of the year. 1,2  By FDI component, gross equity capital placements aggregated US$1.5 billion, higher by 49.4 percent than its year-ago level of US$1 billion.  The bulk of these equity capital investments—which emanated largely from Mexico, Japan, Malaysia and the U.S.—were channeled to manufacturing; water supply, sewerage, waste management and remediation activities; financial and insurance activities; arts, entertainment and recreation; and real estate.  These placements were partially offset by withdrawals of US$799 million, resulting in US$729 million net infusion of equity capital during the first quarter of the year. 

Reinvestment of earnings reached US$196 million in the first quarter of 2013, as foreign investors opted to hold their earnings in local corporations due to favorable domestic economic prospects.  This was lower however by  26.3 percent relative to the year-ago level of US$266 million. 

Meanwhile, 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) totaled   US$378 million in January-March 2013.  This level was higher by 71 percent than the US$221 million intercompany borrowings posted in the comparable period last year.  Parent companies abroad continued to lend funds to their local subsidiaries/affiliates to sustain existing operations or expand their businesses in the country. 

In March 2013, FDI posted net outflows of US$78 million, a reversal of the US$179 million net inflows recorded in the same month last year.  In particular, equity capital investments yielded net outflows of US$17 million due to the combined effects of lower equity capital placements and higher withdrawals.  Likewise, investments in debt instruments registered net outflows of US$112 million largely on account of remittance of profits by local branches of foreign banks to their head offices abroad.  These developments more than offset the net inflows recorded in the reinvestment of earnings account amounting to US$51 million.   

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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.

2 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 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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