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Foreign Direct Investment Inflows Reach US$1.5 Billion in January-May 2013

08.12.2013

Net foreign direct investment (FDI) inflows in January-May 2013 amounted to US$1.5 billion. Gross equity capital placements, which represent the bulk of FDI inflows, rose by 61.1 percent in the first five months of 2013 to reach US$1.8 billion compared to US$1.1 billion in the same period in 2012. This reflected favorable investor interest on the back of the country’s sound macroeconomic fundamentals. The bulk of these equity capital investments—which came mainly from Mexico, Japan, the United States, Malaysia and the British Virgin Islands—were directed to manufacturing activities; water supply, sewerage, waste management and remediation; real estate activities; arts, entertainment and recreation activities; and financial and insurance activities.  Notwithstanding the increase in gross equity capital infusion, net FDI inflows during the period was lower by 8.7 percent relative to its year-ago level of US$1.7 billion.1,2   This developed as gross equity capital placements were offset by withdrawals of US$947 million (higher than the US$105 million recorded in the same period last year) resulting in net equity capital inflows of US$846 million, a decline of 16.1 percent from the level posted a year ago. 

Reinvestment of earnings totaled US$327 million in January-May 2013 as foreign investors opted to retain their earnings locally on expectations of sustained strong corporate performance.  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 amounted to US$349 million in January-May 2013, higher by 84.6 percent than the US$189 million recorded in the same 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 May 2013, net FDI reached US$17 million. This was lower by 85.7 percent relative to the level recorded in the same month last year due to higher withdrawals of equity capital and net repayments of debt instruments. Equity capital resulted in net outflows of US$14 million compared to net inflows of US$58 million in 2012 as equity withdrawals of US$90 million (compared to only US$6 million a year ago) offset gross equity capital placements of US$76million (compared to US$64 million in May 2012). Gross equity capital placements—sourced mostly from Singapore, the United States, Japan, Italy and Germany—were channeled mainly to real estate activities, manufacturing, agriculture, fishery and fishing, wholesale and retail trade and construction. Moreover, non-residents’ placements in debt instruments issued by local affiliates registered a net outflow of US$36 million. Meanwhile, reinvestment of earnings amounted to US$67 million, lower by 30.3 percent than the year-ago level of US$98 million.

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1 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). 

2 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.

 

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