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Foreign Direct Investment Rises by 11 Percent in First Semester of 2013

09.10.2013

Net foreign direct investment (FDI) inflows increased by 10.9 percent to reach US$2.2 billion in January-June 2013 compared to the level posted in the same period last year. 1,2  This reflected the favorable sentiment of investors on the Philippine economy on the back of strong macroeconomic fundamentals.  By FDI component, gross equity capital placements rose by 58.7 percent to reach US$2 billion in the first six months of 2013 from US$1.2 billion in the same period in 2012. The bulk of equity capital investments—which came mainly from Mexico, Japan, the United States, andthe British Virgin Islands—were directed to manufacturing activities; water supply, sewerage, waste management and remediation; financial and insurance activities; arts, entertainment and recreation activities; and real estate activities. 

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 rose to US$1.2 billion in January-June 2013, close to fourfold the US$295 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. Reinvestment of earnings amounted to US$386 million in January-June 2013 as foreign investors opted to retain their earnings locally on expectations of sustained strong Philippine economic performance.

In June 2013, FDI recorded net outflows of US$61 million. This was a reversal of the US$307 million net inflows posted in the same month last year. In particular, equity capital yielded net outflows of US$193 million as withdrawals of US$283 million more than offset gross placements of US$91 million. Gross equity capital placements—sourced mostly from the United States, South Korea, Japan, United Kingdom and Hong Kong—were channeled mainly to manufacturing; real estate; construction; wholesale and retail trade; and arts, entertainment and recreation sectors.

Non-residents’ placements in debt instruments issued by local affiliates registered net inflows of US$72 million during the month from US$106 million last year. Reinvestment of earnings amounted to US$59 million, also lower by 34.8 percent than the year-ago level of US$123 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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