2023 Net FDI level lowest in 3 years

NET INFLOWS of foreign direct investments (FDIs) into the Philippines slumped for a second straight year in 2023 amid sluggish global economic growth and geopolitical tensions, the central bank said.

Data from the Bangko Sentral ng Pilipinas (BSP) said FDI net inflows dropped by 6.6% to $8.9 billion last year from $9.5 billion in 2022.

Despite the annual decline, FDI net inflows exceeded the BSP’s projection of $8 billion for the full year.

“Notwithstanding the country’s sound macroeconomic fundamentals, concerns over subdued global economic growth and geopolitical risks continued to weigh on investors’ investment plans,” the BSP said in a statement on Monday.

Net inflows of FDI into the Philippines have been on a decline since 2022.

Data from the BSP showed foreign investments in debt instruments inched up by 1.3% to $6.34 billion in the January-to-December period from $6.25 billion in the prior year.

Investments in equity and investment fund shares dropped by 22% to $2.53 billion in 2023 from $3.24 billion a year ago.

Net foreign investments in equity capital declined by 34% to $1.29 billion in 2023 from $1.96 billion in 2022. Placements dropped by 16.7% to $1.84 billion, while withdrawals surged by 120% to $547 million.

Reinvestment of earnings contracted by 3.6% to $1.24 billion in 2023 from $1.29 billion a year earlier.

The main country source of investments was Japan, which accounted for 51% of the full-year total, followed by the United States (13%), Singapore (12%) and Germany (8%) in 2023.

The funds were mostly invested in manufacturing (53%), real estate (13%), and financial and insurance (10%) sectors.

“A sluggish worldwide economy, rising interest rates in developed countries, and geopolitical tensions all contributed to a cautious investment climate,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

Mr. Roces also noted the domestic issues such as inflation and high interest rates “further dampened investor enthusiasm.”

The Monetary Board kept benchmark interest rates at an almost 17-year high of 6.5% at its December meeting to tame inflation.

Inflation averaged 6% in 2023, the second straight year it surpassed the BSPs 2-4% target band.

In December alone, FDI net inflows jumped by 30% to $826 million from $636 million in the same month in 2022.

Month on month, it was 29.9% lower than the $1.056 billion in November.

“FDI increased mainly on the back of the 86.2% growth in nonresidents’ net investments in debt instruments to $527 million from $283 million in the comparable month in 2022,” the BSP said.

Investments in equity and investment fund shares declined by 15.3% year on year to $299 million.

FDI in equity capital slid by an annual 21.7% to $208 million in December. Gross placements declined by 20.9% to $224 million, while withdrawals fell by 8.1% to $16 million.

Reinvestment of earnings rose by 4.1% to $91 million in December.

“The latest year-on-year improvement in the FDI data (in December), still among pre-pandemic highs, may have to do with improved economic and financial markets performance in recent months,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a note.

The higher FDI inflows may also reflect the realization of the investment commitments from President Ferdinand R. Marcos, Jr.’s foreign trips, he added.

Mr. Roces said that the government must continue to improve the business environment to attract more investments.

“Looking ahead, 2024’s FDI picture remains uncertain. Continued global headwinds suggest subdued investment overall. However, government efforts to improve the business environment and a focus on promising sectors as well as a broader FDI push may mitigate some of these challenges,” he said.

Mr. Ricafort said possible cuts in US and Philippine policy rates later this year could lift FDI inflows “eventually.”

The BSP expects FDI net inflows to reach $10 billion by end-2024. — B.M.D.Cruz

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