Committed foreign direct investments (FDI) dropped by more than a half annually in the three months to June, marking the fourth straight quarter of decline, while pledges by local investors surged 55%, the Philippine Statistics Authority (PSA) reported on Friday.

Preliminary PSA data showed approved foreign commitments by the country’s seven investment promotion agencies (IPAs) contracting 55% year on year to P18.16 billion last quarter from P40.39 billion a year ago.

The second-quarter result brought foreign commitments in the first half to P41 billion, down 38.4% from P66.63 billion a year ago.

Combined investment pledges by Filipino and foreign nationals totaled P230.46 billion in the second quarter, of which domestic investors accounted for P212.3 billion, up 54.6%

If they materialize, foreign and local investments pledged in the second quarter are expected to generate 95,131 jobs across industries, 76.2% more than the 53,998 estimated from commitments the same three months last year.

IPAs are government agencies that by law are authorized to grant tax and non-tax incentives to investors putting up businesses or expanding existing ones in priority sectors. The seven IPAs are the Board of Investments (BoI), Clark Development Corporation (CDC), Philippine Economic Zone Authority (PEZA), Subic Bay Metropolitan Authority (SBMA), Authority of the Freeport Area of Bataan (AFAB), BoI-Autonomous Region in Muslim Mindanao (BoI-ARMM) and Cagayan Economic Zone Authority (CEZA).

The three months to June saw PEZA contributing the most foreign investment pledges at P13.780 billion albeit smaller by 2.5% from P14.139 billion a year ago. This was followed by the BoI with P3.58 billion, down 83.3% from P21.447 billion a year ago. Rounding the rest of the IPAs were CDC’s 2.4% share at P441 million (down 40.5%), AFAB’s 1.5% at P279.2 million (up 258.2%), SBMA’s 0.3% at P62.4 million (-98.4%) and CEZA’s 0.1% at P21.1 million (-73.6%). BoI-ARMM data were not available.

Actual net FDI inflows in the second quarter – tracked separately by the central bank – were $2.116 billion, 25% less than the $2.846 billion received in last year’s comparable three months. For the first half, net FDI inflows were lower by 14% to $3.598 billion.

By industry, manufacturing continued to make up the bulk of the foreign investment pledges with a 36.7% share of the total at P6.662 billion, but it was 53.2% smaller than the year-ago P14.242 billion.

Administrative and support service activities came next with a 22.6% share at P4.113 billion although they were 33.9% lower than last year’s P6.222 billion, while real state came third with P3.827 billion, a 97.6% increase from P1.936 billion committed a year ago.

Dragging foreign commitments the most was agriculture, forestry and fishing with a 99.5% plunge. Other decliners in the same three months were “other service activities” (-98.2%); accommodation and food service activities (-98.9%); transportation and storage (-89.3%); financial and insurance activities (-82.2%); construction (-57.6%); electricity, gas, steam and air conditioning supply (-52.2%); wholesale and retail trade; repair of motor vehicles and motorcycles (-4.3%).

Among prospective investor countries, Japan topped with a 26.4% share of the total at P4.8 billion, though down 32.1% year-on-year. It was followed by Singapore’s 13% at P2.358 billion, though down 76.8%. The United States came in third with an 11% share at P2.005 billion but down 32%.

Economists seem unfazed by the sharp drop in foreign investment pledges, describing this development as “temporary.”

“This is somehow a temporary dip because, overall, the Philippines is still a top investment destination among ASEAN countries. Fundamentally, investor confidence is intact,” said Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, referring to the Association of Southeast Asian Nations.

“[D]omestic investors are more aggressive because they know what’s happening and the opportunities available versus somebody who sees the Philippines merely from the outside.”

For Angelo B. Taningco, economist at Security Bank Corp., the drop was due to the higher base in the previous year.

“I view the drop in Q2 foreign investment pledges to be a result of a high base effect,” he said. “I think the overall increase in Q2 total investment pledges driven more by Filipino investors was partly induced by more positive business confidence.”

Moving forward, the economists expect a recovery of foreign investment pledges on the back of robust economic growth and accelerated infrastructure development.

Mr. Asuncion said: “The trend may continue, but I see foreign investment pledges to kick in by [the third quarter] because the Philippine growth story is still by far one of the most attractive one is Southeast Asia.”

For Mr. Taningco, the foreign and domestic investment commitments will increase in the near term in the face of expected enactment and implementation of the first phase of tax reform that will reduce personal income tax rates – the second package will feature a cut in corporate income tax – and pickup in infrastructure spending. – Jochebed B. Gonzales

Source: https://bworldonline.com/fdi-pledges-halved-second-quarter/