Indicator points to high growth

The Philippines’ gross capital formation, one of the leading indicators of the economy, is expected to continue growing by a double-digit pace over the next several years as the country remains a favorable investment destination in the region.

Last year, the so-called capital formation, or gross domestic investments, grew by 18 percent because of the new investments that came in, particularly in the manufacturing and the IT-business process management sectors, Trade Secretary Gregory L. Domingo said on Friday.

“Definitely, for the next two to three years at least, we will see the gross capital formation continuing to increase because of the momentum we have gained. The country’s regional position in terms of competitiveness continues to improve because, as we continue to improve our processes, we’re also benefiting from the much faster cost increases of our neighbors relative to us,” Domingo explained.

“We expect double-digit increases in capital formation—10 percent and above. That is a very good number that can be sustained over the years. This is a leading indicator for economic activity because that refers to the investments being laid out to put up factories, acquire equipment and expand capacity. That’s why, you’ll know that the country’s GDP will continue to be very  strong, because investments are taking place as we speak,” the trade chief added.

Gross capital formation refers to the investments in physical or fixed assets such as those in equipment, structures and infrastructure, among others. That’s why it is considered the broadest measure of investments taking place, Domingo further explained.

“Even though a lot of people focus on foreign direct investments, I would rather focus on capital formation as it is a better gauge of investments. FDI is a net number, net of the gross investments coming to the Philippines that are funded by foreign currency. It doesn’t mean the total investments of a foreign company. But some multinational firms are continuing to do massive investments in the country but they are funding these projects locally so it’s not part of the FDI count,” Domingo noted.

FDIs were estimated to have reached $4 billion in 2013.