BSP confident PH to generate record high $8-billion FDI in 2017

The Bangko Sentral ng Pilipinas (BSP) on Thursday expressed confidence that the target of record-high $8 billion in foreign direct investment (FDI) will be achieved in 2017 even as the inflows of job-generating projects fell below a year ago levels as of July.

“The BSP expects the Philippines to sustain FDI inflows this year, close to the $8-billion level in 2016. These prospective FDIs are expected to be channelled mainly to the manufacturing sector (such as electronics and motor parts), which can help create employment and more growth opportunities,” the BSP said in a statement.

“There is a huge potential in attracting further FDIs, which can put the country at par with the large levels of FDI seen in neighboring Asian countries. Such potential can be realized by reforming the rules on foreign ownership, addressing infrastructure gaps, and reducing the cost of doing business,” the BSP added.

“Addressing these challenges will require considerable support from the government. For the BSP, among the measures taken to promote a more supportive environment for higher foreign investments have been the liberalization of foreign bank entry in the country (Republic Act No. 10641 or the Foreign Bank Liberalization Act passed in July 2014) as well as the phased-in liberalization of the foreign exchange regulatory framework that started In 2007. The BSP will continue to promote an enabling environment for investments to thrive in line with its primary mandate of maintaining price and financial stability,” it said.

According to the BSP, “prospects for inward flows of FDI into the country continue to be favorable as both ‘push’ (subdued global economic growth) and, more importantly, ‘pull’ (sustained robust macroeconomic performance and investment grade status) factors remain.”

For 2017, the BSP expects FDI inflows to reach the $8-billion level after it had jacked up its 2017 forecast from $7 billion previously. FDI reached a record $7.933 billion in 2016.

But the latest BSP data showed that the net inflow of FDI from January to July declined 16.5 percent to $3.904 billion from $4.677 billion last year.

The year-on-year drop in seven-month FDI had been attributed by the BSP to lower inflows of net equity capital—at $272 million, down from last year’s $1.5 billion.

Still, “investment in debt instruments and reinvestment of earnings remain on an uptrend as they reached $3.1 billion and $487 million, respectively, for January to July 2017,” the BSP said.

The BSP noted that “there has lately been heightened interest surrounding recent developments in FDI, particularly the decline observed in the first half of 2017,” referring to the recent press statement of Sen. Franklin Drilon noting of a 90-percent drop in “new” FDI.

“As reported by the BSP, FDIs registered net inflows of $3.6 billion in January to June 2017, 14-percent lower than the $4.2-billion net inflows posted in the same period last year. The lower net inflows were due to the 90.3 percent decline in net equity capital to $141 million from $1.4 billion a year ago. Data showed that the significant inflow noted last year was attributed to a large investment flow that went to the financial and insurance industry… The decline in net equity capital was, however, offset in part by higher investments in debt instruments and reinvestment of earnings amounting to $3 billion and $416 million, respectively,” the BSP explained.

The BSP said the overall FDI picture was not being reflected by the decline in net equity capital, which Drilon had highlighted.

“The BSP’s compilation of FDI statistics is based on international standards and concepts outlined in the Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6) of the International Monetary Fund. Based on the BPM6, FDI includes net equity capital, reinvestment of earnings and net debt instruments. Regardless of the source, inflows from these components are geared toward business development and expansion,” according to the BSP.