MANILA, Philippines—Ahead of the May 9 presidential elections, pledges from foreign investors who wanted to avail themselves of tax and other perks for their forthcoming projects fell 54.1 percent year-on-year to P8.9 billion during the first quarter–also the lowest quarterly haul since the global financial crisis 13 years ago.
The latest Philippine Statistics Authority (PSA) data on Tuesday (May 17) showed that commitments approved by the country’s seven investment promotion agencies (IPAs) from January to March dropped from P19.6 billion in the first three months of last year. IPAs give away fiscal incentives to qualified projects.
Historical PSA data showed that the first-quarter 2022 foreign investment pledges were the lowest since the P3.9-billion worth generated during the first quarter of 2009, at the height of the 2008-2009 global economic downturn.
The Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act signed by President Rodrigo Duterte last year empowered the President to grant hefty tax breaks to entice elephant-sized investments, upon the recommendation of the interagency Fiscal Incentives Review Board (FIRB). On the flipside, the CREATE law also rationalized the previously wide array of tax perks being offered by IPAs, which had resulted in billions of pesos in foregone revenues for the government.
But the Department of Finance (DOF) earlier said that the record-high foreign direct investment (FDI) flows despite tax perk-seeking projects trending lower meant that more and more foreigners investing in the Philippines were no longer in need of fiscal support.
The DOF’s chief economist and former undersecretary Gil Beltran last March noted that IPA-approved foreign-led, job-generating projects rose by nearly three-fourths to P192.3 billion last year compared with 2020 levels, but remained below the pre-pandemic pledges amounting to a record P390.1 billion in 2019.
Despite still below pre-pandemic commitments, actual FDI in 2021 hit an all-time high of $10.5 billion, breaching the previous record of $10.3 billion in 2017 and above the pre-pandemic flows amounting to $8.7 billion in 2019.
Last year’s FDI haul reversed the fall to $6.6 billion in 2020, during the Philippines’ worst post-war recession at the height of the longest and most stringent COVID-19 lockdowns.
PSA data showed that from January to March, the top sources of foreign investment pledges were Japan with P3.6-billion worth or almost two-fifths of total; South Korea, P1.7 billion; and Singapore, P1.6 billion.
Per sector, the three biggest beneficiaries of upcoming foreign-led projects were manufacturing, with P5.2 billion in commitments or nearly three-fifths of the three-month total; electricity, gas, steam, and air-conditioning supply (P1.7 billion); as well as administrative and support service activities (P977.4 million).
“Majority of the approved foreign investments in the first quarter of 2022 is intended to finance projects in Calabarzon amounting to P4.9 billion or 54.2 percent of the total. This was followed by Cagayan Valley with P1.7 billion (18.5 percent), and Central Visayas with P986.6 million (11 percent),” the PSA said.
Despite the 13-year low foreign investor pledges, total IPA-approved commitments alongside new projects of Filipino investors rose 15.6 percent year-on-year to P190.6 billion during the January-to-March period.
“Filipino nationals continued to dominate the approved investments during the quarter, posting P181.6-billion worth of investment pledges or a 95.3-percent share,” the PSA said.
“Total approved projects of foreign and Filipino investors in the first quarter of 2022 were projected to generate 14,416 jobs. Out of the total anticipated jobs for the period, approved projects with foreign interest were projected to generate 9,655 jobs based on the reports of IPAs,” the PSA added.