FDI inflows drop 23% to $9.2 billion

Net inflows of foreign direct investments (FDI) dropped 23.2% to $9.2 billion in 2022 from $12 billion seen in 2021.

“Notwithstanding the country’s sustained growth momentum, FDI net inflows decreased in 2022 due to the extended global slowdown and high inflation, which adversely affected investor decisions,” the Bangko Sentral ng Pilipinas (BSP) said in a statement on Friday.

In the Philippines alone, inflation slowed to 8.6% in February, from the 14-year high of 8.7% in January. 

For the first two months of the year, inflation averaged 8.6%. This is higher than the actual 5.6% in 2022.

To tame inflation, the BSP raised borrowing costs by a total of 400 basis points (bps) starting May 2022, bringing the key policy rate to 6%, its highest in nearly 16 years.

The BSP projects full-year inflation to hit 6.1%, before easing to 3.1% in 2024.

“High interest rates and a looming global downturn led to lower net FDI in 2022,” China Banking Corp. Domini S. Velasquez said in a Viber message.

“The Philippines has to do more to attract foreign investors, thereby increasing capital investment in the country and creating better quality jobs,” she said.

Data from the BSP showed foreign investments in debt instruments declined by 15.6% to $6.33 billion in the January-to-December period from $7.51 billion in the same period in 2021.

Investments in equity and investment fund shares also dropped by 35.9% to $2.87 billion in 2022 from $4.48 billion a year earlier.

Net foreign investments in equity capital fell 49.5% to $1.71 billion. Equity capital placements went down by 50.5% to $1.95 billion, while withdrawals were lower by 56.1% to $243 million.

Most of these placements were from Japan, Singapore, and the United States. These went mainly to sectors such as manufacturing, real estate, financial and insurance, communication, and construction.

Meanwhile, reinvestment of earnings edged higher by 5.9% to $1.16 billion in 2022 from $1.1 billion in 2021.

FDI net inflows declined 76.2% to $634 million in December from $2.7 billion net inflows a year prior.

“The decline in FDI during the reference month was due largely to base effect, particularly given the significantly larger net placements of equity capital in December 2021,” the BSP said.

By components, investments in debt instruments fell by 54.7% to $286 million in December from $632 million in the same month of 2021.

Inflows to equity and investment fund shares dropped by 82.8% to $348 million in December from $2.03 billion in the same month a year prior.

FDIs in equity capital decreased by 86.2% year on year to $268 million in December, driven by the 85.6% drop in placements to $286 million. Withdrawals also fell by 56.1% to $18 million.

In December, equity capital placements mostly came from Singapore, Germany, and Japan. Most of these capital placements went to manufacturing and real estate industries.

Reinvestment of earnings inched up by 0.2% to $80 million that month.

According to Ms. Velasquez, liberalization of industries will help boost investments in the country as it will also support recently released infrastructure priorities of the government.

“Competitors such as Thailand, Indonesia, and Vietnam are reaping rewards from years of improving its business environment to attract foreign investors and the Philippines needs to fast-track interventions to show that the Philippines is now open for business,” she added.

The BSP expects FDI net inflows at $11 billion by this year. – Keisha B. Ta-asan