Foreign Investments Rise by 42.4 Percent in the First Half of 2018

Foreign direct investments (FDI) posted net inflows of US$831 million in June 2018, which was 9.2 percent higher than the US$761 million in the same month last year.1,2 This was largely on account of non-residents’ net equity capital investments of US$184 million during the month, which was a turnaround from the US$67 million net withdrawals in June 2017. The improvement in net equity capital investments was due to the 83.6 percent expansion in gross placements of equity capital to US$208 million, which more than offset withdrawals of US$24 million. Equity capital placements came mostly from Singapore, Luxembourg, Japan, the United States and the Netherlands. By economic activity, equity capital placements were invested mostly in manufacturing; electricity, gas, steam and air conditioning supply; real estate; financial and insurance; and wholesale and retail trade activities. Non-residents’ investments in debt instruments issued by their local affiliates, consisting of intercompany loans, amounted to US$569 million, albeit 24.6 percent lower than the US$756 million recorded in June last year. Reinvestment of earnings increased by 7.1 percent to US$77 million during the month.

On a cumulative basis, FDI registered net inflows of US$5.8 billion for the first semester of 2018, an increase of 42.4 percent from US$4 billion last year. The continued inflows of FDI indicate investor confidence in the Philippine economy on the back of strong macroeconomic fundamentals and growth prospects. Non-residents’ net investments of equity capital grew more than seven times to reach US$1.6 billion. This emanated mainly from the 244.1 percent surge in equity capital placements to US$1.7 billion, alongside the 46.9 percent decrease in withdrawals to US$163 million. Equity capital infusions during the first semester were sourced primarily from Singapore, Hong Kong, China, Japan, and the United States. These were invested mainly in manufacturing; financial and insurance; real estate; arts, entertainment and recreation; and electricity, gas, steam and air-conditioning supply activities. Higher investments in debt instruments were recorded also in the first half of the year amounting to US$3.8 billion from US$3.4 billion. Reinvestment of earnings rose to US$420 million during the period.

1 Based on the Balance of Payments and International Investment Position Manual, 6th edition (BPM6) which uses the asset and liability principle in the compilation of FDI statistics. Under the asset and liability principle, claims of non-resident direct investment enterprises from resident direct investors are presented as reverse investment under net incurrence of liabilities/non-residents’ investments in the Philippines (previously presented in the Balance of Payments Manual, 5th edition (BPM5) as negative entry under assets/residents’ investments abroad). Conversely, claims of resident direct investment enterprises from foreign direct investors are presented as reverse investment under net acquisition of financial assets/residents’ investments abroad (previously presented as negative entry under liabilities/non-residents’ investments in the Philippines).

2 BSP statistics on FDI covers actual investment inflows, which could be in the form of equity capital, reinvestment of earnings, and borrowings between affiliates. In contrast to investment data from other government sources, the BSP’s FDI data include investments where ownership by the foreign enterprise is at least 10 percent. Meanwhile, FDI data of Investment Promotion Agencies (IPAs) do not make use of the 10 percent threshold and include borrowings from foreign sources that are non-affiliates of the domestic company. Furthermore, the BSP’s FDI data are presented in net terms (i.e., equity capital placements less withdrawals), while the IPAs’ FDI do not account for equity withdrawals.