Committed foreign direct investments (FDI) grew by more than half annually in the three months to June, helping foreign pledges double last semester.
Preliminary data from the Philippine Statistics Authority (PSA) showed approved foreign commitments registered with the country’s seven main investment promotion agencies (IPAs) grew 60.2% year on year to P49.58 billion last quarter from P30.95 billion a year ago.
The second-quarter pledges brought foreign commitments in the first half to P95.56 billion, 111.6% more than the P45.15 billion a year ago.
Combined investment pledges by Filipino and foreign nationals totaled P107 billion in the second quarter, down 6.7% from the previous year’s P114.7 billion. Domestic investors accounted for 53.7% of the total investment pledges during the quarter.
Should they materialize, foreign and local investments pledged in the second quarter are expected to generate 30,135 jobs across industries, 32.3% lower than the projected employment of 44,526 jobs in the second quarter of 2018.
IPAs are government agencies that grant tax and non-tax incentives to investors putting up businesses or expanding existing ones in priority sectors. The seven main IPAs monitored by the PSA are the Board of Investments (BoI), Clark Development Corp. (CDC), Philippine Economic Zone Authority (PEZA), Subic Bay Metropolitan Authority (SBMA), Authority of the Freeport Area of Bataan (AFAB), BoI-Autonomous Region in Muslim Mindanao (BoI-ARMM) and Cagayan Economic Zone Authority (CEZA).
The second quarter saw the BoI contributing the most to FDI commitments at 76.8% of the total with P38.05 billion. It was also the only IPA that saw an increase in year on year pledges, growing by 177.8%.
It was followed by PEZA with a 21.2% share at P10.52 billion, 27% less than the previous year’s P14.41 billion.
The rest were CDC’s P478.4 million with a one percent share, SBMA’s P369.3 million (0.74% share), CEZA’s P142.6 million (0.3%), and AFAB’s P15.1 million (0.03%). Data from BoI-ARMM were not available.
SBMA’s P369.3 million was 43.8% less than its year-ago P657.6 million, while those of CDC and CEZA were 76.2% and 18.3% smaller than the past year. Data from AFAB were not available in the second quarter of the previous year.
Foreign investment commitments are different from actual capital inflows tracked by the Bangko Sentral ng Pilipinas (BSP) for balance of payments purposes.
The BSP recorded $3.145-billion in January-May net inflows, dropping 37.1% from the past year’s $5.002 billion.
Singapore was the biggest source of approved FDI pledges in the second quarter with P36.18 billion, 88% more than a year ago and accounting for 73% of the total pledges. It was followed by Japan and the Netherlands, pledging P4.04 billion (8.2% share) and P1.3 billion (2.6% share), respectively.
Notably, investment pledges from the US and China amounted to P997.1 million and P405.4 million, respectively, down 75.1% and 70.7% year on year.
Among regions, Calabarzon — the region immediately south of Metro Manila consisting of Cavite, Laguna, Batangas, Rizal and Quezon — got the most foreign commitments in the second quarter at 83.4% of the total or P41.37 billion. This was more than five times the commitments to the region in the second quarter of 2018.
Metro Manila received the second-biggest amount of foreign investment commitments with an 8.5% share at P4.21 billion while Central Luzon came in third at 3.7% or equivalent at P1.84 billion.
By industry, bulk of the pledges went to electricity, gas, steam, and air conditioning supply with a 72% share at P35.69 billion, followed by manufacturing (P6.14 billion) as well as administrative and support service activities (P3.1 billion).
“This modest growth was influenced by the external challenges of the trade war and can also be attributed to the uncertainty brought by pending fiscal reforms, particularly the bill on corporate taxes and incentives,” said UnionBank of the Philippines, Inc. chief economist Ruben Carlo O. Asuncion in an e-mail.
“Foreign investments would have been higher if there was clarity already on the aforementioned pending legislation and lesser uncertainties brought by the US-China trade war.”
The Tax Reform for Attracting Better and High-Quality Opportunities bill, which did not pass the previous Congress, was refiled this year under a new name — the proposed Comprehensive Income Tax and Incentives Rationalization bill. The bill, House Bill 4157, seeks to gradually trim the corporate tax rate to 20% by 2029 from the current 30%, which is the highest in Southeast Asia. The measure will also remove redundant fiscal incentives.
Mr. Asuncion said that foreign investments are “still expected to grow but rather slowly.”
“If future policy on corporate taxes and investment incentives have been finalized, [then] foreign investments are expected to return stronger and higher as investors see a clearer and more competitive investment policy for the Philippines,” he said.
“However, the global trade environment remains uncertain and may continue to be a drag on foreign investments.” — Jenina P. Ibañez