Inbound Philippine foreign investments plummet as industry roars (video)

In a warning sign for the Philippine economy inbound foreign investment pledges in the first quarter of 2018 plummeted to their lowest level in 31 quarters while exports, which remained in the red for the full period, racked up a 6.8 per cent contraction.

According to the Philippine Statistics Authority (PSA) inbound Philippine foreign investment pledges dropped to just P14.2 billion (about US$267 mln) in the first quarter, down 37.9 per cent year-on-year (YoY) from P22.9 billion ($430 mln) for the same period in 2017; the lowest level since the second quarter of 2010 when just P13.8 billion ($260 mln) was pledged.

At the same time as exports were contracting the Philippine Peso was tumbling (ordinarily a good stimulus for exports) passing through an 11-year low in April, while new or increased excise taxes on a variety of goods due to the Tax Reform for Acceleration and Inclusion (Train) law coming into effect from January 1 saw Q1_18 inflation come in at 3.8 per cent, its highest quarterly average since 2014. With the cost of living rising rapidly one group of lawmakers has sought to raise the minimum daily wage to P750 ($14.08) nationwide.

Domestic Economy Roars Along

However, while foreign business maybe be biding their time the Philippine domestic economy is going from strength to strength, with imports up 6.8 per cent YoY, manufacturing up 8.0 per cent, and construction permits up by 2.6 per cent. According to the PSA domestic trade during the period rose 5.4 per cent.

While the 6.8 per cent first quarter GDP growth recorded is above the  6.7 per cent revised 2018 GDP growth forecast by the World Bank, it is below the government’s target for 2018 thru 2022 of 7-8 per cent.

The hesitancy by foreign investors wasn’t reflected in those already in the country though with the central bank of the Philippines, Bangko Sentral ng Pilipinas, recording net inflows for foreign investments during the first quarter of $2.2 billion, an increase of 43.5 per cent over the $1.5 billion recorded in Q1_17.

Additionally domestic investment was strong over the period with Filipino nationals pledging investments of P170.8 billion ($3.2 bln).

In figures released by the PSA only the Cagayan Economic Zone Authority (CEZA) saw an increase in inbound foreign investment in Q1_18, attracting projects worth P104.1 million ($1.955 mln), a 92.4 per cent YoY increase.

At the opposite end of the scales the Subic Bay Metropolitan Authority (SBMA) saw the largest decline with the P11.5 million ($216,000) in new inbound foreign investment pledges it received more than 96 per cent below those in Q1_17.

While many have been quick to point the finger at the new Train law, others say the slow-down is more to do with rising interest rates in the United States.

According to the PSA 55.3 per cent of inbound Philippine foreign investment in Q1_18 originated from Japan, with pledges totalling P7.9 billion ($148.3 mln), followed by that from the UK.

American Chamber Warns of ‘Troubling Indicators’

The manufacturing sector received the lions share of foreign investment pledges during the Q1_18 getting P9.1 billion ($187.8 mln), equivalent to 64.1 per cent of the total.

In a recent American Chamber of Commerce (AmCham) Philippines report the business association warned of ‘troubling indicators’, noting that while the Philippines has 16 per cent of Asean’s population it receives less than eight per cent of total Asean inbound foreign investment.

In 2017 inbound Philippines foreign investments amounted to $10.05 billion, marginally above Thailand’s $9.1 billion, or Malaysia’s $9.06 billion, but significantly below the $63.57 billion that Singapore received, the $22.17 billion that was pledged to Indonesia, or the $14.10 billion pledged to Vietnam.

Inbound Philippines Foreign Investment plummeted 37.9 per cent year-on-year in Q1, the lowest level for 31 quarters

According to the AmCham report major manufacturing costs such as electricity, higher minimum wages, and too many nonworking holidays are some of the contributing factors weakening inbound Philippines foreign investments and deterring the long-standing optimism of American businesses in investing in the Philippines.

However, speaking on the sidelines of the Labor Standards and Trade Forum in Makati City last Tuesday, European Union Ambassador Franz Jessen said European business owners were concerned about red tape, the complex system of licensing, and foreign ownership restrictions.

“In the context of the European Chamber, they don’t talk about the minimum wage”, he told the Philippine Daily Inquirer, adding that cheap labour was not the reason European companies were doing business in the Philippines.

Last year EU member countries received more than $901 million (€732 million) in exports from the Philippines, while inbound Philippine foreign investment from the EU accounts for more than 30 per cent of the total and employs some 450,000 people.

 

Feature video ABS-CBN News

 

Related:

  • Philippines remains at bottom of FDI inflows in ASEAN (Philippine Star)
  • BSP reports $2.2 B in net FDI inflows in first quarter, up 43.5% (Manila Bulletin)
  • Foreign investment pledges dip by 37.9% in Q1 2018 (Rappler)
  • Q1 foreign investment pledges plunge to lowest level since 2010 (Inquirer.net)

 

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Stella-maris Ewudolu

Journalist at AEC News Today
Stella-maris graduated with a Bachelor of Arts, Education from Ebonyi State University, Nigeria in 2005. Between November 2010 and February 2012 she was a staff writer at Daylight Online, Nigeria writing on health, fashion, and relationships. Since 2010 she has worked as a freelance screen writer for 'Nollywood', Nigeria.

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