Investors’ confidence remains solid in the country as evidenced by high reinvested earnings and rising foreign investment approvals despite the decline in the Philippines’ foreign direct investment (FDI) inflows in the first semester of this year, Department of Trade and Industry (DTI) Secretary Alfredo Pascual said on Monday.
Pascual issued the statement in response to a news report saying FDI declined by 20 percent to $3.9 billion in the first half of 2023 compared to the same period last year based on Bangko Sentral ng Pilipinas (BSP) data.
“In summary, although FDI in the Philippines declined in the first semester of 2023, there remains solid foreign investor confidence in the country, as demonstrated by the high reinvested earnings and the rising foreign investment approval by BOI and other IPAs (Investment Promotion Agencies),” Pascual said.
According to Pascual, it is essential to recognize that FDI numbers reflect decisions investors made well before the actual funds’ inflow recorded by BSP.
Global financial conditions, especially the high inflation and interest rates during the first half of 2023, contributed to this FDI decline. However, such decline is not a phenomenon unique to the Philippines. Other ASEAN countries also experienced drops in their FDI, he said.
“Factors such as inflation rates and investment rates substantially influence FDI decisions. Stable inflation and competitive interest rates generally attract FDI, whereas high inflation and unfavorable rates can repel foreign investors,” Pascual noted.
“Under the Marcos Jr. administration, a representative metric of investment performance is the foreign investment approvals by the DTI’s IPAs.”
Pascual emphasized that there are also foreign investments in the Philippines that are not registered with the IPAs and they happen without going for incentives.
He also pointed out that since 2022, there has been a consistent increase in these approvals by the DTI-Board of Investments (BOI) and other IPAs.
Total IPA approvals from January to June 2022 were at $1.06 billion; from July to December 2022, US$3.28 billion; and, from January to June 2023, and US$8.45 billion.
FDI in a particular year does not solely arise from recent investment leads. FDI inflows could be based on decisions made years prior and might be realized in stages over time. The gestation period, or the time from initiation to realization, varies considerably depending on factors like the project’s nature, the involved sector, and the host country’s regulatory environment.
However, it is crucial to understand the realization of timelines of these investments. FDI in a particular year does not solely arise from recent investment leads. FDI inflows could be based on decisions made years prior and might be realized in stages over considerably depending on actors like the project’s nature, the involved sector, and the host’s country regulatory environment
For example, BPO centers, if expanding or within established spaces, might only take months. Yet, if constructing a new facility, the timeline extends. Manufacturing projects, especially if new, can take 4-5 years. Renewable energy projects have varying timelines, with large-scale projects needing several years.
“The future looks promising, given the rising trend in foreign investment approvals by BOI and our other IPAs and the continued efforts to promote the Philippines as an attractive investment destination,” Pascual added. | PND