Foreign investments bounce back in Q2

FOREIGN INVESTMENT commitments bounced back in the second quarter, ending five straight quarters of decline, signaling country’s attractiveness after the passage of the law that gradually trims corporate income tax.

Preliminary data from the Philippine Statistics Authority (PSA) showed approved foreign investments climbed by 45.5% to P22.50 billion in the second quarter from the P15.46 billion recorded a year ago.

The April-to-June growth was a reversal from the first three months’ 32.9% decline and the 68.8% drop in the second quarter of 2020.

It also ended the decline in foreign investment pledges that began in the first quarter last year, when the coronavirus pandemic started.

The PSA data also showed the level of the foreign investments was the highest in two quarters or since the P36.49 billion committed in the final three months of 2020.

Approved projects with foreign interest in the second quarter were projected to generate 17,013 jobs, a decline of 22.1% from a year ago.

Meanwhile, Filipinos’ investment pledges during the period dropped by 89.2% year on year to P60.28 billion. It accounted for 72.8% of the combined local and foreign commitments worth P82.78 billion, down by 85.6%.

Should foreign and local pledges materialize, these projects are expected to generate 25,056 jobs, 31.5% less than the 36,572 additional employment projected a year ago.

PSA’s foreign investment commitments differ from the actual foreign direct investments (FDIs) tracked the by the Bangko Sentral ng Pilipinas for balance of payments purposes. The central bank’s monitoring also goes beyond the projects and includes other items such as reinvested earnings and lending to Philippine units via their debt instruments.

Colegio de San Juan de Letran Graduate School Dean Emmanuel J. Lopez attributed the second-quarter rebound to the “continued trust” of investors in the country’s economic recovery.

“After reeling from more than a year of recession, the economy is back on its feet. This, despite the quarantine restrictions implemented which continues to hinder the growth of the economy,” he said in an e-mail interview.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the growth can be attributed to the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act that was signed into law in March. He noted CREATE may have increased the Philippines’ attractiveness to foreign investors, as the law lowered corporate income tax rate to 20% — a level closer with other Southeast Asian countries. 

“Furthermore, the CREATE Law also provided greater certainty for investment incentives, thereby making more foreign investors more decisive to locate in the country,” Mr. Ricafort said.

“Mathematically, low base/denominator effects, in view of the hard lockdowns a year before (2Q 2020) also quantitatively led to higher year-on-year growth in foreign investment pledges,” he added.

The government counts investment commitments from seven investment promotion agencies, which are authorized by law to grant tax and non-tax incentives to investors putting up businesses or expanding existing ones in priority sectors.

Investment pledges tracked by the statistical agency are the Philippine Economic Zone Authority (PEZA), the Board of Investments (BoI), the Clark Development Corp. (CDC), the Subic Bay Metropolitan Authority (SBMA), the Authority of the Freeport Area of Bataan (AFAB), the BoI-Bangsamoro Autonomous Region in Muslim Mindanao (BoI-BARMM), and the Cagayan Economic Zone Authority (CEZA).

The BoI contributed the most foreign pledges with a 65.7% share (P14.78 billion). It was followed by PEZA’s 22.3% share at P5.02 billion, CDC’s 9.6% share at P2.15 billion, AFAB’s 2.3% share at P509 million, and CEZA’s 0.1% share at P25 million and SBMA’s 0.1% share at P20.5 million.

No data of investment approvals from foreign nationals were reported by the BoI-BARMM.

By industry, 55.7% share of the total P12.53 billion of foreign investment pledges went to the information and communication sector, followed by construction with 16.1% (P3.62 billion) and manufacturing with 10.1% (P2.27 billion).

More than half of the foreign investments pledged in the second quarter came from the United Kingdom (P12.52 billion), followed by South Korea (P2.25 billion) and the United States (P2.13 billion).

Bulk of the foreign investments will fund nationwide projects amounting to P12.52 billion. Central Luzon cornered 16.3% (P3.66 billion), while Calabarzon got 9.36% share (P2.11 billion).

Mr. Lopez expects foreign investments will gain momentum in the next two quarters.

“Restriction is expected to ease, and investment is expected to pour in because of the increase in consumer spending coupled with the anticipated election spending, though temporary will bring economic relief and investment spending,” he said. — Abigail Marie P. Yraola    

Leave a Reply

Your email address will not be published.