Angelo Taningco
Economist, Treasury Group
Foreign direct investment (FDI) net flows into the Philippines are well on its way to breach its record-high 2016 level and the central bank’s 2017 target thanks to its strong performance in October. FDI net inflows skyrocketed 201% yoy to $2.0 billion in October, the biggest in 18 months, with 79% of the amount placed in equities and for reinvestment of earnings.
The Bangko Sentral ng Pilipinas (BSP) reported that a substantial chunk of foreign equity investments were allocated to the electricity, gas, steam and air-conditioning supply sector; we believe the entry of Macquarie Infrastructure and Real Assets (MIRA) and Singapore’s GIC into Energy Development Corporation (EDC) was a huge part of the FDI in this sector. Moreover, the top five country sources of FDIs during the month were Netherlands ($1.3 billion), Kuwait ($61 million), Singapore ($59 million), Germany ($15 million), and United States ($12 million).
In January-October, cumulative FDI net inflows expanded 20.5% yoy to $7.9 billion, already touching the record-high 2016 total; debt instruments remained the preferred choice of foreign investors given that 59% of the cumulative amount was through this mode. On foreign investors’ net equity placements, almost half of its cumulative total were in the electricity, gas, steam and airconditioning supply sector, making it the biggest sectoral FDI recipient last year, unlike in 2016 when finance and insurance was the largest benefactor.
Consistent with our expectation, it is now very likely that FDI net inflows for 2017 will be bigger than the record-high $7.9 billion posted in 2016. We also expect FDIs to breach the $8 billion target of the BSP for 2017, and could even drift closer to $10 billion. Despite this FDI improvement for the Philippines last year, we believe its pace was still not enough for the economy to become one of the main FDI destinations in ASEAN; in fact, over the 2010-2016 period, FDI net flows to the Philippines were consistently below the ASEAN average, and we doubt this has sharply reversed last year. However, we believe that over the medium to long term, FDIs in the Philippines have a potential to become one of the biggest in the ASEAN region especially if there is strong and continual push for infrastructure development, modifications in the tax system and fiscal incentives, and ensuring good governance in the bureaucracy that would reduce the cost of doing business in the country.
Disclosures Appendix
This material is confidential and intended for suitable counterparties. The data and information provided in this report accurately reflect the personal views of the specialists or were obtained from public sources believed to be reliable. No representation or warranty as to its accuracy or completeness, express or implied is hereby made, and the investor should not rely thereon without making any independent analysis or research on any topic therein. Any opinion or advice expressed herein may change without notice.
This report is not to be taken as an offer to sell or buy securities or any investment. Security Bank Corporation denies any liability that may arise out of any loss or may result in actual, direct or consequential damage from the use or reliance on any material hereof. Reproduction of this material, whether in whole or in part, is strictly prohibited without the prior consent of Security Bank Corporation. Security Bank Corporation, its directors, officers or staff or any of its subsidiary or affiliates may have taken a short or long position in any investments or securities mentioned herein upon the presentation of this report and may buy or sell the investments or securities at any time in the open market or otherwise, either as broker, dealer, principal or agent. You hereby acknowledge that you have read and understood this Disclaimer and agree to be bound by the conditions therein.
