May net outflow trims FDI tally

Foreign direct investments (FDI) reversed to a net outflow last May, the Bangko Sentral ng Pilipinas (BSP) yesterday reported, with the total for 2010 to date still positive but down over half from last year. The May FDI result was an outflow of $35 million, the first for the year. The January to May tally, meanwhile, was net inflow of $446 million, down 68% from the $1.4 billion recorded a year earlier. "Investors stayed on the sidelines as they remained wary of potential spillovers of the euro-zone’s sovereign credit problems, notwithstanding the relatively peaceful conduct of the May 2010 elections," the BSP said in a statement. FDI yielded a net inflow of $109 million in January, $273 million in February, $14 million in March, and $85 million last April. The BSP said the positive Jan.-May figure stemmed from an improvement in the other capital account -- consisting mainly of intercompany borrowing and lending between foreign direct investors and their local subsidiaries and affiliates -- which reversed to a net inflow of $330 million from a net outflow of $38 million a year earlier. Net inflows of equity capital during the five-month period plunged to $46 million from $1.5 billion in the same period last year. The BSP said last year’s figure was inflated by equity capital infusions from the privatization of a local power firm and a share sale involving a local beverage manufacturing firm. Equity investment in local companies of 10% and up are considered as FDI. Japanese brewer Kirin Holdings last April increased its stake in San Miguel Brewery to 48.3% from 43.3% in a P6.9-billion deal. The National Grid Corporation, meanwhile, in January last year remitted $987.5 million to the government as initial payment for the $3.95-billion purchase of a 25-year concession to operate the state’s transmission backbone. The BSP said inflows during the five-month period came mostly from the United States, Switzerland, Japan, Netherlands, Singapore and Hong Kong. The investments were mainly directed to the manufacturing, services, real estate, financial intermediation, utilities, mining, and transportation/storage sectors. Asked if the BSP remained confident of hitting its $2-billion full-year FDI forecast, Governor Amando M. Tetangco, Jr. said they expected a rebound once the public-private partnership (PPP) tack adopted by the new government gets off the ground. "I think a slow second quarter this year could be expected as investors tend to be cautious around the time of an election. We are, however, bullish that as the PPP initiative of the government takes off, we will see investments flow in as we had projected," Mr. Tetangco said in a text message. Benjamin E. Diokno, a University of the Philippines economist, said the country should amplify its comparative advantages in order to attract foreign investments. "It’s not too late but with a lot of difficulties," Mr. Diokno said in a text message. "There’s a gathering storm in the horizon. Global growth is slowing. The Philippines has to show some new dynamism in order to attract FDI under such gloomy outlook. Investors are perhaps awaiting its medium-term fiscal strategy." FDI are long-term investments as opposed to portfolio placements in bonds or stocks -- also known as hot money due to the ease with which they can be taken in and out of a country. -- J. B. F. Santos, BusinessWorld