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Foreign project pledges nearly halved

by December 20, 2016 General

Preliminary Philippine Statistics Authority (PSA) data show that foreign direct investments (FDI) registered with the country’s seven investment promotion agencies (IPAs) fell 45% to P26.7 billion in the third quarter of this year from P48.6 billion in 2015’s comparable three months.

IPAs are government agencies that by law are allowed to grant tax and non-tax incentives to investors putting up businesses or expanding existing ones in the country. The seven IPAs are the Board of Investments (BoI), Philippine Economic Zone Authority (PEZA), Clark Development Corp. (CDC), Subic Bay Metropolitan Authority (SBMA), Authority of the Freeport Area of Bataan (AFAB), Cagayan Economic Zone Authority (CEZA) and the BoI-Autonomous Region of Muslim Mindanao (BoI-ARMM).

“This can be the ‘wait-and-see’ attitude of a lot of the investors as the uncertainty of the external environment, particularly, the transition of US leadership and the direct impact of its planned economic policies, weigh down on medium- to long-term investment decisions,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, said in an e-mail.

“Investors, I suppose, are also taking serious consideration of the political risks locally, including other external politically charged situations that are developing as 2016 winds down.”

By industry, the most interest went to electricity, gas, steam and air conditioning supply (EGS&ACS), which drew almost half of the total pledges in the third quarter, but dropped 52.3% from the same period a year ago.

Manufacturing, the second biggest recipient which attracted almost a fifth of total pledges, witnessed a 35.6% year-on-year decline in commitments.

“The relatively sharp year-on-year drop in electricity, gas, steam and air conditioning supply can be attributed to base effects,” Angelo B. Taningco, economist at Security Bank said in an e-mail.

For the quarter, electricity, gas, steam and air conditioning supply pledges totaled P13.2 billion, lower than the P27.7 billion recorded a year ago, which according to Mr. Taningco is “a relatively high figure compared to other quarters, such as… third quarter [of] 2014’s P1 billion.”

“Moreover, the third-quarter 2016’s approved foreign investments in electricity, gas, steam and air conditioning supply sector was higher compared to the first two quarters of the year.”

According to Unionbank’s Mr. Asuncion, “EGS&ACS industry actually jumped higher to about P9.3 billion more from the second to the third quarter of 2016, while manufacturing largely declined from the previous quarter by almost P9.1 billion. As said previously, investors in these particular industries are in a ‘wait-and-see’ stance moving forward.”

The third-quarter pledges brought the tally in the nine months to September to P93.3 billion, a 12.4% decrease from the year-ago P106.6 billion.

By country-source of investment commitments, South Korea led the list in the third quarter at 24.3%, followed by the United States (17.2%) and Singapore (15.3%). For the first three quarters, Singapore remained the biggest source at 17.9% of total pledges, followed by the Netherlands (15.6%) and Japan (14.8%).

“Looking at approved foreign investments by country of investor, the 45% [year-on-year] drop equivalent to 21.86 billion was mainly spurred by a P24.9 billion fall in approved foreign investment from Netherlands alone,” said Security Bank’s Mr. Taningco.

Investments from the Netherlands comprised 10.4% of total pledges last quarter, falling nearly 90% from a year ago. The nine months to September saw commitments from the Netherlands drop 68.1% year on-year.

Projects registered with the BoI, which made up 73.7% of third-quarter pledges, fell 30.9% from a year ago. PEZA raked in the second-biggest catch at 23.9%, though 54.1% less year-on-year.

BoI reported last month that investment pledges hit P28.5 billion in November, 97% more than a year ago, driven by the three big-ticket projects in renewable energy and manufacturing.

According to Trade Secretary and BoI Chairman Ramon M. Lopez, the main projects involve solar and hydropower renewable energy. Pledges involving the manufacture of petrochemicals also accounted for about a quarter of November’s total.

The November results helped fuel a 35.5% increase in investment pledges in the first 11 months of the year to P324.5 billion. The complement consists of 323 projects that can generate over 55,000 new jobs when they start operating.

The nine months to September saw BoI and PEZA contributing the most foreign investment pledges at 53.1% and 38.9%, respectively. Year-on-year, BoI’s share grew by 18.7%, while PEZA’s decreased by 30.5% from the same period last year.

The National Capital Region (NCR) got the most investment pledges in the third quarter at 20.4% of the total. Investments in the region expanded to P5.5 billion or 11.7% compared to the same period last year. Majority of NCR investments are intended for construction projects.

Region XII (South Cotabato-Cotabato-Sultan Kudarat-Sarangani-General Santos City region, or SOCCSKSARGEN) was the second largest with 17.7% share of the total, while the Negros Island Region was at third with 16.9%. Investments in both regions were mostly for electricity, gas, steam and air conditioning supply.

Jobs to be generated from third-quarter foreign investment pledges were projected at 27,938, down from the 38,106 projection in the same period last year. More than half of the jobs expected to be generated were from projects registered with PEZA, with another 42.7% in BoI-registered ventures.

Security Bank’s Mr. Taningco expects that fourth-quarter pledges will be more than the third quarter “partly in preparation for the upcoming year.”

“[B]ased on BoP (balance of payments) data, it would be higher than last year,” he said.

Unionbank’s Mr. Asuncion remains “positive that the government’s FDI target will still be met.”

He also noted that more Filipino nationals and their investments were approved in the third quarter.

“This can be a clear indicator that the FDI momentum is there and the ones who know the real investment sentiment come out and do risk it.”