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Q3 foreign investment pledges plunge 45%

by December 20, 2016 General

Indicates investor uncertainty over Duterte policy – analyst
Investment pledges by foreign investors in the Philippines dropped by 45 percent year-on-year in the first three months of the Duterte administration, viewed by an analyst as reflective of investor uncertainty over new policy directions.

Data released Tuesday by the Philippine Statistics Office (PSA) showed foreign investments approved by the seven government Investment Promotion Agencies (IPA) in July to September plunging to P26.7 billion from P48.6 billion in the corresponding 2015 period.

The chief analyst of IHS Markit said investors were then unsure of the policy direction of the newly installed Duterte administration, but he added that the investment direction could revert to positive on the back of sustained economic growth.

Only one of the seven IPAs posted positive growth in investment during the quarter.

For the first nine months of the year, the total amount of approved foreign investments fell 12.4 percent to P93.3 billion from P106.6 billion a year earlier.

Policy uncertainty
“The sharp drop in investment pledges by foreign investors for Q3 2016 is likely to have reflected investor uncertainty following the presidential elections, as the economic policies of incoming President Rodrigo Duterte were not well developed during his election campaign,” IHS Markit chief economist Rajiv Biswas said.

Biswas told the Times that some foreign investors probably decided to take a “wait-and-see” stance during the early months of the Duterte administration to ascertain which key ministers would be appointed to the economic front bench and what policies they would plan to implement.

“However, the overall investor perception of the Philippines remains hampered by a wide range of factors, including weak transport infrastructure and the difficulties of operating a business in the Philippines,” he said, noting that the Philippines ranks low at 99th out of 190 countries on the World Bank’s Ease of Doing Business rankings.

Going forward, the economist said the initial investor uncertainty about the economic and investment policies of the new Duterte government could turn more positive in the first half of 2017 if the economy’s growth momentum remains strong, which should encourage global firms to invest.

Combined Q3 pledges down 20.4%
Total investment pledges, combining those from Filipino nationals and those from foreign investors, showed negative 20.4 percent growth in the third quarter to P133.8 billion from a positive level of P168.2 billion in the year-ago period.

Filipino nationals accounted for 80 percent of the total approved investment commitments in the third quarter, pledging P107.1 billion.

Among the foreign investors, South Korea was the top prospective investing country during the third quarter, with its pledge of P6.5 billion accounting for 24.3 percent of the total.

The United States and Singapore occupied the second and third ranks, pledging P4.6 billion or 17.2 percent and P4.1 billion or 17.2 percent, respectively, of the total investment approved in the third quarter of 2016.

Pledge approvals by agency, industry, location
Approvals, which were slower than a year ago, came from the Board of Investments (BOI), down by 30.9 percent; Clark Development Corp., down by 96.5 percent; the Philippine Economic Zone Authority, down 54.1 percent; Authority of the Freeport Area of Bataan, down 96.4 percent; and Cagayan Economic Zone Authority, down 75.7 percent.

No approvals were recorded in the BOI-Autonomous Region of Muslim Mindanao during the three-month period, while Subic Bay Metropolitan Authority was the only IPA that posted positive growth – a sharp 34.3 percent.

The electricity, gas, steam and air conditioning supply sector received the largest amount of foreign investments approved in the third quarter of 2016, with P13.2 billion or a 49.4-percent share. Manufacturing came in second with investment pledges valued at P5.1 billion or an 18.9-percent share, followed by transportation and storage with P3.5 billion, or a 13.2-percent share.

In terms of location, bulk of the approved foreign investments in the third quarter of 2016 was intended to finance projects in the National Capital Region, amounting to P5.5 billion, or 20.4 percent.

The next highest investment was in Region XII—Soccsksargen, with P4.7 billion, representing 17.7 percent, followed by the Negros Island Region (NIR), with P4.5 billion or 16.9 percent.

Expected jobs
Foreign and Filipino ventures approved by the IPAs in the quarter are expected to generate 33,590 jobs, the PSA said.

Of the expected jobs, 83.2 percent will come from projects with foreign interest, it added.