foreign investments in the Philippines

[In This Economy] What explains anemic foreign investments in the Philippines?

JC Punongbayan

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[In This Economy] What explains anemic foreign investments in the Philippines?
A look at the data will show that foreign investments simply aren’t coming in. In fact, they’re leaving.

If you listen only to the administration of President Ferdinand Marcos Jr., it would sound like the Philippines is now a “darling” of investors. In fact, the government likes to use that exact term.

While wooing Singaporean business leaders, Budget Secretary Amenah Pangandaman said, “The Philippines used to be the ‘Darling of Southeast Asia.’ I am certain that with your investments and support, the Philippines will not only be the darling but also the ‘Sweetheart of Asia.’”

Meanwhile, Ceferino Rodolfo, a trade undersecretary and head of the Board of Investments (BOI), recently said in a Palace briefing, “In the past, we weren’t the darling of the EU countries for some reason. But when the president [Marcos] said we are open for business, and they saw the policy reforms of the country, they came in.”

The figures they keep citing are impressive.

According to the Palace, total foreign investment pledges since last year now total P3.94 trillion. That includes P1.38 trillion from China, P721 billion from Japan, P426 billion from Indonesia, and P367 billion from the Netherlands.

Meanwhile, Undersecretary Rodolfo said that the BOI already approved P427 billion worth of foreign investments from January to September 2023. About 80% of that came from Germany.

But are we an investment darling yet? Not quite.

First, investment pledges are not actual investments. Even “approved” investments are not actual investments. Investors can say one thing, but may not necessarily invest in the end.

Second, the total investments approved by the BOI this year are just a little over 10% of the total investment pledges being boasted by government. What accounts for the gap between the two? Where’s the bulk of the investment pledges?

Third, a look at the data will show that foreign investments simply aren’t coming in. In fact, they’re leaving.

Big drop in foreign investments

A cursory look at data from the Bangko Sentral ng Pilipinas (BSP) shows that total foreign direct investments dropped by 14.7% from January to July 2022 to the same period this year. In short, currently, we’re repelling more foreign investments than we are attracting them.

Let’s break this down further.

First, the FDI category called “net equity other than reinvestment of earnings” dropped by 14% over the same period. This just means that fewer foreign investors bought shares in Philippine companies; so-called “placements” fell by 4%. Meanwhile, foreign investors decided to pull their money out of the country; so-called withdrawals ballooned to 83%!

Yikes. That can’t be good.

Second, the category called “reinvestment of earnings” fell by 13.1%. This just means that fewer foreign investors are plowing their profits back into the companies they invested in. That’s also a sign of weakened confidence in the country’s future prospects.

Third, “net debt instruments” fell by 15.2%. This means that fewer investors are lending money (in the form of loans or bonds) to finance Philippine investments. Again, not a good sign.

Of course, we need to wait for data for the rest of 2023. But so far, the signs are not so promising.

Major turnoffs

There are several reasons why investors are turning more pessimistic about the Philippine economy.

First, the economy continues to grow but at a slower and slower pace. In the second quarter of 2022, total output grew by just 4.33%. That is the lowest GDP growth since the first quarter of 2021. And before the pandemic, “normal” growth was around 6%. I wrote before that the economy of late seems to be grinding to a halt. (READ: [ANALYSIS] After a year under Marcos, is PH economy grinding to a halt?)

Second, inflation is inching up again, after declining for six consecutive months. We now also have the highest inflation rate among the biggest ASEAN economies. Poor inflation management does not spell confidence among investors.

Third, there’s so much policy uncertainty in the air. The last thing investors want is uncertainty.

Look at what happened to the pet project of Marcos, the Maharlika Investment Fund. It was rushed, but recently they slammed the brakes on it.

Some speculate the move is meant to allow Marcos to put his own men in the leadership of the fund. But right before the suspension of its implementation, state-owned banks sounded alarms that they might breach BSP capital regulations. This is because substantial amounts of their capital were forcibly transferred to form part of Maharlika’s seed capital.

Essentially, Marcos himself, through his ill-thought Maharlika, placed the banking sector in a tight spot. That’s bound to be a red flag among prospective investors.

Stock market

In case you missed it, the Philippine stock market is also in dire straits now.

Latest data show that the price-to-earnings ratio, a measure of the attractiveness of Philippine stocks, reached a 13-year low. The Philippine Stock Exchange Index has plummeted to a little over 6,000. That’s a considerable 14% drop from January 2023.

One major reason is the higher interest rates in the US. It’s more sensible for investors to pull out their money from stocks in emerging markets such as the Philippines, and put that money instead in US securities which now fetch much higher interest rates.

But it’s also conceivable that the decline of Philippine stocks is a reflection of investors’ lowering optimism for the economy, what with sluggish growth, runaway inflation, and an uncertain business climate.

On October 26, the BSP also increased again its own policy rate, on account of the recent uptick of inflation. This makes it much more difficult to attract funds into Philippine stocks.

We can’t do much about the rate hikes abroad. But unless the Marcos government reins in inflation with credibility – and reduces policy uncertainties – investing in Philippine stocks won’t make all that much sense.

China loses interest?

Going back to foreign investments, it was all over the news that China is supposedly “losing interest” in funding infrastructure projects in the Philippines.

Remember that during the Duterte administration, China was supposed to play a major role in pushing the infrastructure spending spree called Build, Build, Build.

Apart from a few bridges in Manila (the Estrella-Pantaleon Bridge and the Binondo-Intramuros Bridge), and a couple of other investments, little has come out of the plan. It has turned out to be a dud.

China was supposed to finance Phase 1 of the Mindanao Railway Project. But based on a recent letter from the Department of Finance, “the Philippines is no longer inclined to pursue the Chinese ODA financing” for it. The project will now have to be funded some other way.

At least one Chinese official is said to have cited “geopolitical factors” in the stoppage of the infra projects. That’s obviously referring to China’s encroachments in the West Philippine Sea.

If not accepting Beijing’s infrastructure investments amounts to standing up against a bully, then so be it. In this era of scarce investments, that’s one type of investment that we can afford to lose. –

JC Punongbayan, PhD is an assistant professor at the UP School of Economics and the author of False Nostalgia: The Marcos “Golden Age” Myths and How to Debunk Them. JC’s views are independent of his affiliations. Follow him on Twitter (@jcpunongbayan) and Usapang Econ Podcast.

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  1. ET

    Thanks to Prof. JC Punongbayan for another enlightening article, “What explains the anemic foreign investments in the Philippines.” Indeed, there is a big drop in foreign investments as “we’re repelling more foreign investments than we are attracting them.” Secondly, only 10% of the investment pledges are approved, and the percentage of these approved investments that become actual investments is overridden by the amount of investments that are leaving the country. These are the effects of slower economic growth, increasing inflation, and policy uncertainty. But the Marcos Jr. Government’s Disinformation Campaign uses these tactics: 1) place the greatest emphasis on investment pledges, 2) blame external factors for slow growth and increasing inflation, and 3) maintain a façade of policy certainty. Lastly, Prof. Punongbayan’s final statement is worthy of appreciation: “If not accepting Beijing’s infrastructure investments amounts to standing up against a bully, then so be it. In this era of scarce investments, that’s one type of investment that we can afford to lose.”

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JC Punongbayan

Jan Carlo “JC” Punongbayan, PhD is an assistant professor at the University of the Philippines School of Economics (UPSE). His professional experience includes the Securities and Exchange Commission, the World Bank Office in Manila, the Far Eastern University Public Policy Center, and the National Economic and Development Authority. JC writes a weekly economics column for He is also co-founder of and co-host of Usapang Econ Podcast.