Net inflows of foreign direct investments (FDI) for the first ten months of 2010 reached $1.1 billion. Notwithstanding the favorable growth prospects in the domestic economy, investor sentiment remained cautious amid concerns on the sustainability of recovery of advanced economies, particularly of the U.S. where the outlook continued to be fragile given the high government fiscal deficit and tepid employment conditions. The net FDI figure for January-October 2010 was 36.5 percent lower than the level posted in the comparable period a year ago.
The net FDI inflows during the ten-month period were attributed largely to the other capital account, consisting mainly of intercompany borrowing/lending between foreign direct investors and their subsidiaries/affiliates in the Philippines. In particular, other capital posted net inflows of $608 million, a turnaround from the $154 million net outflows in the comparable period in 2009, boosted by intercompany loan availments from affiliates abroad. Reinvested earnings during the first ten months amounted to $259 million, more than five times higher than the level recorded in the same period in 2009, as foreign investors opted to retain their earnings in local firms given the country’s underlying sound macroeconomic fundamentals.
On the other hand, equity capital net inflows of $203 million were lower by 88.7 percent relative to the level realized in 2009. Specifically, gross equity capital placements amounting to $472 million were about four times lower than the level registered in the comparable period in the previous year. In 2009, large capital infusions were recorded from the privatization of a local power corporation and the acquisition of a number of shares of a local beverage manufacturing firm. Equity capital placements for the period January-October 2010 were channeled mainly to real estate, financial institutions, mining, manufacturing (pharmaceutical and health products; semiconductors; and air conditioners, refrigerators, and parts), power generation, and services (recreational/cultural). Investments came primarily from the U.S., Japan, Ireland, Hong Kong, Singapore, the Netherlands, and Switzerland.
In October, the FDI balance reversed into negative territory, yielding net outflows of $23 million, mainly driven by net outflows in other capital amounting to $53 million (from net inflows of $21 million in the previous year). Meanwhile, equity capital registered net inflows of $18 million during the month, more than 50 percent lower than the level posted in the previous year. Reinvested earnings also recorded lower net inflows of $12 million from $23 million last year.