News Analysis: Philippines registers all-time record in foreign direct investment inflows

In 2014, the Philippines registered an all-time record of 6.2 billion U. S. dollars in inflows of foreign direct investment (FDI) in what economic managers described as a clear indication that the country is well on the road to higher growth this year.

In a statement released Tuesday, the Bangko Sentral ng Pilipinas (BSP), the country's central bank, said that the whole year FDI inflows showed a 65.9 percent increase from the 3.7 billion U.S. dollars net inflows in 2013.

The BSP said that for the month of December 2014 alone, FDI net inflows amounted to 557 million U.S. dollars, more than five-fold the 102 million U.S. dollars recorded in the same month a year ago.

According to the BSP, the net equity capital infusion contributed largely to the increase in FDI net inflows in December as it reversed to 482 million U.S. dollars net inflows from 60 million U.S. dollars net outflows for the same period in 2013.

The BSP said that the robust performance of the Philippines in attracting foreign investments was the result of continued strong investors'confidence in the country's solid macro-economic fundamentals.

The BSP said that net equity capital infusion during the year rose by 206.7 percent to 2 billion U.S. dollars from 664 million U. S. dollars in 2013 on account of the 6.2 percent increase in equity capital placements coupled with the 67.8 percent decline in equity capital withdrawals.

Total investments for 2014 were higher than the average of 2.2 billion U.S. dollars in the four previous years from 2010 to 2013.

The Philippines has historically been the laggard in Southeast Asia with the least in FDIs. In 2013, Singapore received the most with 60.6 billion U.S. dollars, followed by Indonesia with 18.4 billion U.S. dollars, Thailand with 12.99 billion U.S. dollars, and Malaysia with 12.29 billion U.S. dollars, according to data from the Association of Southeast Asian Nations secretariat.

The FDIs are used to finance construction of new facilities, especially in manufacturing, or for the expansion of existing foreign business operations in the Philippines. They are long-term and job-generating.

On the other hand, foreign portfolio investments, commonly called "hot money," are less dependable sources of capital since they are usually invested in stocks and bonds and can be withdrawn anytime.

Thus the FDI is a more reliable barometer of the confidence of foreign investors in the economy of a certain country.

In related development, preliminary data gathered by the BSP showed that the country's gross international reserves (GIR) rose to 81.3 billion U.S. dollars as of end-February 2015.

BSP Officer in Charge Vicente S. Aquino said that the level was higher by 0.6 billion U.S. dollars compared to the end-January 2015 GIR of 80.7 billion U.S. dollars.

Aquino said that the GIR level can cover 10.4 months'worth of imports of goods and payments of services and income. It is also equivalent to 8.6 times the country's short-term external debt based on original maturity and six times based on residual maturity, he said.

According to the BSP, the increase in foreign exchange reserves was due mainly to the national government's net foreign currency deposits and the BSP's foreign exchange operations and income from investments abroad.

Net international reserves (NIR), which are the difference between the BSP's GIR and total short-term liabilities, also increased to 81.3 billion U.S. dollars as of end-February 2015, compared to the end-January 2015 NIR of 80.7 billion U.S. dollars.

Another positive development was that the inflation rate of 2.5 recorded in February, although slightly higher than the 2.4 percent in January, was well within the BSP's range forecast of 2. 2-3.0 percent for the month.

Also last year, the country's exports posted a 9 percent growth valued at 61.8 billion U.S. dollars.

Economic Planning Secretary Arsenio Balisacan said that compared to other economies in the region, the full-year exports growth performance of the Philippines was"relatively strong despite the challenging external environment."

Balisacan said that the export performance is a good indication of the growing resiliency of the country's export sector given sluggish economies of Japan and countries in the euro zone.

Electronics remained as the country's top export product in December 2014, accounting for 49.5 percent of total exports for the month, with export earnings rising 9.9 percent to 2.377 billion U.S. dollars from 2.162 billion U.S. dollars in December 2013.

Japan, U.S. and China are the country's top export destinations. Endi