Lockdowns sink FDI pledges deeper into 2-year low in second quarter

MANILA, Philippines — Foreign direct investment (FDI) pledges in the country’s economic zones further sank in the second quarter, a reminder of intense investor fears amid the pandemic that the government seeks to soothe through lower corporate taxes.

A total of P15.5 billion FDI pledges were approved from April to May, down 68.8% year-on-year from P49.6 billion recorded in the same period in 2019, the Philippine Statistics Authority reported Friday.

The data was the lowest recorded since the first quarter of 2018 when FDI pledges amounted only to P14.21 billion.

While pledges may or may not translate to actual inflows in the future, they serve as vital gauge of sentiment especially since investment decisions on this front are greatly affected by tax perks offered them. They are also different from the central bank’s own measure of FDI inflows, which is on a net basis.

That said, the outturn was not surprising at all. The second quarter reading captured the height of the Luzon lockdown that started in mid-March and was later enforced to other parts of the archipelago, paralyzing business and commerce in major economic hubs, including ecozones.

Breaking down the PSA's second quarter report, P10.1 billion worth of pledges were approved by the Philippine Economic Zone Authority (PEZA), the country's largest ecozone operator. That amount was down 3.9% and accounted for 65.4% of total commitments during the period.

The situation was worse on other ecozones. No investment approval was reported from ecozones in the Bangsamoro region and Bataan, while commitments made to the Board of Investments plunged 86.2% annually. Those in Subic (-93%), Clark (-97.1%)  and Cagayan (59.7%) dramatically fell year-on-year. 

FDI pledges are bets placed on the country’s ecozones, whose key attraction are tax holidays and other perks. As part of its stimulus measures, the government is banking on these incentives— and a 5% cut on corporate income tax rate— to do their magic and lure back foreign investments potentially lost during the pandemic, as well as new ones.

That proposal is contained under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill now pending at the Senate. The bill, which departs from its original intention since 2017 to reduce tax perks and raise revenues, is recommending incentives to stay put longer as a way to entice investors to bet on the Philippines. — Ian Nicolas Cigaral