Global recession fears sink foreign investment pledges in Q3

MANILA, Philippines — The number of foreign investment pledges sank in the third quarter as the spectre of a global economic recession loomed large. 

Data released by the Philippine Statistics Authority on Tuesday showed approved foreign investments contracted 22.4% year-on-year to P13.05 billion during the July-September period. 

Most of the investment commitments (34.5%) came from Japan, which pledged P4.5 billion. South Korea and Singapore each committed P2.02 billion and P1.64 billion apiece.

A global recession coming into full view continues to fog investors’ lenses. While these 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 and uses a threshold of at least 10% foreign equity to be included in the tally.

Foreign direct investments softened in August as a result of recession fears.

Sought for comment, Domini Velasquez, chief economist at China Banking Corp., noted the slump spoke of worsening investor outlook. The contraction came amid the Marcos Jr. administration’s efforts to attract more pledges by way of his foreign trips. 

“The drop in investment pledges could be a function of a relatively worse outlook in 2023 and high interest rates, which could impede investor interest in the Philippines,” she said in a Viber message.  

Half of those foreign investments, or P6.6 billion, will finance projects in Calabarzon (Region IV-A). Another P3.02 billion will bankroll projects in Central Luzon, while P2.24 billion will fund projects in Metro Manila, the country’s economic capital. 

Data parsed showed that the manufacturing industry will receive investment pledges totalling P7.2 billion. Projects involving administrative and support service activities attracted investment commitments worth P 3.38 billion. Investments in real estate activities came last with a P1.35 billion haul. 

“However, more is needed to attract investors. We are still awaiting the IRR of the amendments of the Public Services Act, which should be a game changer in bringing investments,” Velasquez added. 

For her, the Philippines could follow what the Indonesian government is doing to woo foreign investors. 

“The country has made headways in talks on how to add value to their extractive industries by developing their downstream industries, she said. 

The PSA noted that investment commitments from local and foreign investors in the third quarter is expected to generate 28,139 jobs. While this is a positive development, the national government needs to exert more efforts in attracting investors since the economy is still recovering from pandemic fallout. 

“Meanwhile,the mining industry was a priority sector of President Marcos during the campaign, and we are still waiting for developments on this front,” Velasquez added.