FDIs seen to hit $2B in 2007

Foreign direct investments (FDIs) are expected to hit over $2 billion in 2007, fueled by a stronger investor confidence after the government managed to contain its fiscal deficit for two straight years.

The Bangko Sentral ng Pilipinas (BSP) said net foreign direct investments (FDIs) may hit $2.119 billion in 2007, much higher than the $1.895-billion target for 2006.

According to BSP Governor Amando M. Tetangco Jr., investor interest in the country is expected to remain strong next year.

The BSP said business process outsourcing (BPO) was still the strongest growth area although there have been indications of strong FDI flows into manufacturing and even property development.

Data from the BSP indicated that net foreign direct investment (FDI) flows for August this year reached $207 million and brought the January to August inflows to a total of $1.36 billion.

According to the BSP, foreign direct investors are encouraged by the improvements in the country’s fiscal position with surpluses posted from April-June and August, decelerating inflation rate and the appreciation of the peso against the dollar.

According to the BSP, FDI inflows also reflected in part the expansion plans of some companies to increase capacity in anticipation of greater demand following continued favorable domestic and global economic outlook.

Tetangco said the long-awaited credit outlook upgrade by the Moody’s Investors Service is expected to usher in even higher FDI inflows for the remainder of the year and especially next year.

The BSP reported that FDI flows during the eight-month period were higher year-on-year by $232 million as the "other capital" account reversed to a surplus of $903 million from a net outflow of $35 million in 2005.

The "other capital" account consisted largely of inter-company borrowing/lending of funds between foreign direct investors and their local subsidiaries, branches or affiliates in the Philippines.

According to the BSP, the inflows went mostly into the automotive and electronic industries where foreign principals have expanded their investments.

The surplus in the "other capital" account more than compensated for the net outflows of $18 million in the reinvested earnings account, the BSP said.

However, the BSP reported a 52.7 percent decline in the net equity capital account compared to last year although the ending figure was still in surplus level at $476 million.

Industries benefited by these inflows, according to the BSP, comprised mainly of manufacturing (e.g., chemical products, health-care, airconditioning system, steel products, medical research, cigarette paper mill); services (e.g., construction and facilities management, business process outsourcing, shipping crew training); financial intermediation and real estate.

"The bulk of these inflows was infused by investors from the US, Japan, United Kingdom, Hong Kong, Federal Republic of Germany and Switzerland," the BSP said.