Net foreign direct investments into the Philippines slumped to $31 million in October from $311 million in the previous month as the global financial gloom kept investors at bay, data from the central bank showed on Monday.

The inflows were also lower compared to the $129 million posted in October 2007.

For January-October 2008, net FDIs totaled $1.4 billion, just over half the $2.6 billion recorded in the same period in 2007.

The Bangko Sentral ng Pilipinas (BSP) said in a statement that "investment decisions were stalled by foreign investors' concerns over the developments in financial markets, particularly in the weeks following the unfolding of the global financial crisis in late September."

Foreign equity capital posted a net inflow of $858 million for the first 10 months of 2008, down 55 percent from a year earlier, while the other capital account inflows -- mainly loans of foreign companies to local units -- dropped 54 percent to $186 million.

FDIs, along with remittances from Filipinos working overseas, are an important source of foreign exchange for the Philippines as they help keep the Southeast Asian nation's balance of payments in surplus.

With only two more months worth of data expected, it would be unlikely that foreign investments would reach the $2.6-billion level projected by the central bank earlier in 2008.

The BSP had slashed its FDI forecast for the whole of 2008 to $2.6 billion from an earlier estimate of $4.2 billion, representing a 3.7 percent decline from 2007's $2.7 billion.

The central bank has not made an estimate yet for 2009.

 Sectors

The foreign direct investments that did come in last year, according to the BSP, were infused by investors coming mainly from the US, Japan, Singapore, South Korea, Germany, Malaysia, Taiwan, Hong Kong, United Kingdom, and the Netherlands. 

The BSP reported that these inflows were primarily investment in the manufacturing sector, primarily shipbuilding and ship repair, auto electronics parts and components, paper, cigarette and tobacco products.

The BSP said inflows were also recorded in the services sector, going into recreational and cultural businesses. Likewise, there were investments in mining, construction (hotel/resort/water spa development, power plant facility, global gateway and logistics hub), utilities, real estate, trade and commerce, and financial institutions.

On the other hand, the BSP said there was a net inflow into the other capital account. This account reflects intercompany borrowing and lending between foreign direct investors and their subsidiaries and affiliates in the Philippines.

Net inflows into the other capital account reached $186 million during the ten-month period, lower than comparable period last year on account of lesser intercompany loan availments.  

On the other hand, reinvested earnings rose by more than 10 percent to $374 million as foreign investors opted to retain earnings and profits in local banks.

Better in 2009

Foreign investments are expected to bounce back strongly in 2009, with portfolio inflows recovery to $1.4 billion and direct investments soaring to $3.2 billion as confidence and sentiments recover from the 2008 crisis.

The BSP’s most recent projections indicated that it expected portfolio investments to post a dramatic 100-percent recovery from the projected $700-million net inflow this year.

On the other hand, a strong resurgence in foreign direct investments was also expected in 2009, with the full-year total increasing by 23 percent from the $2.6-billion level expected this year.

The BSP said steps being taken by financial institutions themselves, were expected to spur at least a mild recovery in much of the global market.

On the other hand, the BSP said the domestic conditions also pointed to a relatively stable macro-economic condition despite the challenges of the financial environment.

The BSP said continued public investments in infrastructure were expected to have the desired effect of spurring economic activities which would support further improvements in the government’s fiscal conditions.

By 2009, the BSP said these actions would have already taken root and provided some stability to the global financial environment 

which would encourage portfolio investments to return to emerging markets like the Philippines. - with Reuters