COVID-19 pandemic aggravates already declining FDI under current administration

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In 2020, after investors held back from growing their money to maintain liquidity amid the COVID-19 pandemic, foreign direct investments (FDI) to the Philippines dropped.

While the drop was seen coming, last year’s net FDI inflow of only $6.5 billion is still the lowest in the last 5 years, based on data from the Bangko Sentral ng Pilipinas (BSP).

Additionally, its 24.6% annual decrease was also the third straight year of decline under the current administration since its peak of $10.26 billion in 2017. If any, the on-going pandemic only aggravated the scale of decreases from 12.8% in 2019 and 3% in 2018. 

Majority of the fresh capital came from the Netherlands, Japan, Singapore and US, and were invested in businesses engaged in manufacturing, real estate and financial, as shown by the data.

“The disruptive impact of the pandemic on global supply chains and the weak business outlook adversely affected investor decisions in 2020,” said the central bank in a statement.

Apart from the health crisis, investors chose to remain on the sidelines while waiting for the outcome of legislative deliberations for the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill, said Michael Ricafort, chief economist at Rizal Commercial Banking Corp.

That bill is expected to serve as a stimulus meant to attract foreign investment through lower corporate taxes, and better tax breaks. The government hopes that with these benefits, local and foreign firms would invest savings to help workers get back on their feet.

“Still near record low interest rates/borrowing costs would also help attract more FDIs into the country, as also supported by the country’s improved credit ratings in recent months,” Ricafort said.