In the first five months of 2017, net inflows of foreign direct investments (FDI) declined by 23.8 percent from the year before—hitting a total of $3.01 billion this year compared to last year’s $3.95 billion, according to the Bangko Sentral ng Pilipinas.

However, the bulk of these total FDI inflows were net borrowings between a local foreign-owned company and its affiliates, as well as income of existing foreign-owned companies reinvested into operations. In the first five months of this year, net borrowings totaled $2.45 billion, up by $277 million or 12.8 percent from last year, while reinvested earnings reached $345 million, up by $24 million or 7.5 percent.

The actual net foreign investments that went into new equity in foreign companies in the January-May period was $213 million, a decline of 85.4 percent from the $1.45 billion level the year-before. The net equity inflows resulted from total placements of $358 million against total equity withdrawals of $145 million. Inflows declined by 77.3 percent while withdrawals increased by 16.1 percent.

The Bangko Sentral had previously noted that the large equity inflows in the April 2016 were boosted by big-ticket equity capital placements from non-residents in local deposit-taking corporations amounting to $784 million. But even after deducting that from the January-May 2016 total FDI equity inflows, the January-May 2017 level was still lower by a substantial 68.2 percent.

Also part of the FDI inflows in the first five months this year were $558 million worth of shares in equity and investment funds. The amount was down by 68.5 percent from last year’s $1.77 billion.

Reinvestments and borrowings

In accounting for FDI flows, the Bangko Sentral follows the “asset and liability principle” under its Balance of Payments and International Investment Position Manual. The Bangko Sentral count also considers as foreign equity any capital that goes into corporations with at least 10 percent foreign ownership. This threshold is not considered by state investment promotion agencies (the export and special industrial zones as well as the Board of Investments and the Bases Conversion Development Authority).

The Bangko Sentral count reflects actual capital flows that go through the banking system, which differs from “total investments” reported by other government agencies that include applications—not yet approved—from foreign companies.

Government officials often cite the FDI numbers that include not only net equity flows but also the reinvestments and intercompany borrowings figures. Other analysts, however, see these numbers as possibly misleading.

For instance, in the case of reinvestment capital, it is widely known that many US-based companies hold off repatriating their profits owing to the high tax rates they would pay when such earnings get booked at their parent company. As such, the earnings are kept overseas and are rolled over in the operations there.

Recent estimates point to around $2.6 trillion worth of overseas earnings that US companies are holding overseas to avoid paying taxes—a high rate of 35 percent—in America. The US government is currently looking for ways to woo home this huge earnings hoard overseas, including a possible lowering of the tax rate. How this move will affect US corporate equity movements in the Philippines remains unclear at this point.

Philippine economic managers seem to be satisfied with the recent FDI trends that they say are indicative of foreign investors’ “optimism” about prospects here. The administration’s planned massive infrastructure building program is often cited as a factor for such a perceived optimism.

The economic managers are often heard citing pledges of large investments from China and Japan. The Bangko Sentral data, however, showed that most of the FDI flows in the January-May period came from Japan, the United States, Hong Kong, Singapore and Germany. China was not among the major equity investors in the Philippines during the period.

FDI flows in ASEAN neighbors

Also, the FDI flows to the Philippines still pale in comparison against reported numbers in other Southeast Asian countries. Vietnam, for instance, registered $21.9 billion worth of FDI in the first seven months of this year, representing a surge of 52 percent from the year-ago total, according to the country’s Foreign Investment Agency.

That seven-month total included $12.92 billion from 1,378 newly licensed projects (up by 48.7 percent from last year), and $5.87 billion capital increase in 677 already-operating projects, according to a Vietnam News Agency report. Vietnam’s manufacturing and processing industries attracted the most FDI of $10.83 billion, while South Korea, Japan, and Singapore were the top FDI source countries.

Another Southeast Asian neighbor, Indonesia, recorded $7.3 billion worth of FDI in the January-March period, a growth of 0.9 percent from the year before. In the April-June period, the inflows reached $8.2 billion, up by 6 percent from last year.

The biggest FDI amounts that landed in Indonesia this year so far have come from Singapore, China and the US. Indonesia is aiming for $50 billion FDI inflows for the year 2017.

Newly rising Myanmar has reported $2.7 billion new FDI in the period April to July, the first four months of the state’s fiscal year. The state Directorate of Investment and Company Administration said the four-month amount was already half of the FDI target for the whole year, which could fail to surpass the previous fiscal year’s $8.2 billion, much of which came from China, Hong Kong, South Korea, Thailand and Singapore.

A recent report by Singapore-based United Overseas Bank (UOB) said the ASEAN region will continue to attract more FDI, following the $27 billion inflows in 2016. UOB said that in 2016 Indonesia, Malaysia, Myanmar and Singapore were the top FDI destinations in the region. In the coming years, Indonesia, Malaysia and Myanmar are projected to capture the bulk of the new FDI flows, the bank said in a May report.

Clearly, this shows that the Philippine economic managers need to work a lot harder for the economy to attract more foreign investments that would sustain growth. Currently, growth is apparently being driven by dollar remittances from the millions of Filipinos toiling abroad.