The country’s strong macroeconomic fundamentals continue to attract foreign direct investment despite the prolonged COVID-19 pandemic, the finance ministry said over the weekend.
He said in an economic bulletin that capital formation, the most comprehensive measure of investment, improved last year.
The Philippine economy has partially regained its orientation towards investment-led growth in 2021, as containment measures have been eased and vaccination has been rolled out. As a percentage of real gross domestic product, capital formation increased from 19.2% in 2020 to 21.6% in 2021. However, this remains below its investment-to-GDP ratio of 26.5% in 2019.
Capital formation is one of the main determinants of future growth, in addition to employment and factor productivity.
Capital formation, which is tracked by the national income accounts published by the Philippine Statistics Authority, posted real growth of 19% in 2021, reversing part of its 34.4% fall in 2020. Among the main components of investments, fixed capital, which consists of construction and durable equipment, increased by 9.6%.
“The continued rapid increase in capital formation and FDI, especially for sectors that do not seek tax incentives, implies that investors are attracted primarily by the country’s favorable economic fundamentals,” the DOF said. .
Another measure of investment is foreign direct investment and portfolio investment tracked by the balance of payments account which is published periodically by the Bangko Sentral ng Pilipinas. These measure the amount of investment from foreign investors.
FDI is the most important indicator as it measures the amount of investment in the form of majority ownership in a company in a country by foreign investors, which implies more active participation and greater commitment of the investor in the management.
It is distinguished from a foreign portfolio investment by a notion of direct control. In contrast, a portfolio investor can buy and sell stocks and bonds on a daily basis and generate profits on price differences. Portfolio investment is called “speculative capital” because it can exit at any time.
FDI increased by 54.2% in US dollars. As a percentage of GDP, this increased from 1.89% in 2020 to 2.67% in 2021, exceeding the level of 2.30% set in 2019.
Portfolio investments which are minority stakes in local corporate stocks and bonds by foreign investors showed significant variability, falling to a negative level of -$4.24 billion in 2020 and -574 million dollars in 2021 due to the impact of the pandemic which has made the values of global equities and bonds highly uncertain.
“During these times, these investors shift their portfolios to developed economies. As a percentage of GDP, the ratio of portfolio investment to GDP remained zero,” the DOF said.
The third measure of GDP is approved investment compiled by the PSA from investment promotion agencies. These are requests for tax incentives filed by investors with agencies providing incentives, primarily the Board of Investments and the Philippine Economic Zone Authority.
Approved investments decreased by 13% in 2020 and further decreased by 33.6% in 2021.
“Note that this refers to approvals that will be implemented in the future. Also note that this has gone from 36.5% of capital formation in 2020 to 18.5% in 2021,” he said. declared.