By Chino S. Leyco
The Department of Finance (DOF) said yesterday that the Philippine economy has become more investment-led last year despite the lower than expected growth.
Gil S. Beltran
Based on his latest economic bulletin, Finance Undersecretary Gil S. Beltran said that capital formation as a percentage of gross domestic product (GDP) last year rose to 27 percent from 25.1 percent a year before.
The 2018 capital formation, which is the most comprehensive measure of investment and one of the foremost determinants of the country’s future growth, also quickened compared with 24.4 percent in 2016.
Beltran also noted that capital formation, which is tracked by the national income accounts issued by the Philippine Statistics Authority, showed a real growth of 9.4 percent in 2017 and 13.9 percent last year.
"These growth rates compare favorably with the 20-year average of 6.7 percent. Of the major components of investments, fixed capital which consists of construction and durable equipment grew by 9.5 percent in 2017 and 15.6 percent in 2018,” said Beltran, who is also the DOF’s chief economist.
Another measure of investment is foreign direct investment (FDI) and portfolio investments tracked by the balance of payments account which is released periodically by the Bangko Sentral ng Pilipinas.
"FDI is the more important indicator because it measures the amount of investment in the form of a controlling ownership in a business in one country by foreign investors which implies more active participation and more commitment by the investor in management,” Beltran said.
"It is distinguished from a foreign portfolio investment by a notion of direct control. In contrast, a portfolio investor may buy and sell stocks and bonds daily and generates profits on price differences. Portfolio investment is referred to as 'hot money' because it can leave anytime,” he added.
FDI increased by 20.4 percent to $10 billion in 2017 and further by 1.8 percent in the first 10 months of last year.
As a percentage of GDP, this shows a rise from 3.1 percent in 2016 to 3.7 percent in 2017.
Portfolio investments which are minority holdings in local company stocks and bonds by foreign investors showed significant variability, declining to a negative level of $205 million in 2017 due to quantitative easing by the US Federal Reserve and then rising to $1.262 billion last year.
As a percentage of GDP, the ratio of portfolio investment to the economy rose from 0.1 percent in 2016 to 0.6 percent in 2018.
The third measure of GDP is the approved investments issued by the Department of Trade and Industry (DTI), which are applications for fiscal incentives filed by investors with incentive-providing agencies.
Approved investments rose by 29.4 percent in 2017 and 22.6 percent leafs year.
"Note that this refers to approvals which will be implemented in the future.
Note also that this rose from 21.5 percent of capital formation in 2017 to 27.0 percent in 2018. The continuing rise implies that investors are attracted by the country’s favorable economic fundamentals,” Beltran said.
"The decline in PEZA investment applications may be due to the risks and uncertainties in the export market brought about by the ongoing tariff war and rising protectionism, and the relative attractiveness of the domestic market,” he added.