PH FDIs down, OFDIs up in 2020— UNCTAD report

Published June 22, 2021, 7:30 AM

by Bernie Cahiles-Magkilat

Foreign direct investments (FDI) into the Philippines in 2020 declined to $6.542 billion from $8.671 billion in 2019, although the country’s outward foreign direct investments (OFDI) rose slightly to $3.525 billion, according to the latest UNCTAD World Investment Report (WIR). 

The WIR 2021 Report that FDI into the Philippines appeared erratic. In 2015, FDI was at $4.447 billion and rose to $6.915 billion in 2016. It further rose to $8.704 billion in 2017 but declined to $6.602 billion in 2018.

Nonethless, the country’s OFDI rose slightly in 2020 from $3.351 billion in 2019 because local companies made some significant mergers and acquisitions.

OFDI refers to outward direct investment where a domestic firm expands its operations to a foreign country.

For the Philippines, Ayala Corporation and its Singaporean partner are constructing a $172 million wind farm in Vietnam. 

Another ASEAN country cited in the report with growing OFDI was Indonesia with $4.5 billion.

In contrast, the report noted that OFDI from South-East Asia decreased by 16 percent to $61 billion, but the region’s share of global outward investment flows rose from 6 per cent in 2019 to 8 per cent. 

Singapore and Thailand were the two largest investors from the region in 2020. OFDI from

Singapore was down 36 percent to $32 billion, a significant share of which was invested in ASEAN. 

Singapore remained a major source of investment not only for ASEAN countries, but also for other economies such as China and India. 

In 2020, companies from Singapore were the largest investor group in some Asian countries. More than 25 per cent of FDI in Indonesia and 40 per cent in VietNam was from Singapore.

OFDI from Thailand more than doubled to $17 billion. In 2020, about 85 per cent of FDI from the country was in financial services, manufacturing, real estate and construction activities, going mostly to ASEAN. 

In terms of FDI, UNCTAD said that South-East Asia is likely to increase, but much will depend on how well countries in the region are able to contain the new wave of the pandemic unfolding in 2021. 

Improving global and regional economic growth in 2021, as well as ASEAN Member States’ economic stimulus packages, will help bolster the resilience of the region. Investment in selected service industries and technology-related activities such as the digital economy, e-commerce, digital infrastructure (5G networks and data centres) and cloud computing, is expected to remain robust. 

The region is projected to become a rapidly growing global data centre hub in the next five years, overtaking growth in North America and in other AsiaPacific countries.

The RCEP establishes the world’s largest free trade area with provisions promoting investment, trade and services, including e-commerce development. Relocation of production by Chinese firms and other MNEs for cost reasons and to circumvent the impact of the United States–China trade tensions, as well as to build a more resilient supply chain network, will continue to benefit the ASEAN countries in 2021 and beyond. 

Home-country measures such as Japan’s programme to strengthen overseas supply chains will help the region host more factories and business services, UNCTAD quoted a JETRO study.

Many data centre and cloud MNEs are increasing investment or building more facilities, which are expected to be completed in 2021–2022. Industrial production activities in the region are also gaining momentum, which will encourage further capital expenditure and investment to increase capacity. To mitigate the impact of the pandemic, countries in the region are accelerating the development of major physical infrastructure (e.g. transportation, telecommunication, power and SEZs). Globally, the WIR Report said that FDI flows are expected to bottom out and recover some lost ground this year, according to the 2021 edition of UNCTAD’s World Investment Report.