Net inflows of brick-and-mortar foreign direct investments (FDI) into the Philippines only increased to $376 million, marking its lowest hike in six months since the $356 million in December last year.
Net FDI inflows declined by 17.8 percent from $457 million in June last year, according to the preliminary data from the Bangko Sentral ng Pilipinas (BSP). Month-on-month, this was lower than the previous month’s $598 million.
According to the BSP, the slowdown in June was driven by the shift in nonresidents’ net investments in equity capital. It swung from an inflow worth $85 million to an outflow of $57 million.
However, the BSP said this reduction was partly offset by a 36.7 percent increase in reinvestment of earnings, rising from $94 million to $128 million. Additionally, nonresidents’ net investments in debt instruments grew by 9.3 percent, from $279 million to $305 million.
Japan emerged as the top source of equity capital placements during the month, accounting for 62 percent of the total. It was followed by the United States (US) with 16 percent, and South Korea with nine percent.
Manufacturing accounted for the largest share of investments in May at 64 percent—more than half of the total. It was followed by wholesale and retail trade, repair of motor vehicles and motorcycles at 10 percent. Other industries accounted for the remaining 12 percent.
For the first six months of the year, FDI net inflows decreased by 23.8 percent to $3.4 billion from the $4.5 billion posted in the first semester of 2024. This continued the decline in the first five months, but at a slightly modest pace.
Measured against the Philippines’ FDI target of $10 billion this year, the five-month total now stands at 34.1 percent. This year’s target is higher than last year’s $8.93 billion in attracted investments.
FDI refers to cross-border investments where a non-resident investor owns at least 10 percent of the equity in a local enterprise, and may take the form of equity capital, reinvested earnings, or intercompany borrowings.
According to Jonathan Ravelas, senior adviser at Reyes Tacandong & Co. both the June and the year-to-date slowdown could be blamed on the tariffs that US President Donald Trump slapped on Philippine exports. This seriously impacts the country’s manufacturing sector.
However, the country’s “own policy gaps and weak global trade” have a massive contribution to the slowdown.
“The sharp drop in foreign direct investments is a wake-up call,” Ravelas said. “Investors are watching how we respond. If we don’t fix logistics, clarify rules, and build confidence, this could turn into a trend.”
Ravelas, however, said “there’s still time” to reverse this disappointing development.