The Philippines’ Top Source of Foreign Direct Investments in 2023 is…Japan

Japan was the top source of foreign direct investment (FDI) in the Philippines last year. 

According to the Bangko Sentral ng Pilipinas (BSP), net FDI in 2023 reached $8.9 billion about P494 billion), a 6.6-percent dip from the net inflows of $9.5 billion the previous year. Of total FDI, Japan accounted for 51 percent of the gross equity capital inflows, followed by the United States at 13 percent, Singapore at 12 percent, and Germany at eight percent.

The BSP’s FDI report gives a more accurate picture of the economy as it refers to actual investments into the country. It includes investments made by foreigners in a local enterprise wherein they have at least a 10-percent interest or an investment by a foreign subsidiary in a local direct investor. “These FDI can be in the form of equity capital, reinvestment of earnings, and borrowings,” said the BSP.

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A large chunk of the gross equity capital investments last year went to the manufacturing sector (53 percent of total), real estate (13 percent), financial insurance (10 percent), and others (23 percent).

“Notwithstanding the country’s sound macroeconomic fundamentals, concerns over subdued global economic growth and geopolitical risks continued to weigh on investors’ investment plans,” the BSP said.

President Ferdinand Marcos Jr. has directed lawmakers to amend economic provisions of the 1987 Philippine Constitution to encourage more foreigners to invest in the country. On Monday (March 11), the House of Representatives started plenary debates on proposed Charter changes on economic provisions contained in the Resolution of Both Houses 7 (RBH7). A majority of senators, so far, are opposed to amending the Constitution.

Photo by Bangko Sentral ng Pilipinas.

While the full year FDI in 2023 was slightly higher than the $8.6 billion in 2019, prior to the pandemic, it paled in comparison to the $11.98 billion recorded in 2021, a historic-high in the last five years.

In December 2023 alone, the BSP reported that FDI grew almost 30 percent to $826 million from $636 million recorded in December 2022. The significant rise in FDI that month was attributed to the 86.2-percent growth in foreigners’ net investments in debt instruments to $527 million, from $283 million in December 2022.

“Net investments in debt instruments consist mainly of intercompany borrowing/lending between foreign direct investors and their subsidiaries/affiliates in the Philippines,” the BSP explained. “The remaining portion of net investments in debt instruments are investments made by nonresident subsidiaries/associates in their resident direct investors, i.e., reverse investment.”

Reinvestment of earnings improved slightly by 4.1 percent to $91 million in December 2023 from $87 million in the same month in 2022. However, foreigners’ net investments in equity capital (other than reinvestment of earnings) fell by 21.7 percent to $208 million in December 2023 from $266 million in December 2022.

Bulk of the gross placements of equity capital in December 2023 came from Japan at 81 percent of total, followed by Singapore and the United States with each accounting for a five-percent share. The manufacturing sector received the largest share of the gross equity capital at 79 percent, followed by real estate at six percent, wholesale and retail trade at four percent, while other sectors received 11 percent of total.