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‘Worst is over’ but FDI flows seen to remain low

A test tube labeled with the coronavirus is seen in front of US dollar, yuan and pound banknotes, in this illustration taken on March 1, 2020. — REUTERS/DADO RUVIC

By Luz Wendy T. Noble, Reporter

THE DECLINE in foreign direct investments (FDI) may have already bottomed out in 2020, but the Philippines’ ability to attract investments will depend on key reforms and the government’s handling of the coronavirus pandemic, the International Institute of Finance (IIF) said.

“We believe the worst is over for the Philippines’ FDI flows, but we still expect it will remain at a low level in 2021, around $7 billion,” IIF Associate Economist Yuanliu Hu said in an e-mail to BusinessWorld.

FDI net inflows shrank by a quarter to $423 million in October from $561 million a year earlier, data from the Bangko Sentral ng Pilipinas (BSP) showed. For the 10-month period, FDI flows slipped by a tenth to $5.255 billion.

The central bank expected FDI inflows to have reached $6 billion as of end-2020 and set a $7.5-billion target for 2021. Net FDI stood at $7.647 billion in 2019.

Inflows of FDI will likely remain tempered due to cautious investor sentiment, as the pandemic continues with a new coronavirus disease 2019 (COVID-19) variant bringing “a new wave of crisis to the world,” said Mr. Hu.

Global COVID-19 infections have continued to rise with over 95 million cases and two million deaths. In the Philippines, COVID-19 cases stood at 513,619 as of Sunday, the second highest in Southeast Asia.

Aside from the pandemic, Mr. Hu said risks from the US-China trade war are unlikely to fully dissipate even as Joseph R. Biden, Jr. assumes the presidency. Uncertainties caused by the tension between the world’s biggest economies have weighed on investor sentiment even before COVID-19.

Mr. Hu said the Philippines should focus on curbing the spread of COVID-19.

“The most important tasks of the government are to control the pandemic and speed up the vaccination process. A safe environment can attract more FDIs,” he said.

The government is seeking to start the vaccination program by next month.

A report by ANZ Research last week showed the Philippines was  among “economies slow in confirming vaccine supplies,” alongside Taiwan and Vietnam where infections are much lower. Meanwhile, it grouped Singapore and South Korea as among “economies achieving potential herd immunity in 2021” due to their speedy vaccination rollouts.

Mr. Hu said government reforms are also key to attracting more foreign investments.

“It is necessary to accelerate the implementation of the corporate tax cut plan and other reforms to create a friendly business environment,” he said.

Once enacted into law, the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) will immediately bring down corporate income tax to 25% from 30% and will streamline fiscal incentives for firms. The Bicameral Conference Committee is set to meet to reconcile the conflicting provisions of the House and Senate versions.

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