Foreign direct investments slump 71% in January

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(File photo) Despite reaching record-highs in 2014, foreign direct investments (FDI) posted a year-on-year drop of 71% in January 2015.

(CNN Philippines) — Foreign direct investments (FDI) fell by 71% in January 2015 compared to the net inflows registered a year ago, data from the Bangko Sentral ng Pilipinas (BSP) show.

Based on the latest central bank data, the country recorded a dismal $263 million net inflow in January, way below from the $905 million generated in the same month last year.

The BSP, however, pointed out that all components recorded net inflows. The bulk of FDI came from nonresidents' investments in debt instruments issued by local affiliates amounting to $167 million.

The organization adds that equity posted net inflows of $25 million — equity capital placements of $53 million made up for withdrawals of $27 million.

The U.S., Germany, Singapore, the Netherlands, and Japan were the main sources of the placements.

The BSP said that these were channeled mainly to wholesale and retail trade, manufacturing, real estate, financial and insurance, and professional, scientific and technical activities. Likewise, the bank noted that reinvestment of earnings reached $70 million.

The plunge follows a record-breaking 2014 for Philippine FDI, which recorded a full year surge of 66% to $6.2 billion, from $3.7 billion in 2013.

The Philippines has historically lagged behind its Southeast Asian neighbors in terms of FDI.

Statistics from the United Nations Conference on Trade and Development show that from 1980 to 2013, the country accumulated the lowest amount of FDI ($362 billion) compared to Singapore ($6.4 trillion), Thailand ($1.5 trillion), Malaysia ($1.3 trillion), Indonesia ($1.1 trillion), and Vietnam ($591 billion).

Philippine law currently sets limits on foreign ownership in several business sectors.

For example, foreign companies can only have up to a 30% stake in advertising, 40% of shares in educational institutions, or 60% equity in investment houses regulated by the Securities and Exchange Commission.

But there have been signs of government reform, especially in the banking sector.

Last year, President Benigno Aquino III signed Republic Act 10641, which allows the full entry of foreign banks into the country. Likewise, they have also been allowed to own up to a 100% stake in local banks.

In its 2014 report on economic and financial developments, the BSP says that foreign banks can be "vehicles for foreign direct investments into the Philippines at a time when [the country has] attained investment-grade rating while also preparing further for regional (ASEAN) integration."