No Free Lunch

Tracking investments

If responses to last week’s piece on “Aquinomics” are any reflection of the President’s approval rating, recent polls showing that those who are satisfied with his leadership still far outnumber those who are dissatisfied are confirmed by our readers. But there will always be a few who, because of innate pessimism or blind affinity to the previous leadership, still chose to focus on the negatives, and on that basis end up condemning the present state of events.

There were essentially two negative points that I mentioned last week: the decline in government construction spending (by 37.3 percent), and the decline in foreign direct investments (FDI, by 17 percent). I had made the observation that in spite of these, aggregate investment was still recorded to have jumped 37 percent. One need not be a math wizard to infer from this that the remaining component—domestic investments from the private sector—must have grown by far more than that, to have led to such a high growth rate when all three are combined. And because I had offered possible explanations for the first negative point, it was the drop in foreign direct investments that the doubters took me to task for. Hence I felt it useful to look more closely at what happened to investment spending in the past year under “Aquinomics.”


At the outset, it must be pointed out that the drop in foreign direct investments cannot be taken as any indictment of the current government. Two facts are relevant here: one, Japan was the top source of foreign direct investments last year; and two, the three-way disaster that hit Japan in the first quarter must have dramatically reduced FDI flows therefrom. Having accounted for 28.7 percent of net FDI inflows in the country last year, Japan could very well have accounted for the bulk if not all of the 17 percent drop in FDI recorded by the Bangko Sentral ng Pilipinas (BSP). But aside from Japan’s woes, the rich economies, especially the United States (the next biggest source of our FDI), have not quite bounced back from where they were before the recent global recession hit them. In short, the drop in FDI over the past year is not President Aquino’s black eye. If it were, we would not have received the unprecedented series of recent credit rating upgrades from Fitch Ratings, Standard & Poor’s, and Moody’s Investors Service, concrete manifestation of heightened confidence in the management of the economy under the new leadership.

But a reader was not satisfied. He wrote: “If you can say with certainty that neighboring countries also experienced a similar decline in FDI, and that the decrease in our FDI was not primary caused by discouraging words or acts of this administration, then I shall have no conflict with you.” Well, I can. I was moved to Google my way to the latest Thai FDI data from the Bank of Thailand (their counterpart to our BSP), and found that—guess what—Thailand’s cumulative net FDI inflows in the first quarter of this year fell a steep 95 percent (against our 17 percent drop), i.e., from $1.536 billion to only $69.5 million! If Thailand, long the darling of foreign investors who come to our neighborhood (also dominated by the Japanese, by the way), is seeing such drastic decline, I am willing to bet that our other Asean neighbors have suffered a similar fate. And so I decided to stop Googling for now.


I used to joke, every time our foreign investment trends moved the other way from those of private domestic investments, that “either the foreigners know something our own investor’s don’t—or it’s the other way around.” While I always felt that there is an element of truth to this half-joking observation, my little research tells me this is not what is happening this time. This suggests to me that the moment investment appetite in Japan, the US and other sources of our FDI returns to normal, we will see these ratings upgrades translate into actual inflows of FDI—lots of them. And if we can sustain the momentum of private domestic investment we are seeing right now, and then, with improved government finances, also reverse the decline in public sector investments, I am excited to imagine what our economy can achieve.

What have the private domestic investors been investing in? Indicative data are available on this from the same National Income Accounts that gave the GDP growth figures. The data reveal that the 16.7 percent rise in durable equipment investments went to things like pulp and paper machineries, farm machineries, textile machineries, metal working machineries, air conditioners and refrigeration equipment, mining and construction machineries, pumps and compressors, railway transport equipment, road vehicles, and other industrial equipment—all of which rose by double- up to triple-digit growth rates. In other words, real investments were growing almost all across the board. New factories are being built, or existing factories are being expanded. Even farms are seeing a surge in new investments at a rate not seen for many years. Some may not trust these aggregate data from government statistical bodies, but one doesn’t even need to rely on them entirely. We only need to note how publicly listed companies are announcing, one after another, substantial capital expansion programs within the year and in the years ahead.

To me, there’s no question that there is overwhelming confidence in “Aquinomics” at this time. This makes the challenge all the more daunting for President Aquino: he needs to get his act together and shun the many missteps he has made, lest he himself dissipate this confidence surge before we begin to see Filipinos’ lives get better irreversibly.

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E-mail: [email protected]

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TAGS: Aquinomics, foreign direct investments (FDI), investments, President Benigno Aquino III
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