MANILA – Capital formation posted double-digit growth as the Philippine economy became more investment-led in 2018, the Department of Finance (DOF) claimed.
In an emailed statement, the DOF said capital formation grew by 13.9 percent in 2018, compared with 9.4 percent in 2017, and the 20-year average of 6.7 percent.
“Capital formation is one of the foremost determinants of future growth, in addition to employment and factor productivity,” the DOF said.
Of the major components of investments, fixed capital – which consists of construction and durable equipment – grew by 15.6 percent in 2018, compared with 9.5 percent in 2017.
In relation to economic growth, capital formation was equivalent to 27.0 percent of the gross domestic product (GDP) in 2018, from 25.1 percent in 2017.
In the same statement, the DOF noted that foreign direct investment increased by 20.4 percent to $10 billion in 2017. As percent of GDP, this is equivalent to 3.7 percent, higher than the 3.1 percent in 2016.
“FDI is the more important indicator because it measures the amount of investment in the form of a controlling ownership in a business in one country by foreign investors which implies more active participation and more commitment by the investor in management,” the DOF said.
BSP data showed, however, that the FDIs fell in the three consecutive months to October with inflows at $491.37 million, marking the lowest since the $344.19 million in July 2017.
The DOF cited the continued growth of investments approved by the Department of Trade Investment (DTI), up 22.6 percent in 2018. The latest figure, however, was slower than the 29.4-percent recorded in 2017.
“The continuing rise implies that investors are attracted by the country’s favorable economic fundamentals,” the DOF said.
“The decline in PEZA investment applications may be due to the risks and uncertainties in the export market brought about by the ongoing tariff war and rising protectionism, and the relative attractiveness of the domestic market,” it added.
Foreign investors have expressed their current wait-and-see stance pending further guidance on proposed legislations such as the second package of the tax reform program.
According to the European Chamber of Commerce of the Philippines (ECCP), a number of its members are now wary that the tax incentives they now enjoy will be taken away once the proposed tax reform measure is enacted.
The TRABAHO bill aims to make tax perks time-bound, transparent, targeted and performance-based for a more competitive fiscal incentives system.
The ECCP said incidents such as the twin blasts in Jolo, Sulu are now scaring investors from doing business in the Philippines.
Twin blasts, minutes apart, hit the Mount Carmel Cathedral in Jolo in Sulu on Sunday. More than 20 individuals were killed and more than 100 were injured.
Security forces placed Jolo under lockdown. (GMA News)
