Foreign Direct Investments

ATTY. EARL LOUIE M. MASACAYAN, LL.M., DBA (cand.)

  is characterized by controlling
ownership of a business enterprise
in one country by an entity based in
another country.
Foreign Direct  with the intention of establishing a
Investments lasting interest
(FDI)
 Includes mergers and acquisition,
building new facilities, reinvesting
profits earned from overseas
operations, and intra company loans
  Horizontal - a business expands its domestic
operations to a foreign country. In this case, the
business conducts the same activities but in a
foreign country. For example, McDonald’s
opening restaurants in Japan would be considered
horizontal FDI.
Foreign Direct  Vertical - a business expands into a foreign
Investments country by moving to a different level of the
Types supply chain. In other words, a firm conducts
different activities abroad but these activities are
still related to the main business. Using the same
example, McDonald’s could purchase a large-
scale farm in Canada to produce meat for their
restaurants.
  Economic Development Stimulation
 Easy International Trade
 Employment and Economic Boost
 Development of Human Capital Resources
Advantages of  Tax Incentives
FDI  Resource Transfer
 Reduced Disparity Between Revenues and Costs
 Increased Productivity
 Increment in Income
  Hindrance to Domestic Investment
 Risk from Political Changes
 Negative Influence on Exchange Rates

Disadvantages  Higher Costs

of FDI  Economic Non-viability

 Expropriation
 Negative Impact on the Country’s Investment
 Modern-Day Economic Colonialism
 LIST OF COUNTRIES BY FDI
RANK COUNTRY AMOUNT ABROAD (US$) DATE
1 NETHERLANDS 5,809 Billion 2017 est.
2 USA 5,644 Billion 2017 est.
3 GERMANY 2,074 Billion 2017 est.
4 HONG KONG 1,806 Billion 2017 est.
5 UK 1,634 Billion 2017 est.
6 SWITZERLAND 1,556 Billion 2017 est.
7 JAPAN 1,548 Billion 2017 est.
8 IRELAND 1,490 Billion 2017 est.
9 FRANCE 1,452 Billion 2017 est.
10 CANADA 1,366 Billion 2017 est.
43 PHILIPPINES 47.580 Billion 2017 est.
LIST OF COUNTRIES RECEIVED FDI
RANK COUNTRY AMOUNT ABROAD (US$) DATE
1 NETHERLANDS 4,888 Billion 2017 est.
2 USA 4,084 Billion 2017 est.
3 UK 2,027 Billion 2017 est.
4 HONG KONG 1,901 Billion 2017 est.
5 CHINA 1,514 Billion 2017 est.
6 IRELAND 1,477 Billion 2017 est.
7 GERMANY 1,455 Billion 2017 est.
8 SINGAPORE 1,282 Billion 2017 est.
9 SWITZERLAND 1,230 Billion 2017 est.
10 BELGIUM 1,093 Billion 2017 est.
50 PHILIPPINES 8.7 Billion 2017 est.
 FDI INFLOWS IN THE PHILIPPINES
COUNTRY % INVESTMENTS
CHINA 28.3 Wholesale & Retail, Infrastructure,
Metal industry, real state , electricity
SINGAPORE 11.8 Manufacturing & infrastructure,
information
Technology, digital solutions
JAPAN 11.0 Manufacturing, agriculture, retail, real
estate
Automotive, education
BRITISH VIRGIN 9.0 Real estate & tourism
ISLAND
Malaysia 8.2 Agriculture, manufacturing, technology
&
Innovation, infrastructure
USA 7.2 Electronics, mined fuels, machinery &
trans-port equipment, iron &steel,
textile,tourism
 MAIN INVESTED SECTORS 2018, in %

MANUFACTURING 47.6

ELECTRICITY, GAS, STEAM AND AIR 16.7

CONDITIONING SYPPLY

ADMINISTRATIVE AND SUPPORT SERVICE 11.2

ACTIVITIES

REAL ESTATE 11.2

CONSTRUCTION 4.9

WHOLESALE AND RETAIL TRADE 3.1

 MAIN FOREIGN COMPANIES
CORPORATE NAME INVESTMENTS

LAFARGE - HOLCIM CONSTRUCTION, BLDG SOLUTION,

SEALING & ROOFING PRODUCTS

PHILIPS CARDIAC, ACUTE & HOME

HEALTHCARE, ENERGY EFFICIENT
LIGHTNING SOLUTIONS

SHELL OIL & GAS EXPLORATION,

PRODUCTION, OIL REFINING,
DISTRIBUTION & SALES
 MAIN FOREIGN COMPANIES
CORPORATE NAME INVESTMENTS

INTEL COMPUTER CHIPS,

SEMICONDUCTORS

TEXAS INSTRUMENT MICROCHIPS AND COMPUTER

CHIPS FOR COMPUTERS,
SMARTPHONES & TABLES
ING BANKING & FINANCE

CEMEX CONSTRUCTION MATERIALS,

CEMENT, READY MIX CONCRETE
& AGGREGATES
  Strong Points:
 A skilled young English-speaking workforce
 A large domestic market (pop-103M)
 A gateway to other countries in the ASEAN region
 An economy that has successfully integrated enterprise
outsourcing
Things to  A very advanced legal system

Consider FDI  Considerable natural wealth

in the  Weak Points

 Political instability
Philippines  Poor quality of its infrastructure
 Restrictions on foreign investment in certain sectors
 Legal uncertainty & a lack of transparency of procedures
 High level of corruption in the administration & various state
agencies
 Regional strong disparities : income & security
  Is a corporate organization that owns or
controls production of goods or services
in at least one country other than its
Multinational
home country.
Corporation
(MNC)  Can be considered MNC if it derives
25% or more of its revenue from out-of-
home-country operations
  Very high assets
 Network of branches
 Control
 Continued Growth
Characteristics  Sophisticated Technology
of an MNC
 Right skills
 Forceful Marketing & Advertising
 Good Quality Products
  Efficiency
 Development
 Employment
Advantages of
MNC  Innovation
 Diversification
  Monopolistic Market
 Put MSMEs out of business
 Influence political corruption
Disdvantages of  Cause harm to the environment
MNC  Importation of skilled labor
 Remove raw materials from the local economy
 Is the record of all economic transactions
between the residents of the country and the
rest of the world in a particular period of
time. The

Balance of provides detailed information concerning the

Payment demand and supply of a country’s currency.
(BOP) A country’s BOP data may signal its potential
as a business partner for the rest of the world.
BOP data can be used to evaluate the
performance of the country in international
economic competition.
 Current Account
Components of Capital Account
BOP
Financial Account
  Visible Trade = trade in goods
Ex: The money earned from Philippine exports of goods
(machinery and computers sold to Nepal) is credited (added) to
this amount, while payments for imported goods
(American aircraft sold in the Philippines) are debited.
 The difference = BOT (balance of trade)
 Invisible Trade = trade in services like
 Government Expenditures – expenditures on Philippine
Current embassies, contributions to IMF/ADB
 Interest, profits and dividends – earnings from loans,
Account companies and shares, earn substantial surpluses for the
Philippine economy
 Other Financial services – earnings of solicitors, brokers,
merchants and pensioners
 Transport – earnings on passenger carrier by sea and air
 Tourism – covers the expenditures of travellers abroad
 Private Transfer – individual transfer of money to other
countries liker remittances
  Any and all international capital
transfers
 Examples:
 Loans and borrowings – all types of loans
Capital from both private & public sectors located
Account in foreign countries
 Investments – invested stocks by non-
residents
 Foreign Exchange Reserves – held by BSP
  Measures the changes in foreign
ownership of domestic assets and
domestic ownership of foreign assets
Financial  Examples:
Account  Investments in real estates
 Business ventures
 Foreign direct investments
  An accounting device to cover
errors and omissions

The Balancing  A balancing figure is added to – or

Item subtracted from – the combined
balances of the current and capital
accounts.
 2018 2019
CURRENT ACCT. -5837 -992

CAPITAL ACCT. 44 49

BOP Report: FINANCIAL ACCT. -4328 -4456

Jan-Sep 2019 NET UNCLASSIFIED ITEMS -3672 -2054

(in million OVERALL BOP -5136 5567

US$) *Positive balance in the financial account indicates net outflows

while a negative balance indicates net inflows.
**The overall BOP position, therefore, is equal to the current
account plus the capital account minus the financial account plus
net unclassified items. Details may not add up to total due to
rounding.