The missing FDI

Data released yesterday by the National Statistical Coordination Board (NSCB) shows that the Gross Domestic Product (GDP) which summed the final output of the country grew by 6.8 percent in the final quarter of last year. This paves the way for the country to post a 6.6 percent GDP growth for all of 2012. The Philippine GDP grew by 6.5 percent in the first three quarters.

Growth came mainly from the robust services sector led by Trade and Real Estate, Renting & Business Activities and the sturdy performances of Manufacturing and Construction on the production side of the economy and the sustained high level Household Final Consumption Expenditure (HFCE) together with elevated Government Final Consumption Expenditures, recovery in Capital Formation and remarkable performance of the external sector on the demand side.

On an annual basis, Gross National Income (GNI) grew by 5.8 percent in 2012, up from 3.2 percent the previous year with Net Primary Income (NPI) growing by 3.3 percent in 2012 compared to only 1.0 percent in 2011. The NPI is the difference of the total compensation and property incomes of the Filipinos remitted from abroad less the total compensation and property income of the foreigners sent out from the country.

The NSCB says that with the robust economic growth in 2012, per capita GDP accelerated by 4.8 percent from 2.2 percent in 2011. Likewise, per capita GNI grew in 2012 by 4.0 percent from 1.5 percent in 2011. Per capita Household Final Consumption Expenditure (HFCE), on the other hand, slightly decelerated to 4.4 percent from 4.5 percent.

On the supply side, Agriculture, Hunting, Forestry and Fishing grew by 2.7 percent in 2012, the same rate the sector achieved in 2011.

The Industry sector did better in 2012 with annual growth of 6.5 percent compared to 2.3 percent in 2011. Within the industry sector, faster growth was seen in construction which reversed its negative 7.3 percent growth in 2011 to 14.4 percent positive growth in 2012. Manufacturing growth also went up from 4.7 percent in 2011 to 5.4 percent in 2012. The utilities group consisting of Electricity, Gas and Water Supply also posted an increase in its growth rate from 0.6 percent in 2011 to 5.1 percent in 2012. The embattled mining industry, however, suffered a 3.7 cut in production in 2012 compared to a 7.0 percent growth in 2011.

Growth in the Services sector was more robust, accelerating from 5.1 percent in 2011 to 7.4 percent in 2012. Leading the pack was the Transport, Storage and Communication group which grew by 9.1 percent, followed by Real Estate, Renting and Business Activities, 7.9 percent, and Financial Intermediation, 7.8 percent. Trade and Repair of Motor Vehicles, Motorcycles, Personal and Household Goods also grew by 7.5 percent but Public Administration & Defense; Compulsory Social Security grew only by 3.3 percent. All other services grew by 7.2 percent.

Growth on the demand side was led by the Government Final Consumption Expenditures which greatly improved from 1.0 percent in 2011 to 11.8 percent in 2012. Household Final Consumption Expenditures grew by 6.1 percent in 2011, lower that the 6.3 percent growth in 2011. Exports which went down by 4.2 percent in 2011 went up by 8.7 percent in 2012 while imports accelerated its growth from 0.2 percent in 2011 to 4.2 percent in 2012. Capital formation or investment went up by 8.1 percent in 2011. This became negative 4.4 percent in 2012.

What was wrong with investment in 2012?

Nothing much really if we look more closely into the details of the NSCB report. Investment as computed by the NSCB consists of Fixed Capital Investment (comprising of Construction, Durable Equipment, Breeding Stocks & Orchard Development and Intellectual Property Rights) and Changes in Inventory. Investment in Fixed Capital went up by 8.7 percent from P1.184T in 2011 to P1.287T in 2012 but changes in Inventory went down from P256.7B in 2011 to negative P23.5B. This pushes down total investment by 4.4 percent from P1.28T in 2011 to P1.223T in 2012.

A decline in inventory means that business is drawing from its pile of inventory to meet demand in addition to what it produced during the current year. An increase in inventory means that part of the current year’s output remained unsold. An unsold output adds up to the inventory. An increase in inventory is considered an investment while a decrease in inventory is considered a disinvestment. If the 2011 increase in inventory were maintained in 2012, would GDP growth would have been much higher? Similarly, however, had not the inventory piled up in 2011, that year’s GDP would have been much lower also.

So much for Inventory Accounting.

This year, the government aims to grow the GDP by 6 to 7 percent. This is attainable but only if the high level of government expenditures is sustained to stimulate the economy, export expanded to ride on the projected improvement in the global economy, and fixed capital formation accelerated to increase the productive capacity of the nation.

The main bottleneck is investment, particularly foreign investments (FDI). Data from UNCTAD shows that from 2007 to 2011, total FDIs in Southeast Asia amounted to US$392.6 B. Of the total, only 2.3 percent or US$8.98 B reached the Philippines. The biggest went to Singapore, US$195.8 B, followed by Indonesia, US$53.8 B, Thailand, US$44.0 B, Vietnam, US$39.3 B, Malaysia, US$38.3 B and the rest divided in small amounts by Cambodia, Laos Myanmar, Brunei and Timor-Leste.

The FDI is missing as far as the Philippines is concerned.