Inflows are slipping as regional rivals draw tech projects, putting pressure on Manila
[MANILA] Foreign direct investment (FDI) into the Philippines fell by nearly a quarter in the first seven months of 2026, raising concerns about the country’s ability to attract corporate capital as South-east Asian rivals capture more technology-linked investment.
Net FDI inflows reached nearly US$4.1 billion in the January-to-July period, down 23.9 per cent from almost US$5.4 billion a year earlier, Bangko Sentral ng Pilipinas (BSP) data showed.
The central bank has lowered its full-year projection from US$7 billion to US$6.5 billion.
Ser Percival Pena-Reyes, senior research fellow at the Ateneo Center for Economic Research and Development, said that high global borrowing costs, competition from regional rivals, persistent domestic concerns over power costs, infrastructure bottlenecks and a lack of policy clarity are among the possible reasons for the weakness.
Those pressures come as neighbouring economies draw investment into electronics, semiconductors, data centres and artificial intelligence.
The slowdown also coincides with a weaker growth outlook. In its September Asian Development Outlook, the Asian Development Bank (ADB) cut its Philippine growth forecast for 2026 to 3.3 per cent from 3.8 per cent in July.
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The Philippines was one of four developing South-east Asian economies to receive a downgrade, alongside Brunei, Cambodia and Myanmar.
Divergence from its neighbours
The contrast with regional investment trends is sharp. While estimates from the United Nations Conference on Trade and Development put Asean’s 2025 FDI inflows at US$243.9 billion – up about 10 per cent from US$222.3 billion in 2024 – the capital is not spreading evenly.
In 2025, Singapore attracted US$150.9 billion, while Indonesia received US$21.4 billion and Vietnam US$20.4 billion. Thailand’s inflows rose by about 30 per cent year on year to US$19.1 billion, while Malaysia’s increased by over 50 per cent to US$15.4 billion.
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Philippine inflows, meanwhile, fell 4.3 per cent to US$9 billion, exposing how far Manila sits from the region’s principal investment magnets.
Malaysia offers the clearest evidence of the digital-investment boom. It approved RM95.8 billion (US$23.5 billion) of data-centre and cloud-computing investment in the first half of 2026, close to 44 per cent of all approved investment.
Vietnam showed a different but related dynamic: export-oriented manufacturing and electronics supply chains are drawing capital.
At a briefing on Sep 23, James Villafuerte, ADB’s regional lead economist for South-east Asia, said the “top three economies where forecasts have been upgraded” are Vietnam, Malaysia and Thailand. “Their upgrades are basically related to technology and export performance as well as strong inflows of FDI.”
ADB projected economic growth of 7.8 per cent for Vietnam and 4.9 per cent for Malaysia, against 4.7 per cent for developing South-east Asia overall.
Villafuerte said that AI and digital technology were a “big upside” for Asean, since the region supplies about a quarter of global semiconductor materials and accounts for about a third of data-centre capacity in the Asia-Pacific.
“Aside from exports, what we are also seeing is that AI and digital technology-related FDI inflow has actually increased. FDI growth in the region is (in the) double (digits),” he said.
He added that much of it in the digital and information and communications technology sectors.
The Philippines’ predicament
For Manila, the challenge is to secure a larger role in an investment cycle that is already concentrating capital and capacity in established technology and electronics hubs.
The Philippines is pursuing opportunities through the Luzon Economic Corridor and the US-led Pax Silica initiative, aimed at securing semiconductor, AI and critical mineral supply chains.
Despite net FDI falling, there have been signs of investor interest. The Philippine Economic Zone Authority has approved 297.1 billion pesos (US$4.6 billion) of ecozone investments between January and September, nearly doubling year on year.
Those approvals are not equivalent to realised FDI, and are yet to translate into sustained capital inflows. BSP figures, however, point to weaker investment momentum, rather than a wholesale foreign capital retreat.
July net inflows fell 44.1 per cent year on year to US$689 million, but increased 54.1 per cent from June to reach the highest monthly level since January.
Monthly FDI flows can be volatile, Pena-Reyes warned. The cumulative decline suggests weakness extending beyond a single month.
Inter-company loans and reinvested earnings are often the most telling signals of how multinational parent companies view their local operations.
BSP data showed that foreign parent firms became more cautious about extending funding to and retaining profits in their Philippine units.
Net investment in debt instruments, consisting mainly of financing between foreign direct investors and their Philippine affiliates, fell 30.6 per cent to US$2.4 billion in January to July. It remained the largest component of FDI and accounted for most of the decline in total inflows.
Reinvested earnings fell 14.2 per cent to US$968 million over the same period, while net equity investment, excluding reinvested earnings, declined 6.9 per cent to US$675 million.
Pena-Reyes cautioned against attributing the decline to a single cause.
Global financing conditions and regional competition sit alongside longstanding domestic concerns, making both the cost of doing business and the predictability of investment conditions important considerations.
He called for more consistent policies, faster project approvals, fewer bureaucratic obstacles and improvements in infrastructure and energy reliability to ensure investment commitments turn into “actual sustained capital inflows”.
Villafuerte said that regional trade integration could help the Philippines diversify towards emerging opportunities and attract more investments.
He pointed to the Philippine government’s trade agenda as a potential offset to the country’s reliance on the US market, where its electronics exports are heavily concentrated and vulnerable to trade diversion.
As at September, he said, the trade ministry had concluded or was actively negotiating free trade agreements with the EU, South Korea, Canada, India, Israel and Chile.