Foreign investments drastically falling, concealed by Coca Cola sale
WHILE the Bangko Sentral ng Pilipinas claims that foreign direct investments have been rising under the President Marcos, Jr. administration, it actually has drastically fallen this year, but concealed by a dubious $764 million single transaction in February 2024.
Without this particular inflow, and replacing it with the $74-million average (or “normal”) monthly inflows in the last four years, foreign direct investments (FDI), excluding reinvestments*, from January to September would not amount to $1,357 million as the BSP reported, but to only $667 million, a huge 51 percent fall in foreign capital inflow.
This means that FDI into the Philippines has been halved in the second year of the Marcos, Jr. administration. Add to that the reduction in Philippine exports by $2 billion in the same period, and the Philippines faces a foreign exchange crisis in the horizon.
Obviously, Marcos’ 10 visits to capital-rich nations — after each he announced billions of dollars in investment pledges — have been fictions of his mind.
Indeed, the fall in foreign funds inflow has resulted in the depreciation of the peso’s exchange rate from P55 to the US dollar to the current P59, defended hugely by the BSP’s borrowings from the market. Without a major reversal in the fall in direct investments and exports, the peso will soon pass the P60 to the dollar rate.
Covid
If we use that monthly “normal inflow” figure of $74 million to extrapolate the total FDI for the whole of 2024, the figure would be $888 million, 51 percent smaller than the $1,291 million last year. This is also lower than the comparable figures from 2016 to 2021, except for the $303 million FDI in 2017 at the height of the Covid-19 pandemic when business in the entire world practically ground to a halt.
The illusory $764 million FDI in February 2024 was the result of a single transaction: The purchase of the Coca Cola Bottlers of the Philippines (CCBPI) by a sister company Coca-Cola Europacific Partners (CCEP) and Aboitiz Equity Ventures, a company of the Aboitiz conglomerate. The purchase was valued at $1.8 billion, with CCEP buying 60 percent ($1.08 billion) and Aboitiz 40 percent ($720 million).
Sources said it was the Aboitiz share of the Coca-Cola purchase that constituted the bulk if not all of the $764 million inflow in February 2024 that bloated the claimed $1,357 million total foreign investments from January to September 2024.
However, Aboitiz reported late last year to the Securities and Exchange Commission that it had raised P17.5 \billion from the issuance of fixed-rate funds, with P11.45 billion to finance the purchase of its shares in CCBP. This converts to the $720 million 40 percent share of Aboitiz in the purchase.
Why?
So, why did the BSP report this as a foreign direct investment, when it was raised by Aboitiz from local funds? One explanation — an unlikely one — is that Aboitiz may have drawn from it foreign funds deposited abroad, or it could have borrowed from banks abroad. Indeed, when the BSP first reported this particular big-ticket transaction, it was classified as coming from the Netherlands with its industry as financial.
After my query on the matter though, the BSP’s head of economic statistics, Antonio Balneg, said that they revised the report as coming from the UK with its industry as manufacturing, “to reflect the industry of the ultimate investee instead of the industry of the immediate investee.” Indeed, Coca Cola Bottlers is a manufacturing firm.
However, if that amount was the share of Aboitiz in the purchase of CCBPI, it incontrovertibly is not a foreign inflow, but merely local funds.
The other explanation is that the amount remitted to the Philippines was the share of Coca-Cola Europacific Partners’ (CCEP) in the purchase of CCBPI, which was $1.08 billion, or 60 percent.
This is very unlikely though as the Atlanta-based Coca Cola Company (9 percent owned by the famed billionaire Warren Buffet) owns the buying firm CCESP. The sales proceeds would have been an inter-company transaction, with not a single dollar going to the Philippines. It would have been stupid for it to send the $1 billion to a bank here, and with Coca Cola Company sending it immediately to its Atlanta headquarters.
Coca
Coca-Cola Company in its required filing to the US Securities and Exchange Commission did not report that it sold its Philippine bottling subsidiary to Aboitiz and CCEP. Instead it called it a “refranchising of our bottling operations in the Philippines by which it had a net gain of $599 million.”
That net gain would have been classified as foreign investment outflow from the Philippines, which would even further reduce the total FDI this year into the country to $289 million, lower than the $303 million FDI in the pandemic year 2017. This means that at least in terms of attractiveness to foreign capital, Marcos Jr.’s second year is worse than that year of the pandemic.
There were reports last year that Coca Cola had wanted to sell its bottling operations since the 2017 Tax Reform for Acceleration and Inclusion Law (TRAIN) lowered its margins because it imposed a P6 per liter tax on beverages using caloric and noncaloric sweeteners and P12 per liter tax on beverages using high fructose corn syrup.
The finance department in July last year proposed to double the excise tax, which significantly raised the price of Coca Cola products beyond ordinary consumer’s capacity, and therefore reduced the market drastically.
Since this year, the finance department is no longer pushing the imposition of that new tax on sugary beverages. I wonder if Aboitiz’s entry into and purchase of Coca Cola Bottlers had a role in the Marcos administration’s volte face. After all, the Aboitiz purchase at least helped the global business community to think that FDIs have been pouring into the country. Indeed some are smarter than others.
Déjà vu. One revelation that helped topple the regime of Marcos’ father in 1986 was the discovery that the Central Bank was overstating its international reserves, mainly by reporting fictitious foreign investments by the Philippine National Bank’s Hong Kong branch. Caught manipulating its official figures, foreign banks panicked and called in all their short-term loans, resulting in the foreign exchange crisis that turned into an overall economic crisis from 1984-1985 – the real trigger for the 1986 EDSA revolt.
*I do not include reinvested earnings in this presentation of FDIs, since they give the impression of significant foreign investment inflows when, in reality, no fresh capital has entered the economy. Changes in reinvested earnings do not necessarily reflect changes in the attractiveness of the host country for new investments.
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Foreign investments drastically falling, concealed by Coca Cola sale
Source: Breaking News PH
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