Strong FDI Inflows Seen For S'pore

Source: The Business Times, September 19, 2007

Average of S$27.1b a year expected from 2007-2011

(SINGAPORE) The United States, Britain and China are tipped to be the top draws for foreign direct investment (FDI) in the next five years. But smaller places like Singapore and Hong Kong will punch much above their weight, according to a global survey of 602 executives.

As a share of gross domestic product (GDP), Singapore and Hong Kong can expect the biggest FDI inflows until 2011, says the survey report by the Economist Intelligence Unit (EIU) and the Columbia Program on International Investment.

'Singapore will remain an attractive destination for foreign investors during 2007-2011, with its business environment remaining one of the most attractive in the world,' says the report, titled World Investment Prospects To 2011.

'FDI inflows will be enhanced by the increasing number of bilateral free trade agreements that Singapore is negotiating, and the island state's pivotal position within South-east Asia,' the report says.

Singapore's business environment - political stability, market opportunities, taxes, workforce and infrastructure - was ranked first in 2002-2006 among 82 locations. While it has slipped to third this year, behind Denmark and Finland, Singapore's business environment is likely to stay in the top three, even though costs here are rising, according to the report.

Singapore, which attracted US$25.7 billion of FDI last year, is projected to see inflows averaging S$27.1 billion yearly in 2007-2011. This would make it the 15th largest recipient of FDI among the 82 locations covered in the EIU-Columbia survey.

The US, where FDI is tipped to surge from US$183.6 billion in 2006 to an annual average of US$250 billion in 2007-2011, is expected to remain the top destination.

Britain with US$112.9 billion is likely to rank second, followed by China with US$86.8 billion. Yet measured against GDP, Singapore has more than its fair share of FDI.

FDI averaged about 10 per cent of Singapore's GDP yearly in the 1980s and 1990s, says the report. It peaked around 20 per cent in 1999 and has hovered around 15 per cent since then.

The report projects FDI to stay at this level of GDP in Singapore in the next five years. FDI is expected to remain at around 1.6 per cent of GDP in the US, 4 per cent of GDP in the UK and 2 per cent in China.

Hong Kong is a bigger draw than Singapore for FDI. It drew US$42.9 billion of FDI in 2006 and will attract a yearly average of US$48 billion in 2007-2011. FDI is expected to linger around 20 per cent of Hong Kong's GDP.

While China is likely to remain the top destination for FDI among emerging markets, the report reckons India, the other rising economic giant, is going to disappoint because of 'persistent business environment problems'.

Overall, the report is upbeat about the medium-term prospects for FDI, thanks to improved business environments, technological change and sharper global competition. But it says downside risks loom large, ranging from global financial turbulence to political uncertainty.