FDI inflows to South, East, and South-East Asia achieve new high - Viet Nam follows the trend but investment in infrastructure and workforce still needed
Foreign direct investment (FDI) inflows to South, East, and South-East Asia, including Oceania, reached a new high of US$165 billion in 2005, a 19% increase over 2004, according to UNCTAD's World Investment Report 2006, FDI from Developing and Transition Economies: Implications for Development. With continued high economic growth, the region has become more attractive to market-seeking FDI. Furthermore, it has become a hot spot for transnational corporation (TNC) investments in financial services and high technology industries.
The report launched today by the United Nations in Viet Nam shows that total inward FDI has continued to increase and contribute an important development opportunity for many emerging economies.
““FDI inflows to Viet Nam have followed this trend, with receipts exceeding US$2 billion in 2005. This most recent increase reflects investors’ confidence in Viet Nam’s economic future,” said UN Development Programme Deputy Resident Representative, Subinay Nandy. “But the report also suggests that there is room for improvement in Viet Nam’s investment environment. Better infrastructure and telecommunications facilities, more highly skilled workers and stronger national technology policies would make Viet Nam more attractive, and would enable Vietnamese firms to make better use of FDI.”
China was again the largest recipient of FDI in the region (Figures 1 and 2a) as well as among all developing countries worldwide. Its inflows increased to US$72 billion. Nonfinancial FDI alone was US$60 billion, registering a slight decline, while flows into financial services rose to US$12 billion, driven by large investments in Chinese banks. Hong Kong (China) and Singapore retained their positions as the second- and third-largest recipients in the region, attracting FDI of US$36 billion and US$20 billion, respectively. A number of Association of South East Asian Nations (ASEAN) member states also experienced their highest growth in FDI inflows. For example, inflows to Indonesia surged by 177% to US$5.3 billion. Large, cross-border mergers and acquisitions (M&As), such as the acquisition of Sampoerna by Philip Morris, accounted for the jump.
The region is increasingly attracting "high-quality" FDI aimed at high value-added and knowledge-intensive activities. Intel is expanding its assembly and testing facilities in China and Malaysia and plans to invest US$300 million in Viet Nam to build the country's first semiconductor factory. In China, FDI in the manufacturing sector has been shifting towards more advanced technologies. Airbus plans to build an A320 assembly line in China.
Following a surge in 2004, FDI outflows from the region declined by 11% in 2005. However, they still remained relatively high (US$68 billion). According to World Investment Report 2006, which pays particular attention to the emergence of developing countries and transition economies as significant sources of FDI, the recent rise of TNCs from developing countries and transition economies has been driven mainly by firms based in developing Asia. East and South-East Asia are home to almost four-fifths of the top 100 TNCs from developing countries (see Table 1 for the Top 10 Asian TNCs).
Asia's newly industrializing economies, namely Hong Kong (China), the Republic of Korea, Singapore, and Taiwan Province of China, remained the main sources of FDI from developing countries, despite a significant decline in their total outflows in 2005 (Figure 2b). Meanwhile, the rise in China's foreign currency reserves stimulated a rapid growth in outward FDI from the country, helping to reshape the pattern of flows from Asia.
Outward FDI from South, East, and South-East Asia still focuses on services, but a growing share of capital outflows from the region has been targeting manufacturing and natural resources. In terms of cross-border M&As, the combined share of the manufacturing and primary sectors rose significantly, from 29% in 2004 to 54% in 2005. Asian energy companies, in particular those from China and India, have intensified their efforts to acquire oil assets. China National Petroleum Corp. (CNPC) acquired PetroKazakhstan for US$4.2 billion in August 2005 --by far the largest deal in the oil and gas industry by companies from developing countries and transition economies.
Rapid economic growth in South, East, and South-East Asia shows few signs of slowing, and a further expansion of FDI into and from the region is expected. FDI inflows to India have been gaining momentum in recent years, and the country's prospects for attracting FDI are promising. FDI is also likely to continue its upward trend in South-East Asia, especially in relatively low-cost countries. Outflows from Singapore are likely to rebound. With a strengthening of Government support and some large M&A deals expected, the surge in outward FDI from China is likely to continue.
The World Investment Report and its database are available online at www.unctad.org/wir and www.unctad.org/fdistatistics
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