Singapore
THE big repatriation of foreign earnings by US multinational corporations appears to have no negative impact on Asian economies - especially Singapore and the rest of South-east Asia.
MNCs continued to pump more money into factories and offices in Singapore last year, even as corporate income tax reforms introduced in the US at end-2017 led US MNCs to move a big chunk of their accumulated earnings overseas back home, triggering huge cutbacks on global direct investments.
Foreign direct investments (FDI) flowing into Singapore jumped from US$62 billion in 2017 to an estimated US$77 billion in 2018, according to the latest FDI figures released by the United Nations Conference on Trade and Development (UNCTAD).
FDI into Singapore led the inflow in the rest of South-east Asia - the main engine of global direct investment growth last year.
"Much of the region's FDI growth in 2018 was driven by a rise in investment in Singapore, due to a 94 per cent increase in cross-border merger and acquisition activities," says the part of the United Nations secretariat that deals with trade, investment and development issues in its latest Investment Trend Monitors report.
FDI into South-east Asia rose 11 per cent from the previous year to a new high of US$145 billion in 2018, the third straight year of increase. Economies in the region, like Indonesia and Thailand, also continued to attract sizeable FDI.
"Investment in Indonesia (US$21 billion) - the largest economy in the region - stayed close to the record level in 2017 while flows to Thailand rose by more than 60 per cent to US$11 billion," UNCTAD says.
South-east Asia also accounted for much of the global growth in greenfield investment activity, which doubled to US$140 billon in 2018.
Global FDI slipped for a third consecutive year, down from a revised US$1.47 trillion in 2017 to an estimated US$1.2 trillion. The decline was concentrated in developed economies where FDI inflows fell 40 per cent to about US$451 billion, the lowest level since 2004.
UNCTAD says the sharp drop was due mainly to large repatriations of accumulated foreign earnings by US MNCs following the US corporate income tax reforms. "This caused an unprecedented 73 per cent decline in flows to Europe to only US$100 billion - a value last seen in the 1990s."
Along with the 13 per cent fall in FDI inflows in North America, the drop in FDI flows to Europe was the biggest contributor to the global decline in 2018. UNCTAD indicates that the fall in global FDI was in contrast with trends in cross-border M&As and announced greenfield investment, which jumped 19 and 29 per cent respectively.
FDI into developing economies remained resilient, rising 3 per cent to US$694 billion and expanding their share in global FDI to 58 per cent. Inflows increased 5 per cent in developing Asia and 6 per cent in Africa. They dipped 4 per cent in Latin American and the Caribbean.
"East and South-east Asia was the largest host region, accounting for one-third of global FDI in 2018 and almost all of the growth in FDI to developing economies," UNCTAD says.
Despite a dip in FDI inflows from US$277 billion in 2017 to US$226 billion, the US remained the biggest recipient of FDI. But half of the top 10 host economies in 2018 continued to be developing economies.
China (US$142 billion) was the second biggest recipient, followed by the UK (US$122 billion) and Hong Kong (US$112 billion). Singapore was the fifth largest.
UNCTAD sees a rebound in global FDI this year, but says the underlying trend is still weak. "On the positive side, greenfield project announcements - an indicator of future trends - increased by 29 per cent, albeit from relatively low levels in 2017," it says. "Also, as repatriations abated in the third quarter of 2018, developed country inflows will revert to normal levels."
Yet increased risks are surfacing from recent downward revisions in growth forecasts, policy factors including trade tensions and uncertainty about the global policy environment for investment - and the possibility of structurally lower reinvested earnings by US MNCs, according to UNCTAD.
This article was written by Peck Chuang from The Singapore Business Times and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.
