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Singapore climbs to 9th spot on global FDI rankings

Foreign investors said to be keen to leverage Republic with upcoming AEC

[SINGAPORE] With the birth of the Asean Economic Community just around the corner, foreign investors seem to be turning their attention back to Singapore.

After it was nearly knocked out of the top 10 in an influential global comparison that predicts where foreign direct investments are headed, Singapore is back on its feet at 9th position this year.

Its climb-back in the annual Foreign Direct Investment (FDI) Confidence Index rankings, based on polls of top business executives by global consulting firm AT Kearney, came barely a year after total investments flowing into the Asean states exceeded those going into China.

According to Bank of America Merrill Lynch's estimate, total foreign investment in the five biggest Asean economies - including Singapore - was US$128.4 billion in 2013, up 7 per cent from 2012. For China, in the same year, it was $117.6 billion, down 3 per cent.

And "more of the same" trend is expected in 2014, says John Kurtz, AT Kearney's Asia-Pacific leader.

Singapore, which accounted for a big chunk of the Asean investments, slipped from 7th in 2012 to 10th in 2013 in the FDI Confidence Index rankings. In bouncing back to 9th position in 2014, AT Kearney pointed to Singapore's "famously predictable regulations, a relatively low corporate tax rate and an ample supply of qualified workers".

It also noted that Singapore is a favourite regional headquarters and R&D centre for many multinationals - a role that's likely to expand further when the Asean Economic Community is formed next year.

Malaysia, another Asean-5 country, made an even bigger recovery to jump from 25th to 15th in the rankings. It was in the 10th position in 2012.

AT Kearney attributed Malaysia's better showing to "strong inbound regional FDI flows and good performance in financial services, heavy industry and primary industry".

Only three Asean countries made it to the 2014 FDI Confidence Index rankings. The third, Indonesia, barely made it.

After seeing FDI hit a new high of US$19.9 billion in 2012, Indonesia drops one spot to 25th in the latest rankings. This is because its "regulatory environment jeopardises the country's) investment climate".

"A hotly contested ban on unprocessed mineral exports went into effect in January 2014, but the full details of last-minute compromise and carve-outs continue to cause confusion in the country's mining sector, a major source of revenue," AT Kearney said.

While business leaders are more bullish about the global outlook - and large companies are sitting on a huge pile of cash - Singapore and its fellow Asean members can't assume that foreign investments will rush in simply because they will have a bigger market. Asean not only has other emerging-market competitors to reckon with; it also have the developed ones to deal with.

The latter, including economies from fiscally-challenged Europe, still occupy over half of the top 10 rankings in the Index. The United States, which retains the top spot, is in the strongest position since the rankings started in 1998.

"A full 49 per cent of respondents - compared to 39 per cent in 2013 and 23 per cent in 2007 - indicated that their outlook for the US is significantly more positive now than it was two years ago," AT Kearney said. Only 6 per cent expected the outlook to be more negative.

"The message is crystal clear: the US is back in the minds of global business leaders as the prime destination for their investment," it concluded. "Never in the 16-year history of this index has a country had such a positive net position (43 per cent)."

In comparison, 33 per cent of the respondents saw a more positive outlook for Singapore and 10 per cent a more negative outlook.

AT Kearney noted that the latest rankings show a strong shift to OECD economies. Last year, OECD members represented 13 of the top 25 destination for direct investments; this year the number jumped to 17.

While there are concerns about the fragile state of some emerging economies, AT Kearney said the rankings reveal that a core group of developing markets continues to enjoy widespread confidence among foreign investors. This include China in second placing, Brazil in 5th and India in 7th in the rankings.

Other emerging markets are also among the top 25: United Arab Emirates (11th), Mexico (12th) and South Africa (13th).