Singapore among worst hit by investment cutback after US tax reform

Singapore

ONE year after the 2017 US Tax Cuts and Jobs Act (TCJA) kicked in, Singapore is the biggest hit among US major investment destinations, according to figures released recently by the US Department of Commerce.

With taxes on repatriated US corporate earnings generally eliminated, US multinational corporations (MNCs) withdrew a whopping US$51.4 billion in direct investments from Singapore last year, down about 19 per cent from a cumulative US$270.26 billion in 2017 when the TCJA was introduced.

Globally, the TCJA led to a 1 per cent drop in US direct investments to US$5.6 trillion in 2018, according to a report in the August issue of the Survey of Current Business, a journal of the US Bureau of Economic Analysis which comes under the Department of Commerce.

The axe fell hardest on the Latin America region where US investments fell 8 per cent to US$932.3 billion. In the Asia-Pacific region, US investments slipped 6 per cent to US$886.3 billion last year.

US investments in Europe, the single biggest US investment presence overseas, rose 1 per cent to US$3.6 trillion but they declined 6 per cent in the Netherlands, which is the biggest country destination for US investments.

"The decrease mainly reflected a shift to negative reinvested earnings, which resulted from increased dividends received by US parent companies from their foreign affiliates," says the report on the US direct investment positions for 2018.

Singapore, which overtook the US as the world's most competitive economy in the latest World Economic Forum survey, however remains among the top 10 locations for US direct investments, accounting for 3.7 per cent of the total US investments deployed outside the US.

The US divestments that followed the TCJA still left US MNCs with US$218.83 billion invested in Singapore, still the single biggest chunk of US investments in the Asia-Pacific region, including Japan.

Some 16 per cent of the US cumulative investments in Singapore in 2018 were in factories for manufacturing food, chemicals, electronics and other products; 9 per cent in the wholesale business; 9 per cent in the financial sector, including banks; 8 per cent in "other industries"; and 52.3 per cent in holding companies.

Globally, 47 per cent of US direct investments last year were in holding companies, though the total level for Asia-Pacific is 30 per cent.

Holding companies (US$21 billion) and wholesale trade (US$25 billion) accounted for the bulk (US$46 billion) of the US divestments in Singapore in 2018. Industries saw a US$1 billion jump in investments to US$35.8 billion.

Other big TCJA losers in Asia last year included Australia where US investments fell US$5.9 billion to US$162.9 billion; and Japan where US investments dropped US$3.6 billion to US$125.5 billion.

US investments in China soared by US$9 billion to US$116.5 billion and in Hong Kong they increased US$1.3 billion to US$82.5 billion.

While US direct investments slipped in 2018, foreign investments in the US rose 7.9 per cent to US$4.3 trillion, which the Survey of Current Business says is "consistent with better economic conditions" in the US.

US real gross domestic product growth picked up from 2.2 per cent in 2017 to 2.9 per cent in 2018.

Asian investments in the US increased 3.7 per cent to US$710.6 billion last year, driven mostly by the uptick in Japanese investments which jumped from US$469 billion in 2017 to US$484.4 billion.

But Singapore investments in the US fell from US$22.4 billion to US$19.7 billion.