Foreign direct investment in Asia continues to rise

UNCTAD REPORT Published on October 17, 2007

Inflows to Thailand increase 9% to reach record US$10 billion

Foreign direct investment (FDI) inflows to South, East and Southeast Asia maintained their upward trend last year, rising by 19 per cent to reach a new high of US$200 billion (Bt6.83 trillion), according to the United Nations Conference on Trade and Development (Unctad) annual report on global investment trends.

South and Southeast Asia saw a sustainable increase in FDI flows, while growth in East Asia was slower. However, FDI in East Asia is shifting towards more knowledge-intensive and high value-added activities, Unctad economist Kee Swee Wee said yesterday

China and Hong Kong retained their positions as the largest FDI recipients in the region, followed by Singapore and India, according to the World Investment Report 2007.

Inflows to China fell 4 per cent to $69 billion last year, dropping for the first time in seven years due mainly to declining investments in financial services.

Hong Kong attracted FDI of $43 billion, Singapore $24 billion and India $17 billion, which was equivalent to India's preceding three years of inflows.

Meanwhile, FDI inflows to Thailand rose by 9 per cent in 2006, reaching a record of $10 billion and consolidating the country's position as the second-largest FDI recipient in Southeast Asia.

The acquisition of Shin Corp by Singapore's Temasek Holdings accounted for a large part of the Kingdom's FDI inflows.

FDI in the service sector in the region was considerably increased but FDI related to mergers and acquisitions in manufacturing dropped.

The report predicts that rapid economic growth in this region should continue attracting FDI to their countries in the coming year.

In the first half of this year, the value of cross-border merger and acquisition deals in the region rose nearly 20 per cent on year. FDI outflows from the region are also expected to increase.

The report also showed that rising demand for oil and gas and metals, particularly from Asia, has spurred an FDI boom in mineral exploration and extraction industries.

Those industries account largely for the recent increases in FDI in many mineral-rich developing countries, notably in Africa.

The boom has also triggered a series of cross-border mega-mergers in these industries, resulting in higher market concentration, said Masato Abe, an economic affairs officer with the UN Economic and Social Commission for Asia and the Pacific.

The report shows that the relative importance of transnational corporations (TNCs) varies between different extractive industries. In metal mining, 23 of the top 25 producers in 2005 were privately owned TNCs, whereas only two were majority-owned by the state.

In oil and gas, the majority of the top 50 producers were majority state-owned. Mostly such production was controlled by state-owned companies from developing and transition economies. For example, in 2005, the production of Saudi Arabia was more than twice that of the world's largest privately owned oil and gas producer, ExxonMobil.

Investment in extractive industries makes up the bulk of inward FDI in low-income countries. Due to small domestic markets and weak production capabilities, these countries tend to have few other industries to attract significant FDI.

Therefore, a large share of their national incomes is generated by revenues from mineral exploitation and exports. Unctad argues that the commodities boom should provide





opportunities for development and poverty alleviation in mineral-exporting countries. But considerable efforts to address the economic, environmental, social and political issues relating to mineral extraction are necessary for harnessing the earnings from extractive industries to boost development.

TNCs can influence the outcome. They may contribute capital, technology and management skills, and when domestic capabilities are lacking, such an approach is often the most viable option for exploiting natural resources.

In South, East and Southeast Asia, the value of cross-border mergers and acquisitions in extractive industries rose nearly fivefold to $1.7 billion.

Chalida Ekvitthayavechnukul

The Nation