Asia to remain attractive to FDI: EIU report

Asia to remain attractive to FDI: EIU report

HONG KONG (AFP): Asia will see soaring foreign direct investment (FDI) flows over the next five years, with China maintaining its position as the region's star attraction, a report said Thursday.

The Economist Intelligence Unit (EIU) said in a report released here that FDI inflows into the Asia-Pacific region had risen markedly each year since 1992, with a record total of US$126.80 billion invested in the region in 2000 fueled by a wave of merger and acquisition (M and A) activity.

A slowdown in mergers and acquisitions would result in a slowing of FDI inflows into Asia to $123.10 billion in 2001 from $126.80 billion in 2000, the report said, but would rise steadily thereafter to $170.7 billion in 2005, the report said.

EIU editorial director Daniel Franklin said merger and acquisition activity would hit a "road bump" this year.

"We expect M and A's sharply to contract and that will drive this contraction in FDI globally.

"We expect M and A activity to pick up in following years and that's why FDI globally will also be recovering."

Although developed countries attracted the highest FDI, developing countries would "be holding up rather better in the coming years and we expect their share of global FDI to recover to nearly 30 percent" from just over 20 percent over the next five years.

The report predicted world FDI inflows to slow from $1.14 trillion in 2000 to $771 billion in 2001, rising progressively thereafter to $986 billion in 2005.

Total world FDI flows would recover for the five year period 2001-2005 to $4.4.trillion from $3.6 trillion in the previous five year period.

Ten countries were expected to account for as much as 70 percent of the world FDI total between 2001-2005.

The United States was expected to retain its top position as the primary FDI recipient with an annual average of $236.17 billion, or 26.6 percent of world share during the five year period.

China was fourth, behind Britain and Germany. However, the mainland topped the list of emerging market recipients, ahead of Brazil in 10th spot.

Over the same five year period, mainland China would receive $57.60 billion per year, or 6.49 percent of world share.

Hong Kong was ranked ninth globally with an annual average FDI of $20.50 billion and "when you consider the size of Hong Kong, that's a remarkably high position," said Franklin.

The report predicted Singapore would receive $12.21 billion, good enough for 14th, South Korea was 19th with $8.46 billion just ahead of Japan with $7.36 billion.

EIU cited Japan's "complicated regulatory environment, high costs and residual hostility to foreign ownership of important Japanese companies" as reasons why it remained a difficult country in which to invest.

India ranked 24 in the list of 60 countries.

Although the report said India had vast potential to attract FDI, its poor infrastructure, slow privatization and excessive bureaucracy would continue to prove major deterrents to a rapid increase in inward direct investment.