SE Asia seen losing foreign investment pull

SE Asia seen losing foreign investment pull

SINGAPORE (AFP): Southeast Asia's attraction for foreign direct investments will wane due to its debilitating financial crisis, benefiting the Greater China region, a report said Wednesday.

The Political and Economic Risk Consultancy Ltd. (PERC) also said in its report that the source of future foreign investments in the region would shift from Overseas Chinese and Japanese companies to North American and European firms.

PERC warned that the economic crisis gripping Asia was going to reduce the inflow of foreign direct investment to the region significantly in 1999.

More importantly, the pattern of foreign investment would also change, it said.

"Southeast Asia will decline as a destination for direct investment, while proportionately more direct investment is likely to flow to Greater China ..., the report said.

"China is the land of opportunity, while Hong Kong and Taiwan (Singapore as well, if you want to consider it part of Greater China) offer ease of access.

"This is a perfect fit for many businesses and is likely to insure that Greater China attracts an increasing share of the direct investment flowing to Asia from the West in the coming year," PERC said in the report entitled "direct investment climate."

The Hong Kong-based PERC said assuming China was able to keep ahead of its systemic shortcomings, it should be able to continue to attract the lion's share of direct investments flowing to Asia.

"This leaves the smaller countries of Southeast Asia in a very difficult position," it said.

PERC felt Indonesia would be shunned by almost all direct investors because of its highly unstable political situation while Vietnam's business environment was still way too difficult to interest many foreign investors.

Malaysia still welcomes many types of direct investment, but many foreigners had been put off by Prime Minister Mahathir Mohamad's positioning during the regional financial crisis triggered off in mid-1997, it said.

Thailand, PERC said, would have to pass bills on bankruptcy, foreclosure, and land ownership if it was to have any chance of attracting significant levels of new foreign investment.

However, PERC suspected that more foreign investment would flow to Thailand than to other Southeast Asian countries apart from Singapore "but the magnitude of this investment will still be disappointing."

The Philippines could give Thailand a good run for its money "but for the Philippines really to take off it will have to somehow carve out a niche for itself in servicing the Greater China region more than is currently the case," the report said.

PERC also said there seemed to be a false assumption that, stimulated by radical currency depreciations in Asia, Western investors were going to flock to the region to invest in export- oriented production facilities.

"We think winners and losers will be distinguished mainly by their ability to offer domestic market potential and the transparency and "user-friendliness" of their systems.

"Those countries offering the biggest market potential can afford, if they chose, to be more selective in the foreign investors they admit," PERC said, naming China and Japan as most prominent examples.

PERC also carried in its report a survey of expatriates working for foreign-invested enterprises in the region showing Hong Kong and Singapore as the most hospitable sites for foreign investors.