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ASIA FOCUS
Only India and Vietnam appear to be attracting substantial growth in foreign investment this year, reports Umesh Pandey
The easing of the Chinese economy, which is pushing down demand for commodities and raising questions about global growth overall, has made the outlook for foreign direct investment across Asia look less promising, except in a few selected countries.
With the United States and Europe in no better shape than they were a few months ago, Asia had been touted as the engine that could sustain growth and stave off a recession. But the region has seen the drying up of FDI in a big way except in two countries, Vietnam and India.
Although political uncertainties in Thailand and Malaysia are taking a toll on fund flows, countries such as Vietnam and India continue to attract investment despite soaring inflation figures.
Vietnam, despite enduring annual inflation above 20%, saw a record US$47 billion flow into its economy during the first eight months of the year, a 400% surge over the same period last year, according to data released by the Ministry of Planning and Investment (MPI).
The top source of FDI in Vietnam this year has been Taiwan, and not necessarily because Taiwanese are hugely bullish on the country. Rather, they see a weakening economy at home, souring consumer confidence and falling real-estate prices, prompted them to look elsewhere to make better returns. So far this year the Taiwanese have invested $8.6 billion in 112 projects, followed by the Japanese with $7.2 billion in 78 projects.
Other FDI sources include Malaysia, Brunei, Canada, Singapore, Thailand, businesses registered in the tax-haven British Virgin Islands, and the US.
As a group, the other nine Asean countries combined were the largest investors with a total of $17.5 billion or 40% of FDI committed to Vietnam this year.
Most Asean projects have been on a large scale and focused on property development. Brunei alone is investing $4.41 billion in 14 projects, with a single project by the New City Properties Development Co accounting for $4.3 billion for a complex of luxury hotels, resorts and amusement facilities in Phu Yen province.
Malaysia has 28 projects with a total investment of $5.07 billion. The biggest, a university urban area in Ho Chi Minh City by Berjaya Leisure Corp, is worth $3.5 billion. Singapore accounts for $4.02 billion in 48 projects, including a $1.2- billion telecom joint venture in the southern hub.
Thai firms account for $4 billion in 16 projects, including the $3.7-billion Long Son oil refinery in Ba Ria-Vung Tau. Other Asean investors include the Philippines (37 projects, $277 million), Indonesia (21 projects, $178 million), Laos (9 projects, $48 million), and Cambodia (6 projects, $6 million.
Asean to date has a total of 1,086 projects involving total investments of $33.85 billion, or 25% of the all FDI committed since Hanoi opened up its economy a decade ago.
Most Asean firms are involved in real estate, manufacturing, tourism, trading, food and drinks processing.
Asean investing in Vietnam is not a one-way street, though, as some major Vietnamese companies are also moving into Asean, with $1.66 billion in 190 projects to date.
MPI data indicate that 123 projects worth $1.28 billion are in Laos, seven worth $163 million in Malaysia, 34 projects worth $153 million in Cambodia, 19 projects worth $29 million in Singapore, three projects worth $21 million in Indonesia, and four projects worth $10 million in Thailand.
Vietnamese investment in Asean countries is mainly in hydropower, trading, transport, health care, rubber farming, timber, and services.
The MPI said that revenue from operational foreign-invested firms this year was $30.4 billion, of which $1.4 billion went into state coffers 33% more than last year. During the first eight months of the year, foreign firms created 18,000 jobs, bringing the total number of Vietnamese working for international companies to 1.4 million.
India, meanwhile, is fast catching up with China after its first-quarter FDI crossed $10 billion. (India's 2009 fiscal year began on April 1 and runs to March 31, 2009).
According the Reserve Bank of India, FDI during the quarter to June 30 topped the best case scenario of the officials at $10.07 billion, against $8.96 billion in the same period last year.
FDI has risen steadily from $22 billion in fiscal 2006-07 and $32 billion in 2007-08, with expectations of at least $40 billion in fiscal 2008-09.
China's average FDI has been around $50 billion annually for the past decade.
Of the total FDI to India in the April-June period, $2.25 billion represented acquisitions of shares of Indian companies by foreign entities, RBI said.
Can the trend in Vietnam and India hold up in the longer term? PricewaterhouseCoopers (PwC) sounds a cautionary note.
According to a report by Vietnam News Agency, the second PwC Emerging Market 20 Index ranked Vietnam fifth most attractive emerging market destinations for investment in manufacturing - compared to the 2007 number one position.
Based on macroeconomic data, a number of countries studied last year, for example the Czech Republic, Hungary and Saudi Arabia, no longer meet the criteria for inclusion in the PwC model.
On the other hand, three of the four countries ahead of Vietnam this year - Egypt, Bulgaria and Serbia - did not qualify for the index last year, it added.
Among the Asian countries in the PwC EM20 Index, India tops the Manufacturing Index, followed by Vietnam, Thailand, Malaysia, China, the Philippines and Indonesia.
The report said the BRIC countries (Brazil, Russia, India and China) continued to offer good opportunities.
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