Commentary: Why Singapore was among the world’s largest recipients of investments in 2019

Commentary: Why Singapore was among the world’s largest recipients of investments in 2019

The trade war between US and China as well as the political unrest in Hong Kong have given Southeast Asia record FDI, says Simon Roughneen.

Singapore night skyline
Singapore’s 2019 FDI total was the fourth highest of any country. (Photo: TODAY)

SINGAPORE: After more than a year of tit-for-tat tariffs in the US-China trade war and generalised anxiety about the cost to the world economy, it is remarkable that foreign direct investment into Southeast Asia continued to grow strongly last year, even as global levels flat-lined.

Newly-published estimates from the United Nations Conference on Trade and Development (UNCTAD) suggest that, out of a global foreign direct investment (FDI) spend of US$1.39 trillion (S$1.88 trillion) in 2019, member-states of the Association of Southeast Asian Nations received US$177 billion, breaking the region’s 2018 record of US$155 billion.


While Southeast Asia’s 2019 total was substantially less than European Union's US$305 billion or the United States’ US$251 billion, its inward FDI is increasing while the EU’s dropped 15 per cent and the US’ stayed much the same. 

READ: Commentary: The Singapore economy in 2020 - stabilisation or more uncertainties on the horizon?

To put Southeast Asia’s FDI in greater perspective, the total for Japan was a mere US$11 billion. Despite its imminent departure from the EU, the United Kingdom took in US$61 billion worth of FDI, which, though a slight drop on 2018, was significantly more than either France and Germany and slightly more than all of South Asia.

Of the other developing economy regions, Latin American and the Caribbean received slightly less FDI than Southeast Asia, with both regions far ahead of Africa’s estimated US$49 billion.

And while China’s total of US$140 billion was slightly above its 2018 total, East Asia as a whole saw a significant decline of 21 per cent, much of it down to an estimated halving of Hong Kong’s inward FDI to US$55 billion.


Hong Kong entered a recession in the second quarter last year, but the implication is that pro-democracy protests and fears that China might resort to a heavy-handed clampdown have prompted investors to look to Singapore, which took in the biggest share by far of the Southeast Asian total: US$110 billion, a 42 per cent surge on 2018.

READ: Commentary: As China's growth slows, what prospects lie ahead for the world economy 

This augurs well for Southeast Asia’s economic prospects in 2020, and particularly Singapore, with analysts judging the city-state has benefited from the diversion of visitors and economic activities away from Hong Kong.

The news will no doubt be doubly welcome to FDI-dependent Singapore as it struggles with a slowing wider economy, with 2019 gross domestic product growth estimated at a sluggish 0.7 per cent and electronics exports down.

Singapore's trade-driven economy shrank in the last quarter of 2011
In Singapore, where trade in goods and services accounts for over three times of its GDP, the impact of the pandemic was almost immediate. (File photo: AFP/Simin Wang)

According to World Bank data, 2018 FDI inflows equalled over 23 per cent of Hong Kong’s GDP and over 22 per cent of Singapore’s – both percentages far higher than elsewhere in Southeast Asia, where the next highest was Cambodia’s 12.6 per cent.

READ: Commentary: Is low growth the new normal for Singapore?

Singapore’s 2019 FDI total – the fourth highest of any country – was down to “deals in the information and communication sector”, according to UNCTAD. 

Singapore has long traded as regional finance capital and headquarters hub – and regularly vies with Hong Kong near the top of the World Bank’s “Doing Business” rankings – so much of its colossal investment total is really aimed at its neighbours.


As noted in the 2019 ASEAN Investment Report published last year, “more than 80 per cent of FDI in finance in ASEAN last year went to Singapore.

A significant part of that investment may be used to fund FDI activities throughout the region, given the importance of regional headquarters functions in Singapore.” 

Some of that onward bounce likely went to the biggest country and economy in Southeast Asia, Indonesia, which saw a record US$24 billion in FDI, according to UNCTAD – perhaps a surprise given that 2019 was an election year that saw several rounds of violent political protests in major cities.

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Indonesia’s 12 per cent increase on 2018 was down to “significant flows going into wholesale and retail trade (including the digital economy) and manufacturing,” according to UNCTAD.


The UNCTAD findings did not delve into any other Southeast Asian countries, but the 2019 ASEAN Investment Report put the previous years’ influx – also a record at the time – as down to “the gradual shift of production capacity from China and elsewhere to ASEAN, caused by structural factors (the increase in relative labour costs in China) and accelerated by the United States–China trade tensions.”

Employees work at the production line of aluminium rolls at a factory in Zouping
Employees work at the production line of aluminium rolls at a factory in Zouping, Shandong province, China, China has seen a gradual shift of production capacity to ASEAN, caused by structural factors and accelerated by its trade war with the US. Nov 23, 2019.  (File photo: Reuters)

Vietnam has been widely-touted as Southeast Asia’s beneficiary-in-chief of the China-US trade tensions – which have abated, for now, with the signing of a Phase One deal that leaves most of the recently-imposed tariffs intact. 

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Cambodia, too, has picked up FDI due to trade war dislocation, with inflows for the first half of 2019 up 9.4 per cent on 2018’s US$3.2 billion record.

For all the gloomy assessments about the global economy, the “buoyant ASEAN region” as UNCTAD puts it, is standing out by posting world-beating investment growth.

Simon Roughneen is a Southeast Asia-based journalist writing for several publications. This commentary first appeared on Lowy Institute's blog The Interpreter. Read it here.

Source: CNA/ml