Increasing investment in Asia

 
AseanAffairs     6  September 2011

Asian policymakers should focus on raising investment in the region to create higher long-term growth, said Singapore Finance Minister Tharman Shanmugaratnam.

The minister spoke at the third annual World Bank-Singapore Infrastructure Finance Summit, Tharman noted that in Asean, the value of direct investments are equal to 23 percent of gross domestic product.

"That's well below the level we saw before the Asian Financial Crisis. It's probably true that there was over-investment in the region before the Asian crisis, but 23 percent is too low a rate of investment for economies at this stage of development and also means that we are not growing at our potential rate of growth in this part of the world," he said.

If the investment rate in the region could be raised to 28 percent of gross domestic product (GDP) that would translate to a 1 percentage point addition to GDP each year, Tharman added.

There is a window of opportunity for economies in the region to boost investment, as the cost of borrowing is extremely low now, he said.

Furthermore, there is high demand for Asian sovereign bonds and lots of private capital on the sidelines that could be tapped on for funding, he noted.

Economies in the region should thus take the opportunity to raise investments now, before interest rates rebound and borrowing costs are raised.

Relevant to the minister’s address, here are some current investment figures for Asean. Asean Intraregional trade and investment flows continued to show upward momentum this year and are expected to support GDP growth of between 5.7 percent and 6.4 percent.

Asean has remained an attractive destination for foreign direct investment (FDI) which reached $75.8 billion in 2010, doubling from 2009 and surpassing the previous 2007 record of $75.7 billion.

Intra-Asean FDI inflows rose 132 percent in 2010 and accounted for 16 percent of all foreign direct investment in the region. In the service sector alone, FDI inflows totaled $49.2 billion or 65.7 percent of all Asean FDI.

Manufacturing sector FDI totaled $21 billion or 28.1 percent of total flows, with mining and quarrying 5.5 percent of the total.

Echoing Tharman, with borrowing costs still low, Asean countries should move ahead to boost investment.