Following in Singapore's footsteps
By Tu Jenn-Hwa 杜震華Friday, Mar 21, 2008, Page 8
The Investment Commission of the Ministry of Economic Affairs recently said the amount of Taiwan's inward foreign direct investment (FDI) approved last year was US$15.36 billion -- a new high.
Foreign investors' confidence in Taiwan is comforting. But if we believe that Taiwan's investment environment is attractive to foreigners, then we are truly ignorant.
Around the same time, Singapore also published FDI approved last year for its manufacturing industry. The figure, US$11.2 billion, outshone Taiwan's manufacturing industry with US$8.1 billion in FDI for the same period.
In terms of the per-capita foreign capital in the manufacturing industry, Singapore's figure of US$2,460 also outdid Taiwan at US$355.
From flexible research and development resources to industrial networks and international cooperation, Taiwan has always been proud of its manufacturing industry.
But surprisingly, its attractiveness to businesses is far inferior to that of Singapore, which is so much smaller.
The government should take immediate measures to rectify the situation so that Taiwan can catch up.
The "Inward FDI Potential Index," from the UN Conference on Trade and Development, which looked at 12 indices.
Taiwan ranked No. 20 among 141 economies between 2003 and 2005. This shows that the nation has competitive potential in the race to attract foreign capital.
Unfortunately, the index for FDI performance indicates that Taiwan has slipped.
"The Inward FDI Performance Index ranks countries by the FDI they receive relative to their economic size. It is the ratio of a country's share in global FDI to its share in global GDP," the UN says.
If the value is one, it indicates that the country receives FDI equal to its economic size.
Taiwan's performance has fallen from No. 49 between 1988 and 1990 to No. 101 between 1999 and 2001, and No. 125 between 2002 and 2004.
Its ranking rose slightly to No. 119 between 2004 and 2006, but it still lagged behind some undeveloped countries -- including Myanmar, Haiti and Zimbabwe.
During this period, Taiwan's index number fell from 0.93 to 0.39 and 0.24. It then recovered and increased again to 0.49. During the same period, Singapore's ratio reached highs of 13.60, 5.33, 6.08 and 7.62. In this last evaluation period, Taiwan was No. 5. Hong Kong was No. 2, with an index of 9.63, second only to Luxembourg at 17.48.
It is clear that Taiwan has been unable to attract FDI relative to its economic scale in the past 20 years. Even though FDI has increased somewhat in the past year, global FDI has grown even more, so that Taiwan has not made relative progress.
Many Taiwanese think that Singapore is only a center for finance and transport and are not aware that Singapore does not have protectionist policies for its manufacturing industry and that its government has implemented effective measures such as protection of intellectual property rights and favorable tax policies, and created high-level public facilities, an excellent living environment, stable government policies and public security.
For all these reasons, a lot of FDI in the manufacturing industry goes straight to Singapore. In the information industry, the city-state is also one of Taiwan's major rivals. In 2005, Singapore's manufacturing industry accounted for an extraordinary 28 percent of its GDP, compared with Taiwan's 21 percent.
Taiwan cannot compare to Singapore on these points. But it does have other advantages, such as a better location for logistic reasons, more science and technology personnel in the proximity of the Chinese market and a lower investment cost.
If the country could improve its weak points and further capitalize on its strengths, the future would be promising.
Information giant Google has been considering relocating its Asian information headquarters to Taiwan, which demonstrates that Taiwan does have competitive aspects Singapore lacks. But the inability to realize the "three direct links" and open direct flights to China closes doors for Taiwan, as does the inability to sign free trade agreements with other East Asian countries.
These factors make it difficult for Taiwan to make full use of its advantages. If the future government can overcome these problems and match Singapore's governance, FDI into Taiwan could once again return to the highs of the 1960s.
Tu Jenn-hwa is an associate professor at National Taiwan University's Graduate Institute of National Development.
Translated by Eddy Chang and Anna Stiggelbout
