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Asia Pacific / Singapore

The state of play: FDI in Singapore

Singapore broke records for its FDI inflows in 2019. However, as Covid-19 threatens this progress, will a call for more innovation bolstered with investment incentives be enough for the city-state to stay on top?

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Singapore is one of the best-performing countries for FDI in the world, but to what extent will Covid-19 stymie its progress? (Photo by Roslan Rahman/AFP via Getty Images)

Singapore – an island so small it can be driven across in an hour – has one of the highest average incomes in the world and has created a reputation for itself as a global business hub. The city-state, which sits on the trade route between Asia and Europe, was ranked second in the World Banks’s 2020 Doing Business Report.

With a highly qualified workforce, a high number of expatriates, a trusted financial infrastructure, good transport links, several investment incentives and low levels of corruption, Singapore has acquired a reputation of being investor friendly.

Going from strength to strength, 2019 was a record-breaking year for foreign direct investment (FDI) in Singapore. According to the UN Conference on Trade and Development’s 2020 World Investment Report, Singapore’s FDI inflows increased by 15.5% to $92.1bn in 2019.

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Covid-19 has had an impact on the country’s FDI success story, however. There was an initial drop of 20% in announced greenfield investments in the first quarter of 2020. Alongside this, Indonesia and Vietnam saw a decline of 10% each. Combined with Singapore, these three countries are historically the largest FDI recipients in South East Asia. Combined they made up more than 80% of FDI inflows for the region in 2019.

Given the impact of the pandemic, FDI in Singapore in 2020 is expected to drop from its 2019 high. In 2019, Singapore sat in fifth place for global FDI inflows, just behind the US, China, the Netherlands and Hong Kong.

Singapore is also a significant global investor, with its FDI outflows hitting $33bn in 2019. This international openness does create a vulnerability for the city-state as it is dependent on exports and the success of its partner economies.

Singapore stays ahead through innovation

Key sectors for Singapore include electronics, manufacturing, energy, chemicals and financial services. Among the bigger deals in 2019, US company Qualcomm acquired Singapore’s RF360 for $3bn in a 5G infrastructure deal, in what was seen as a positive signal for the city-state’s growing digital services sector.

Singapore is also well regarded for its efficient tax system, although there is a perceived lack of transparency over some administrative incentives. The city-state also faces the issue of an ageing population, and is keen to ensure its workforce remains innovative and at the forefront of new technologies.

Initiatives to boost Singapore’s reputation as a centre for innovation and research and development include tax incentives, research grants and partnership opportunities with domestic research institutions.

Ruth Strachan

Ruth Strachan

Senior reporter

Ruth Strachan is a senior reporter at Investment Monitor, focusing on manufacturing, mining and commodities.