Vietnam has topped a performance index for greenfield foreign direct investment, leading all other emerging markets by a wide margin.
The southeast Asian country ranked number one in a study by fDi Intelligence, an FT data division, which looked at inbound greenfield investment since 2003 relative to the size of each country's economy. Vietnam scored 8.14 in the index, far ahead of next placed Romania and Hungary, as well as its regional competitors Malaysia and Thailand.
Vietnam's economy has been growing quickly, fuelled by investment and exports. Between 2003 and 2014, the country attracted more than 2,000 greenfield FDI projects. Almost half Vietnam's inward FDI is in manufacturing, attracted by abundant and relatively low-cost labour. Vietnam has also taken steps to improve its business environment, reducing its corporate tax rate from 25 per cent to 22 per cent as well as establishing a new credit bureau to improve its credit information system.
In the fDi index, a score of 1 indicates that a country's share of global inward greenfield FDI matches its relative share of global gross domestic product; a score greater than 1 indicates a larger share than indicated by its GDP and a score of less than 1, a smaller share. Vietnam, with a score of 8.14, is attracting more than eight times the amount of greenfield FDI that might be expected given the size of its economy. Vietnam scored the highest rank of all developed and emerging economies that attracted more than 100 greenfield FDI projects in 2014.
The index uses a methodology devised by Unctad, the UN trade and development body, for overall FDI and applies it to only greenfield FDI — leaving aside mergers and acquisitions, intracompany loans and other forms of cross-border investment.
Although China was the world's leading destination for greenfield FDI projects between 2003 and 2014, investment has stagnated in recent years. China's GDP growth during the period outstripped that of inward greenfield FDI growth, resulting in a reduction in its performance index score in almost every year. With its index score in 2014 of 0.56, China has a comparatively small share of global greenfield FDI relative to GDP. Of the top five countries globally for economic output, only the UK (1.96) has a score greater than 1. The US (0.56), Japan (0.26) and Germany (0.99), along with China, all have scores less than 1.
Seven of the 14 emerging markets analysed recorded a score greater than 1 for each of the 12 years. India, although more volatile, shows a similar trend of falling scores to that of China, indicating that its GDP growth is outstripping its greenfield FDI growth, which remains restrained by red tape. Mexico, in contrast, has witnessed an improvement, steadily achieving an index score of greater than 1, year on year.
Greenfield FDI data used in the index is derived from fDi Markets, an FT data service, and excludes retail investments. The 2014 index analysed data for 71 countries, all of which received at least 25 greenfield FDI projects in 2014.
Glenn Barklie (Financial Times)
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