Direct US investments in Singapore set to rise

SINGAPORE - More direct investments from the United States are likely to come Singapore's way as American companies reinvest a bigger chunk of their profits in holding companies abroad.

Singapore - where the lion's share of US investments here is sunk in holding companies - saw the US pump in US$12.31 billion (S$15.03 billion) last year to raise its cumulative investments in the Republic to US$116.62 billion in book value, according to the latest figures released by the US Department of Commerce.

The investments in Singapore are the US's second largest in the Asia-Pacific region - after Australia, where its stake was valued at US$136.25 billion in 2011. Japan, with US$116.53 billion, is home to the third biggest US investments in the region.

Much of the new investments in Singapore last year were ploughed back from US earnings here, which jumped from US$15.88 billion in 2010 to US$21.22 billion last year, the US's largest in the region.

US investments in Australia yielded US$11.64 billion last year, up from US$9.99 billion in 2010.

Their investment returns in Japan in 2011 were US$9.95 billion, against US$9.15 billion in 2010.

The Department of Commerce says Japan, Australia and Singapore together accounted for 92 per cent of the US$42.6 billion invested in the region last year. Most of the investments in 2011 went into manufacturing in Singapore, particularly the production of computers and electronic goods "where the largest contributor to the increase was reinvested earnings".

The heavy investments in manufacturing detracted from the trend of recent years. While manufacturing in Singapore was traditionally the biggest draw for US investments, it has become less attractive with the rise in local production costs, which pushed many factories out to cheaper neighbouring locations.

Manufacturing accounted for over half (58 per cent) of US total investments of US$24.13 billion here in 2000, according to Department of Commerce figures. This was less than one fifth of the total.

While total US investments in Singapore surged nearly five times from US$24.13 billion to US$116.62 billion in 2000-2011, US investments in the local manufacturing sector rose just 1.5 times from US$13.98 billion to US$21.45 billion in the same period.

A growing chunk of the US investments here have been in holding companies, which US businesses set up to take advantage of Singapore's business-friendly environment and low taxes - and to use the country as a hub to expand into the rest of Asia-Pacific.

While the figures were suppressed for most years, the US Department of Commerce made a rare disclosure in its latest numbers that show US investments in holding companies here stood at US$65.31 billion in 2011. This was over half of total US investments in Singapore, or three times the US investments in manufacturing.

The big jump in US investments has also been fanned by the huge profits US companies enjoyed in Singapore, as most of the returns tended to be reinvested where they were made.

US investments in Singapore have been producing returns of about 20 per cent yearly - among the highest rates for US companies worldwide. In three of the last four years - 2008 to 2011 - Singapore was the largest profit centre for US companies in the Asia-Pacific region.

The Department of Commerce says US direct investments abroad - bouncing back from an 8 per cent jump in 2010 to a more familiar 10 per cent pace last year to hit US$4.16 trillion - have been shifting more to holding companies. Only 9 per cent of US investments were sunk in holding companies in 1982; the figure rose to 44 per cent last year.