The Executive Yuan announced last week that it aimed to lure NT$430 billion (US$13.4 billion) of investment to help develop the nation’s 10 flagship projects, which include biotechnology, cloud computing and green energy. Although the government did not say how long it would take to achieve this goal, it did offer an ambitious plan to boost domestic investment to sustain the nation’s economic growth.
The government’s announcement and its plans to hold several investment road shows at home and abroad comes on the heels of the signing of the Economic Cooperation Framework Agreement (ECFA) with China in late June, which the government believes will help develop Taiwan as an investment springboard to the Chinese market.
However, the government’s latest drive to attract foreign capital also follows complaints about the growing inequality of wealth distribution, a series of industrial safety scares, pollution incidents at industrial parks and uncertainty surrounding the sale of American International Group’s local insurance unit.
At a road show held on Monday, Council for Economic Planning and Development Minister Christina Liu (劉憶如) said the nation should not rely solely on exports to maintain economic growth. Instead, external demand and domestic investment should serve as the economy’s twin engines, she said. On Thursday, Liu reiterated that the government must boost private investment to increase job opportunities and solve the wealth gap problem.
Yet despite the urgent need for more investment in Taiwan to help generate jobs and improve stagnant salaries, policymakers need to realize that potential investors will not hurry to pour in their money unless the government can insulate them from policy inconsistency and bureaucratic red tape.
That is why even though Taiwan has been rated as a favorable investment environment by Business Environment Risk Intelligence (BERI), a US-based research institute during its surveys in recent years, Taiwan has actually received much less foreign direct investment than it should have.
Taiwan was grouped in the category of “below potential” economies in the UN Conference on Trade and Development’s World Investment Report, which defined Taiwan’s economy as having a high potential for foreign investment, but demonstrating a rather low level of actual investment.
In this year’s World Investment Report, Taiwan maintained a No. 22 ranking in the Inward Foreign Direct Investment Potential Index among the world’s 141 economies in both 2007 and 2008 (the most recent years for which the data was available). However, in the Inward Foreign Direct Investment Performance Index, Taiwan ranked 122nd worldwide last year, down from 116th in 2008 and 114th in 2007.
In BERI’s April survey of the world’s 50 major economies, Taiwan was ranked the second-best investment destination in Asia and the fourth-best in the world. However, the government’s latest statistics show a different reality.
In the first seven months of this year, Taiwan only attracted US$2.47 billion in foreign investment, which was down 18.93 percent from a year earlier. In fact, the data collected by the Investment Commission showed that foreign investment in Taiwan has been tumbling in recent years, with the amount falling to US$4.8 billion last year from US$8.2 billion in 2008, US$15.4 billion in 2007 and US$13.9 billion in 2006.
Investment is always welcome as long as it benefits local industries and creates jobs. Liu was absolutely correct that more domestic investment could help deal with the nation’s unemployment and wealth gap problems. However, the government’s plan to attract NT$430 billion of investment will be just more wishful thinking from policymakers unless the government can see through real reforms to deal with the long-standing “below potential” problem of Taiwan’s inward foreign investment.
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