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Foreign Investment Has Helped Deliver Growth In SE Asia: Can It Deliver Sustainable Development?

Beyond capital and jobs, foreign direct investment (FDI) has made significant contributions to sustainable development in Southeast Asia. Yet, the benefits of FDI have not been felt evenly across economies and societies; it can even create risks of irresponsible business practices. In a challenging time of diminishing global investment flows, policymakers also need to ensure that FDI confers sustainable rewards.

Southeast Asia has been among the biggest recipients of FDI among emerging regions, as some countries in the region were early movers in the shift towards export-led development based in part on FDI. FDI flows to Southeast Asia have increased by a factor of nine over the last two decades, with over half of these going to Singapore which tends to act as the regional hub for many investors.

Nevertheless, new “greenfield” investment projects have seen a major decline since the onset of the Covid-19 pandemic, with no signs of improvement yet. Within the region, Viet Nam and Indonesia have attracted the greatest stock of greenfield FDI over the last decade (US$232-242 billion), followed by Malaysia and Singapore (US$153-164 billion)

Governments in Southeast Asia devote ample resources to attracting FDI with the hope of creating jobs. Greenfield FDI projects generate on average three direct jobs per million USD invested in the region (similar to the worldwide average), but the intensity of job creation varies substantially across countries according to their level of development and economic structure.

Lower-income countries, such as Myanmar and Lao People’s Democratic Republic (PDR), as well as countries with abundant fossil fuel resources, such as Brunei Darussalam, tend to attract considerable FDI in natural resource extraction and energy generation, which creates relatively few direct jobs.

Emerging economies with solid and diversified industrial capabilities, such as Viet Nam and Thailand, create the most jobs per dollar invested. Countries with highly skilled labor forces, advanced industries, and relatively larger financial sectors, such as Malaysia and Singapore, attract FDI in high-tech products and knowledge-intensive services, which require fewer workers. The high capital intensity of manufacturing FDI in Indonesia is driven by the metals and chemicals industries, while the high labor intensity of FDI in the Philippines is driven primarily by business support services.

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