Global FDI was down in 2022, but remained strong in ASEAN!
Foreign Direct Investment (FDI) inflows into ASEAN reached an all-time high at $224 billion in 2022. This was an important achievement for ASEAN, despite a 12 percent decline in global FDI flows to $1.3 trillion due to the multitude of international crises and challenges, including geopolitical conflicts, inflated prices of food and energy, the risk of recession and mounting debt pressures in many countries around the world, resulting from the consequences of COVID-19 pandemic. It is noteworthy that ASEAN continues to remain resilient and positioned itself as a top FDI recipient. The robust growth in manufacturing investment, and the increased interest in sectors related to energy transition, digital economy, wholesale and retail trade, are among the key drivers of these strong investment trends.
1. Global FDI was down in 2022, but remained strong in ASEAN
Global foreign direct investment flows fell by 12 per cent, reaching $1.3 trillion. Several developing regions defied this trend, among them the Association of Southeast Asian Nations (ASEAN).
2. Intraregional investment in ASEAN increased but needs a growth push
For the third consecutive year, intraregional investment in ASEAN grew, to $28 billion, solidifying the region’s position as the second-largest source of investment following the United States.
3. ASEAN’s investment policy environment continues to improve
The investment policy landscape in ASEAN continues to improve and is marked by a growing tendency to adopt investment policies and measures favourable to FDI.
4. The process of reforming IIAs should continue
As of June 2023, ASEAN Member States had concluded 342 bilateral investment treaties and 83 treaties with investment provisions, constituting 13 per cent of the global universe of international investment agreements (IIAs).
5. International tax reforms will affect investment in ASEAN
The implementation of these reforms, notably the global minimum tax of 15 per cent on the profits of the largest MNEs, will have significant implications for investment policies, FDI promotion and the development of special economic zones (SEZs), which are often tied to profit-based incentives such as tax holidays and reductions.
6. The reshaping of international supply chains will bring further opportunities for ASEAN
Geopolitical tensions and pandemic-driven disruptions have triggered a wave of supply chain restructuring, favouring ASEAN as a relocation hub.
7. Further gains are possible in promoting FDI in support of the energy transition
To attain a 23 per cent share of renewable energy in primary energy supply and a 35 per cent share in installed capacity by 2025, ASEAN would need to invest a total of $180 billion annually. However, international investment projects in renewable energy in the region only reached an estimated value of $43 billion in 2022.
8. Promoting FDI in the EV supply chain is a major industrial policy opportunity
In ASEAN, international investment in EV-related sectors surged 570 per cent to $18 billion in 2022. Investment has been concentrated upstream (mining and smelting), while midstream investment (manufacturing) has gained traction in several Member States
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