Asia-Pacific Foreign Investment Brief
The FDI, Trade, and Economic Development Community

Sumatra, Indonesia posts the fastest FDI regional growth in 2023 with the Philippines, Vietnam, Japan, and Malaysia in the top 10 global locations! by Alex Irwin-Hunt, FDI Intelligence. Sumatra in western Indonesia ranked as the fastest-growing region for greenfield FDI announcements in 2023 due to major plans by multinationals to build digital and port infrastructure and downstream processing facilities. Almost $13bn was pledged to 13 FDI projects in Sumatra last year, up from just one project in 2022, according to fDi Markets data. Despite the opportunities presented by its resources, Indonesia has faced scrutiny over its environmental, social, and governance credentials, due to variable labour standards and the fact coal still makes up more than 60% of its energy mix. Alongside these developments, Sumatra has benefitted from the rush to develop digital infrastructure. Singapore-based Princeton Digital Group plans to invest at least $1bn into a data center campus in Batam across the Singapore Strait. China’s GDS Services has also committed to building a hyperscale data centre on the island. VIEW ARTICLE

South East Asia is "woefully off track" on green investments to reduce emissions and needs new policies and financial mechanisms to help bridge the gap, the global consultancy Bain & Company said on Monday. With energy consumption in the region expected to grow 40% this decade, climate-warming carbon dioxide emissions remain on the rise, with the region still dependent on fossil fuels, said an annual report compiled by Bain, green investment group GenZero, Standard Chartered Bank and Temasek. While green investment grew 20% last year, it is way short of the $1.5 trillion required this decade, and emissions in the 10 countries in the region could overshoot their 2030 pledges by 32% if they continue on their current trajectory, it warned. "We believe that an acceleration of effort by countries, corporates and investors is imperative as Southeast Asia remains woefully off-track," said Kimberly Tan, GenZero's managing director. "There is over $1 trillion of unrecovered capital in young coal plants and that's predominantly in Asia," said Tim Gould, chief energy economist at the International Energy Agency. "It doesn't allow much room for renewables to grow ... so there is a need for creative financing approaches," he told a conference in Singapore. Meanwhile, only four of the 10 countries in the region - Indonesia, Malaysia, Singapore, and Vietnam - have made progress in putting a price on carbon. VIEW ARTICLE

Institutional Investors are playing a crucial role in the investment attraction strategy of Investment Promotion Agencies, aiming to bolster capital inflow and foreign investment, especially in regions with constrained local liquidity. We are actively collaborating with UNESCAP to facilitate the development of Investor-ready projects for IPAs across the Asia Pacific region, positioning them as prime targets for Foreign Direct Investment (FDI) influx - Article by Danielle Myles, FDI Intelligence In years past, the world’s biggest foreign direct investment (FDI) pledges were the exclusive terrain of corporates. The rare $20bn-plus projects were inevitably masterminded by the Chevrons, Intels and EDFs of the world. This trend came to a screeching halt in February when ADQ, an Abu Dhabi sovereign wealth fund (SWF), announced a $35bn investment into Egypt to develop the new city Ras al-Hekma along its central Mediterranean coast, plus a handful of related projects. According to fDi Markets, it is the biggest FDI commitment ever in the Middle East and Africa. The ADQ deal laid bare the fact that SWFs, contrary to their historical role of investing surplus government revenues into public markets, are now moving the needle on FDI. Their potential is boosted by soaring assets under management (AUM). SWFs and public pension funds (PPF) had a collective $35.2tn in AUM as of March 2024, up from $18.2tn 10 years earlier, figures from research firm Global SWF show. Investment-hungry governments have taken notice. “That is direct cash, which is easy to funnel … into big infrastructure projects in things like offshore wind, hydrogen, nuclear power,” Lord Dominic Johnson, the UK’s investment minister, told fDi in February. VIEW ARTICLE

ADB - Developing Asia’s Economic Outlook: Asian Development Outlook (ADO) April 2024 - Economic growth in developing Asia continues to be resilient. - ADB forecasts 4.9% growth for the region this year and next year. - Growth in developing Asia is being driven by robust domestic demand, improving semiconductor exports, and a continued recovery in tourism. - Inflation in developing Asia is expected to decline to 3.2% this year and 3.0% next year, as interest rate hiking cycles have peaked. "We see strong, stable growth for the majority of economies in developing Asia this year and next. Consumer confidence is improving, and investment is resilient overall. External demand also appears to be turning a corner, particularly with regard to semiconductors." Albert Park, ADB Chief Economist Economic growth in developing Asia continues to be resilient. Following the rise in inflation in 2021 and 2022, inflation has declined in 2023 and into 2024. Growth is being driven by robust domestic demand, improving semiconductor exports, and continued recovery in tourism. ADB forecasts 4.9% growth for developing Asia this year and next year. VIEW VIDEO

The terminology used by professionals in the foreign direct investment (FDI) world can be confusing. In this video series, the fDi team lifts the lid on some of the most common jargon and concepts. This first episode explains the definition of FDI. An excellent new resource series presented by Alex Irwin-Hunt, FDI Intelligence

A deep dive into private sector sentiments can yield some insight into ASEAN’s preferred economic partner of choice. Kristina Fong Siew Leng, Lead Researcher for Economic Affairs at the ASEAN Studies Centre, ISEAS - Yusof Ishak Institute The ASEAN region has been a hotbed of economic activity, drawing significant attention from developed economies for trade and investment opportunities. China remains ASEAN’s key trade partner, representing 18.8 per cent of total trade (US$722 billion) for the region in 2022, with the U.S. representing a more moderate 10.9 per cent share at US$420 billion. That said, foreign direct investment (FDI) inflows from the U.S. into ASEAN outpaced those coming in from China, at US$37 billion versus US$16 billion in 2022 respectively Given the ongoing push and pull in the region caused by the China-U.S. trade rift, ASEAN countries continue to strategically balance their delicate relationships with these two big economies. Using insights derived from the responses from private sector respondents in the latest ISEAS – Yusof Ishak Institute State of Southeast Asia Survey 2024, some interesting perspectives are uncovered. These may help to explain regional firms’ sentiments about ongoing geopolitical and geoeconomic tensions, and what preferences the firms may have in terms of strategic economic partnerships going forward. Caught up in the crossfire of U.S.-China trade tensions, private sector stakeholder sentiments continue to show a strong preference to err on the conservative side. A larger proportion of respondents opted to indicate a neutral stance of not picking sides (31.4 per cent) compared to a year ago (26.5 per cent) VIEW REPORT

Asia Pacific has the second strongest showing with eight markets represented on The Kearney FDI Index—the same representation as last year. China jumps four ranks to 3rd, and Japan falls from 3rd to 7th. Australia holds firm at 10th, while Singapore decreases from 9th to 12th, perhaps owing in part to a 44 percent drop in FDI commitments, most notably from the United States, China, and Europe last year. New Zealand drops one rank to 16th, and India drops from 16th to 18th. South Korea drops marginally from 19th to 20th, while Taiwan (China) reappears on the main Index at 22nd after last making the list at 25th in 2020. General investor optimism regarding the economies on this year’s Index is almost two percentage points higher than the average net optimism level last year (see figure 3). Canada, the United Kingdom, Australia, the United Arab Emirates, and France comprise the top five markets with the most optimistic economic outlook in net terms. Notable increases in net scores are seen in Australia (39 percent) with a jump of 10 percent, the United Kingdom (39 percent) with an increase of 8 percent, and the United Arab Emirates (37 percent) with a rise of 7 percent. The United States also has higher net optimism levels, from 34 to 36 percent year-over-year, though it slipped in relative net optimism levels from 3rd to 6th rank among the 25 markets. Conversely, Canada drops 1 percent in net optimism to 41 percent, but remains the highest ranked market on the list. Investors are least optimistic about Poland, Taiwan (China), and Argentina, likely on the back of their relatively low GDP growth rates in 2023, amounting to 0.4 percent, 0.8 percent, and -1.2 percent, respectively. VIEW ARTICLE

China is ready to continue building a closer China-ASEAN community with a shared future, and bring more certainty and positive energy to peace, stability and sustained prosperity in the Asia-Pacific and beyond, said Chinese Ambassador to ASEAN Hou Yanqi. Hou made her remarks in talks with media people and researchers in Jakarta , with a theme "China's economic development and expectations for the China-ASEAN economic and trade cooperation in 2024." The ambassador said she believes that China and ASEAN will continue to upgrade economic and trade cooperation and achieve solid progress in their comprehensive strategic partnership. And together they will contribute more to economic globalization in the right direction and make global governance more just and balanced. ASEAN has remained China's largest trading partner for intermediate goods for many years. China-ASEAN economic and trade relationship has been full of highlights and promising prospects. The bilateral trade volume reached $911.7 billion in 2023. She noted economic and trade cooperation cannot be achieved without institutional support of free trade and institutional support of the free trade agreement. She was referring to negotiations on version 3.0 of the ASEAN-China Free Trade Area (ACFTA) to create broader space for regional development. In 2002, China and ASEAN countries signed the Framework Agreement on Comprehensive Economic Cooperation as its legal basis for the ACFTA. Both China and ASEAN are members of the Regional Comprehensive Economic Partnership or RCEP and other international groups. Moreover, China is upgrading its economy with new quality productive forces, which means advanced productivity with innovation playing the leading role, she said. VIEW ARTICLE

Foreign direct investment (FDI) refers to the investment made by individuals, companies, or entities from one country into businesses, assets, or ventures located in another country. FDI plays a pivotal role in global economic development, as it facilitates capital flows, fosters business expansion, and contributes to job creation and economic growth, Visualcapitalist Cambodia Tops the List The 10 countries with the strongest FDI prospects for 2024 are spread across Asia, Africa, the Middle East, and Europe. Asia features six countries on the list, with Cambodia expected to carry the strongest investment momentum this year. With a GDP growth forecasted at 6.1% in 2024, up from 5.6% in 2023, the IMF expects Cambodia to be the fastest-growing economy in Southeast Asia. The country has strengthened its trade relationships with China, South Korea, and the EU. Additionally, Cambodia has benefited from a recovery in tourism since China started lifting its COVID-related travel restrictions earlier in 2023. Meanwhile, the IMF expects the Philippines, in second place, increase GDP growth from 5.3% to 5.9% in 2024. Both public and private investment have played a key role in reinforcing its growth, bolstered by the opening of the renewable energy sector to foreign investors. VIEW ARTICLE

Continued optimism in the face of instability - Business leaders show signs of greater optimism in the investment outlook and the prospects for artificial intelligence over the next three years—though concerns about risks persist. Results suggest investor optimism is high and has the potential to grow even more in the next three years … A striking 88 percent said they were planning to increase their #FDI in the next three years—6 percent more than last year. Furthermore, 89 percent—up from 86 percent in 2023—said they regarded FDI as more important to their corporate profitability and competitiveness in the next three years. And the level of net optimism on the global economy rose markedly as well. While the optimism level grew only marginally to 64 percent, net pessimism decreased notably from 35 to 29 percent compared with last year. Investors deprioritize transparency of government regulations and tax rates in favor of regulatory efficiency and ease of moving capital in making investment decisions While technological and innovation capabilities remain a top priority for investors when choosing FDI destinations (up one rank from last year), regulatory efficiency and ease of capital movement rise to the second and third positions, respectively (see figure 6). This is perhaps an indication that growing protectionism and a push to self-sufficiency post-pandemic is making foreign investment into some markets more difficult. As a result, nearshoring investment to improve efficiency and ease of capital movement could be on investors’ minds. VIEW REPORT About the study The Kearney FDI Confidence Index® is an annual survey of global business executives that ranks markets that are likely to attract the most investment in the next three years. In contrast to other backward-looking data on FDI flows, the FDICI provides a unique forward-looking analysis of the markets that investors intend to target for FDI in the coming years. Since the FDICI’s inception in 1998, the markets ranked on the Index have tracked closely with the top destinations for actual FDI flows in subsequent years. The 2024 Kearney FDI Confidence Index® is constructed using primary data from a proprietary survey of senior executives of the world’s leading corporations. The survey was conducted in January 2024. Respondents include C-level executives and regional and business leaders. All participating companies have annual revenues of $500 million or more. The companies are headquartered in 30 countries and span all sectors. Service-sector firms account for 46 percent of respondents, industrial firms for 45 percent, and IT firms for 9 percent.

FDI is a cause and beneficiary of the region digitizing faster than the rest of the world. by Andrew Keable, managing partner of KW Group, and a consultant supporting United Nations ESCAP’s trade, investment, and innovation division, appeared in FDI Intelligence, Magazine The rapid rise of the Asia-Pacific (Apac) digital landscape is indisputable. Research by Mastercard shows the region witnessed a 69% surge in digital payment usage in the year to August 2022, leaving North America’s 52% and Europe’s 48% in its wake. Digital wallets will account for three-quarters of e-commerce sales and half of point-of-sale transactions in Apac by 2026, according to Statista. Apac’s digital revolution — fuelled by its population which represents 60% of the global population — is not confined to a specific sector. It permeates every facet of domestic and regional development. Asean goes high-tech Of particular note is the Association of South-east Asian Nations (Asean), which is positioning itself to become the world’s fourth-largest economy by 2030. This is not just a vision; it’s a clarion call for investors to seize the moment, recognising the unique convergence of talent, innovation, infrastructure, and technology propelling Asean to the forefront of global economic growth. Only a few years ago, Asean was considered the secondary option in foreign investors’ China+1 strategy. Now, the 10-country bloc is a genuine and growing alternative to China, particularly in high-tech sectors affected by Beijing’s geopolitical tensions with the US. Over nearly two decades, I’ve seen Asean leverage improvements in infrastructure, cultivate resilient supply chains, maintain relative political stability and emerge as a beneficiary of escalating US–China competition. A vibrant, tech-savvy population, coupled with a supportive regulatory environment, has helped the region transform into a digital FDI hub. Asean’s growing pool of graduates — particularly in science, technology, engineering and mathematics — and increasing gender diversity are not just statistics. They’re the driving force behind its innovation ecosystem’s development. Data from fDi Markets shows that announced FDI into Asean data centres has grown exponentially over the past two decades to hit $15.9bn in 2023 — more than double the previous record. The region’s commitment to a digital economy is exemplified by Malaysia, which is aiming for a 25.5% contribution to the country’s gross domestic product and creating over 500,000 jobs by 2025. The inaugural Asean Investment Forum in September 2023 — which brought together the region’s investment promotion communities, investors and business leaders — echoed the bloc’s appetite for growth and focus on digital FDI. Digital imperatives Despite the remarkable growth story of Apac’s digitisation, persistent challenges require attention. Talent retention faces the looming threat of brain drain, particularly in developing economies. Regulatory complexities, ownership restrictions, currency fluctuations and anti-foreign sentiment (which can be particularly pronounced around elections) also complicate the attraction of talent from abroad. At KW Group, we’ve collaborated with the UN’s Economic and Social Commission for Asia and the Pacific (Escap) and the Board of Investment of Sri Lanka to unveil the untapped potential of Apac’s emerging markets. We recently worked together to deliver a programme on ICT private sector digital investment. We now have a second project scheduled for April targeting the sector’s foreign investment attraction and internationalisation. This is crucial, as within the region’s emerging economies, there is a critical need for increased capital flow and investment from abroad due to limited local liquidity. A broader issue is the potential gaps in how the region’s investment promotion agencies (IPAs) target FDI and institutional investors. In a recent IPA workshop, hosted by KW Group under the leadership of Escap, just three of the 15 Apac IPAs in attendance said they had successfully developed investor-ready project pipelines. I advocate for a paradigm shift in Apac towards proactive investment promotion strategies, as well as for governments to embrace public-private collaboration, fostering an environment conducive to investor attraction. Additionally, addressing liveability concerns is not just a suggestion; it’s a plea to regional governments to take tangible steps to enhance the region’s appeal to senior international talent and investors. The journey through Apac’s digital FDI landscape is complex and multifaceted. By delving into the nuances, acknowledging challenges, and advocating for strategic imperatives, we can collectively propel Asean and the broader region into a new era of digital innovation and economic prosperity. This isn’t just a vision. It’s a call to action for stakeholders to shape the narrative of Apac’s digital future and its position on the world stage. VIEW ARTICLE

On the 20-21 March 2024, Investment Promotion Agencies (IPAs) of ASEAN Member States and Timor Leste as well as the ASEAN Secretariat convened at the United Nations Economic and Social Commission for Asia and the Pacific (UN ESCAP)’s headquarters in Bangkok, Thailand to initiate the work in developing a possible regional investment promotion action plan. The workshop was the second of a series of capacity-building workshops arranged by UNESCAP, as part of its ongoing collaboration activities with the ASEAN Coordinating Committee on Investment (CCI) focusing on the promotion and attraction of investments. Consultations were conducted both individually and collectively with the ASEAN IPAs involved, initiating the development of a regional approach to investment promotion in the region.  Over the upcoming months, this plan is set to undergo rigorous consultation processes, with an expected launch at the ASEAN Investment Forum scheduled in Lao PDR in October 2024. The workshop provided an opportunity to gain valuable insights into the latest FDI trends, underscoring the importance of promoting the region as a unified entity and exploring various IPA models and approaches to serve this purpose.  The workshop was presented by Andreas Dressler from the FDI Center.  Views and perspectives from the private sector were also a useful part of the workshop, with contributions from Manvinder Bhullar of Amazon Web Services (AWS) and Ingo Puhl of South Pole. The CCI-UNESCAP collaboration started in 2023 with the ASEAN Investment Forum (AIF) on 2 September 2023 in Jakarta, Indonesia, followed by an ASEAN IPA workshop from 7-9 November 2023 in Bangkok, Thailand. The next session for capacity development and concluding the consultation for the advancing ASEAN FDI Action Plan is scheduled for 20-21 June 2024. VIEW ARTICLE