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

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

Tension between Beijing and Washington over access to technology has prompted many companies to open factories in south-east Asia. Mercedes Ruehl, Financial Times As companies around the world look for a back-up to China to protect themselves from geopolitical disruptions — a strategy known as China plus one — Malaysia is becoming a surprise investment destination. It has a 50-year history in the “back end” of the semiconductor manufacturing supply chain: packaging, assembling, and testing chips. But it has ambitions to move up to the front end of a $520bn global industry that powers everything from televisions to smartphones and electric vehicles. That includes higher-value activities such as wafer fabrication and integrated circuit design. The broadening US curbs on Chinese technology, especially for chipmaking, are a key reason for neutral Malaysia’s appeal, say industry groups. America is jostling with China for global technology supremacy and has enlisted support from allies in Europe and Asia as it restricts sales of the most advanced chips and manufacturing equipment to its geopolitical rival. Investment is booming. The state attracted RM60.1bn ($12.8bn) in foreign direct investment in 2023, more than the total it received from 2013 to 2020 combined. Developing Malaysia’s semiconductor industry and workforce into this higher-value manufacturing is a “critical goal,” says Prime Minister Anwar Ibrahim in an interview with the Financial Times. VIEW ARTICLE #trade #globaltrade #fdi #investment #economy #economicdevelopment #policy #government #foreigninvestment #asia #asiapacific #asean #investment #development #investmentpromotion #climate #genderequality #sustainabledevelopmentgoals #capacitybuilding #digitalization

The Australians recognise the need to step up. As part of a suite of initiatives announced at the recent special summit, Australia will establish a A$2 billion (US$1.32 billion) facility to boost investments to Southeast Asia. Over the past five decades, the strategic relationship between Asean and Australia has evolved significantly. Marked by deepening cooperation and partnership across a broad spectrum of issue areas including security, economic development, education and cultural exchange, this relationship is underpinned by shared interests in promoting regional stability, prosperity, and addressing transnational challenges. Both the Association of Southeast Asian Nations and Australia are part of various bilateral and multilateral frameworks aimed at enhancing regional architecture and fostering a conducive environment for open dialogue and mutual benefit. Australia now recognises Asean’s centrality in the Indo-Pacific. Yet even after the recent 50th anniversary celebrations at the Asean-Australia Special Summit held from March 4 to 6, Asean and Australia continue to face heightened risks as the international order veers towards multipolarity amid polycrisis. Asean member states are wary of the upgrading of US formal alliances and the advent of minilateral groupings such as the Quadrilateral Security Dialogue (comprising Australia, Japan, India and the United States) and the trilateral Australia-UK-US (Aukus) arrangements. These trends intensify the risk of conflict between US-led alliances and groupings versus China. To Asean, the rationale is clear: such US-led minilaterals could undermine its centrality and any cooperation with these minilaterals would rile China. While the member states cannot wish away minilaterals, they can nevertheless leverage these arrangements to their national benefit and regional stability. Asean is Australia’s second-largest trading partner, but Australia is only the bloc’s eighth-largest trading partner. Asean’s share of Australia’s total trade in goods was 14.6 per cent in 2022, whereas Australia’s share was only 3.4 per cent. Australia is also an FDI featherweight, with total foreign direct investment to Southeast Asia declining from 6.3 per cent in 2017 to 2.9 per cent in 2022. The Australians recognise the need to step up. As part of a suite of initiatives announced at the recent special summit, Australia will establish a A$2 billion (US$1.32 billion) facility to boost investments to Southeast Asia. Along with the Asean-Australia-New Zealand free trade agreement upgrade signed at the summit and Canberra’s keen interest in pursuing cooperation in the green economy, sustainability, climate, food security and digitalisation, there is promise of renewed relevance coming to the Asean-Australia economic relationship. VIEW ARTICLE

In the fourth quarter 2023, the economies of Southeast Asia mostly showed strong resilience to counter the challenging external environment and continue its growth trajectory. Southeast Asia’s economies exhibited robust performance in the fourth quarter of 2023. GDP grew in all economies, with growth in Indonesia, Singapore, Thailand, and Vietnam increasing during this period, while Malaysia and the Philippines recorded slower growth. Strong domestic demand, backed by stable employment prospects and easing prices, along with a continued recovery of the services sector—particularly tourism—and early signs of improvement in exports demand supported growth. FDI grew broadly in the region with the Philippines, particularly, seeing a spike of 127.2 percent from the same period a year before. Indonesia experienced the softest growth since the third quarter 2020 as investors took a wait-and-see approach ahead of the general elections in February 2024. VIEW ARTICLE

Gender parity globally has now recovered to pre-COVID-19 levels, but the pace of change has stagnated as converging crises slow progress, according to the World Economic Forum's Global Gender Gap Report 2023. The Global Gender Gap Report 2023 finds that the overall gender gap has closed by 0.3% points, compared with the previous report, and the expected parity remains the same at 2154. The State of Social Enterprise 2024, the first comprehensive global data set to estimate the size and scope of social enterprise worldwide, from the Schwab Foundation's Global Alliance for Social Entrepreneurship, finds that one in two social enterprises around the world are women-led, compared to only one in five conventional businesses. Below are three social innovators recognized by the Schwab Foundation for Social Entrepreneurship for their social impact and efforts to close the gender gap and empower women worldwide. VIEW ARTICLE

Intra-Asia trade flows remain strong while the West remain key trading partners of Asia - Evidence shows that markets in Asia Pacific are strongly connected with each other in the region. At least 70 percent of the countries in Asia Pacific have strong flows with their Asian counterparts. Looking at these countries’ top 10 connections, six or more are with an Asia Pacific market, citing robust intra-Asia trade. The Asian region is also closely connected with the West, with many of them having the United States or United Kingdom as their top 10 connections. Three questions, three insights: The analysis of global trends in the 2024 Global Connectedness Report examines three questions at the center of current debates about globalization. 1. Are global flows still growing? The evidence strongly rebuts the notion that the growth of global flows has gone into reverse. The world’s overall level of global connectedness reached a record high in 2022, and data suggest it remained at roughly the same level in 2023. Trade growth played a key role here. The share of global output traded internationally hit a record high in 2022. Early data suggest a modest decline in 2023, but this isn’t a signal of deglobalization. Trade growth normally lags behind GDP growth when the global economy slows. Furthermore, it seems companies haven’t lost their appetite for international expansion. Examples include a rise in the value of announced greenfield foreign direct investment (FDI), and the fact that publicly traded companies from most countries are earning more of their sales abroad, among others. People flows, which were hard hit by the Covid-19 pandemic, continued a strong recovery trend in 2023. International travel reached 88% of pre-pandemic levels and was on track for a full recovery by the end of 2024. VIEW REPORT