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

🐉 As we approach the upcoming lunar new year of the dragon, the dynamic Asia Pacific region is abuzz with activity! Welcome to your quick fix of the luckiest 8 essential trade and investment articles shaping the region! 1.       How To Attract FDI In An Era Of High-Interest Rates – A critical read for emerging markets! 2.       BCG - ASEAN's Triumph: A $1.2 Trillion Surge in Trade Signals Dominance Amidst Shifting Global Alliances and 'China + 1' Strategy 3.       🆕 UN Report Examines the Impact of Digital Trade on Development in Developing Countries 4.       Special ASEAN Investment Report 2023 - ASEAN Secretariat: Global FDI was down in 2022, but remained strong in ASEAN! 5.       How ASEAN Is Building Trust In Its Digital Economy - World Economic Forum 6.       How will ‘friend-shoring’ impact global trade in 2024? - Trade costs are expected to rise as political proximity increasingly trumps commercial convenience for the US and China. 7.       UNCTAD’s January Global Investment Trends Monitor 8.       FDI - Sovereign Investors Splurge on Emerging Markets Singapore Airshow (20-25 Feb): We will be meeting foreign investors, IPAs, business leaders, and network partners throughout the week and attending the Select USA programs. Please message me to arrange a meeting onsite or in Singapore. Capacity Building: We have our first training of the year in March on 'Digital FDI' and upcoming training sessions on ‘Developing Investor Ready Project Pipelines’ over the next few months. 🌏 PS - Subscribe (FREE): Asia Pacific Investment Brief for your daily news and resources and access to 1200+ indexed articles on the FDI, trade, and economic development communities in Asia Pacific. Please message me for further information and we wish you and your families a healthy and prosperous year of the dragon. Warm Regards, Andrew Keable, Managing Partner, KW Group, www.kwconfex.com

Excellent overview of how IPAs should adapt to opportunities presented by sovereign wealth funds and capital providers by Gavin Winbanks, founder of White Hawk Green and co-founder of the UK’s Office for Investment from FDI Intelligence Political leaders are courting capital providers as alternative sources of finance for projects, and institutional investors are seeking international investment opportunities. However, both local and national-level investment promotion agencies (IPAs), which are more accustomed to FDI by corporates, must do more to understand the unique characteristics of capital investment attraction. According to data provider GlobalSWF, the world’s top 10 sovereign investors deployed more than $120bn of fresh capital internationally in 2023. If we expanded this figure to include other institutional investors such as pension funds, insurers, and asset managers, the total amount would be staggering. More should be done to seize this opportunity. At the moment, however, it remains misunderstood. For it to be better delivered, more needs to be done to explain what it is, how it benefits economies, communities, and investors, and equip IPAs to provide them with a better-quality service. VIEW ARTICLE

Economics determines politics. Economic security is national security. Economic performance defines regime legitimacy. As a small and open economy, open and inclusive regionalism and international economic integration are the strategic compass of the Kingdom. Against this backdrop, the new administration in Cambodia has exhibited a noticeable shift in its foreign policy priorities, focusing on economic considerations. It can be argued that economic pragmatism is one of the key features of Cambodia’s foreign policy in a new era. Cambodia’s economic diplomacy has been remarkably gaining momentum under the leadership of Prime Minister Hun Manet. His relentless efforts to achieve national economic interests can be seen in numerous overseas visits and his meetings with foreign guests in the capital, all with the primary objective of economically connecting Cambodia with the world. Each overseas visit demonstrates Cambodia’s economic pragmatism and strategic diversification strategy to extract the maximum benefits from existing bilateral and multilateral mechanisms to advance Cambodia’s economic interests. In other words, how to transform the international environment and partnerships into a source of national growth and strength. In 2021, the Ministry of Foreign Affairs and International Cooperation unveiled a comprehensive economic diplomacy strategy (2021-2023). This strategy sets ambitious goals, including the promotion of international trade, attracting foreign direct investment, boosting tourism, and promoting Cambodia’s cultural identity. The strategy underlines the importance of establishing a robust and efficient mechanism that would sustain and further enhance the country’s economic growth by fostering multi-sectoral and multi-stakeholder collaboration on both national and international fronts. Systemic approaches are required. The key challenges identified in the strategy include insufficient qualified human resource, an insufficient financial resources to carry out the implementation of relevant action plans, lack of cross-sectoral coordination and an effective information sharing platform between the relevant actors, and lack of nation branding campaigns and lobbying activities. VIEW ARTICLE

In all, the projects secured in 2023 are expected to create 20,045 new jobs when they are fully implemented in the next few years. Of the jobs to be created, 58 per cent are in services, 26 per cent in research and development (R&D) and innovation, and the remaining 16 per cent in manufacturing. EDB managing director Jacqueline Poh said that the return of industrial policy in other countries led to increased competition for investment, while elevated interest rates also raised the barriers for investment and affected the fund-raising environment for start-ups. “These factors weigh on our investment commitments, but Singapore’s position as a trusted hub for business, innovation and talent remains a key factor of our attractiveness,” she said at a briefing held at EDB’s office in Raffles City Tower on Jan 30. Looking ahead, EDB said that it will focus on a number of key areas, including facilitating collaboration between multinational companies and local businesses. It will also double down on areas such as healthcare, environmental sustainability and aerospace, and work with large corporates to take advantage of opportunities in areas like AI and digitalization to increase productivity. VIEW ARTICLE

We are pleased to share a recent AI Opportunity whitepaper to help ASEAN governments tap into AI’s vast potential, By Andrew Ure, Managing Director, Government Affairs and Public Policy, Southeast Asia, Google AI has the potential to fundamentally change the ways we live, work and learn. As highlighted in our global AI Opportunity Agenda, we’re currently at an inflection point where the choices made by governments, industry leaders, and civil society will determine how AI is used to benefit as many people as possible. With a young and tech-optimistic population, a dynamic digital landscape, and a burgeoning tech ecosystem, ASEAN (the Association of Southeast Asian Nations) is well-positioned to harness AI to radically transform its future. From solving public health problems to strengthening disaster resilience to raising economic competitiveness, there are countless opportunities for AI to speed progress towards these goals. As ASEAN Digital Ministers and officials meet in Singapore this week to discuss AI among other topics, we’re launching an AI Opportunity Agenda for ASEAN — a whitepaper outlining policy recommendations to ASEAN member states (AMS) with suggestions on how to make the most of AI. We offer three key recommendations on how AMS — individually and at the ASEAN level — can harness AI responsibly and to its fullest potential. VIEW DETAILS

A fantastic illustration of public-private collaboration in APAC to attract strategic FDI - PEZA signed a memorandum of understanding (MOU) with SMBC and RCBC to make them the agency's investment promotion partners The Philippine Economic Zone Authority (PEZA) has partnered with Sumitomo Mitsui Banking Corp. (SMBC) and Rizal Commercial Banking Corp. (RCBC) in a bid to attract more investments from Japan. PEZA signed a memorandum of understanding (MOU) with SMBC and RCBC to make them the agency's investment promotion partners. 'This MOU is targeted to spur economic development positioning the country as an attractive investment destination characterized by agility and responsiveness to the needs and demands of our dynamic investors,' PEZA director-general Tereso Panga said. 'The concerted efforts of our esteemed Investment Promotion Partners (IPPs) will actively encourage and increase investments, especially those from Japanese companies,' he added. Japan remains the country's number one ecozone investor, with a total of 807 PEZA-registered business enterprises (RBEs). According to PEZA, this has resulted in P797.84 billion worth of investments, $13.45 billion in exports, and the creation of 336,442 direct jobs as of October 2023. Panga said the PEZA had approved nine big ticket projects from Japanese investors worth P60.41 billion from July 2022 to December 2023. 'With its acclaimed global presence, the partnership with SMBC could help PEZA tap into [a] broader network of international investors, potentially attracting more foreign direct investments (FDI) and reinvestments into the economic zones. On the other hand, the collaboration with RCBC could streamline processes within the economic zones, making it more efficient and attractive for potential investors,' Panga said. 'Given the financial expertise of SMBC and RCBC, PEZA gains a leverage for the benefit of our locators and stakeholders, especially in starting up their business operations in the Philippines,' he added. For his part, Yuichi Nishimura, SMBC managing executive officer and co-head of APAC Division, expressed optimism for the growth of the Philippine economy. 'I'm sure that the Philippine economy will continue to grow at an impressive rate, and it will move towards a more resilient and sustainable model of the economy,' Nishimura said. 'Although the world is changing with rising geopolitical risk and uncertainty, I am confident that there is no change to the close relationship between the Philippines and Japan. We remain firmly committed to working hand-in-hand with our Philippine partners, to realize a more prosperous future for both our countries,' he added. VIEW ARTICLE

- Over 30 strategic enterprises expected to invest US$3.8 billion in the city after the launch of Office for Attracting Strategic Enterprises - Smart retail solution provider Dmall will use Hong Kong's presence as a springboard to expand its software-as-a-service platform in Asia and across the world Hong Kong remains an attractive regional location for foreign direct investment (FDI), two recent government studies reveal. Last year there were 9,039 companies based in Hong Kong with parent companies overseas or in mainland China – showing a recovery back to the high level from before the Covid-19 pandemic – December’s “2023 Annual Survey of Companies in Hong Kong with Parent Companies Located outside Hong Kong” says. These businesses employ about 468,000 people in the city. A second study shows that start-ups are continuing to flourish in Hong Kong, with 4,257 new businesses beginning to operate in the city last year – an increase of 272 compared with 2022’s total – the “2023 Startup Survey”, also published in December, reveals. These start-ups now employ 16,453 people in various industries, such as financial technology (fintech), e-commerce, supply-chain management, and logistics technology, the report says. The findings of these surveys come as the government initiative, the Office for Attracting Strategic Enterprises (Oases), revealed that it has attracted over 30 strategic enterprises to establish a foothold in Hong Kong since it was launched in December 2022. VIEW ARTICLE

It contains preliminary 2023 estimates for foreign direct investment (FDI), greenfield investment, international project finance, and cross-border mergers and acquisitions (M&As). The Monitor shows that FDI in 2023 was weak, with lower flows to most countries and significant drops in project numbers. Some of the highlights: Global FDI flows in 2023 amounted to an estimated $1.37 trillion, a marginal increase (+3%) over 2022. However, the headline increase was due largely to higher values in a small number of conduit economies; excluding these conduits, global FDI flows were 18% lower. FDI flows in Europe, net of large swings in conduit economies, lost a quarter of their 2022 value, with declines in several large recipients. Inflows in other developed countries also stagnated, with zero growth in North America and declines elsewhere. FDI flows to developing countries fell by 9% to an estimated $841 billion. FDI decreased by 12% in developing Asia and by 1% in Africa. It was stable in Latin America and the Caribbean as Central America bucked the trend. International project finance and M&As suffered the most from higher financing costs in 2023, with 21% and 16% fewer deals, respectively. Greenfield project announcements were also 6% lower in number. However, they were 6% up in value and showed higher numbers in manufacturing in a possible initial sign of recovery following a long declining trend. Trends by industry in 2023 show project numbers rose in GVC-intensive sectors (+16%), especially in automotives, textiles, machinery, and electronics. In contrast, the number of projects in infrastructure industries (e.g. transport, power, water, telecommunications) fell by 4 percent. New international project finance deals in the renewable energy sector fell by 17% in number and 10% in value, only marginally less than the overall project finance decline. The decline in the number of new projects was the first since the Paris Agreement in 2015. The number of international investment projects announced in developing countries in sectors relevant to the SDGs – including infrastructure, renewables, water and sanitation, food security, health, and education – remained flat. Project numbers in food and agriculture rose marginally from low levels in 2022; most other sectors registered a decline. Looking ahead, a modest increase in FDI flows in 2024 appears possible, as projections for inflation and borrowing costs in major markets indicate a stabilization of financing conditions. However, significant risks persist, including geopolitical risks, high debt levels, and concerns about global economic fracturing. VIEW REPORT

Interesting and timely article explores the uncertain future of interest rates and its impact on Foreign Direct Investment (FDI), focusing on the rising cost of capital for corporations. The key concern lies in how emerging markets, lacking fiscal flexibility, will cope with the challenges posed by higher capital costs. The authors propose a shift away from traditional fiscal incentives towards non-fiscal measures, emphasizing regulatory certainty and stable business environments. As global monetary policy normalizes and fiscal constraints persist, the article anticipates a nuanced approach by states in attracting FDI, signaling a need for strategic adjustments. By Simon Evenett, Camilla Erencin, Felix Reitz FDI Intelligence Let’s ground the discussion in pertinent facts. We’ve tracked the financial performance of some 40,000 publicly-listed firms since 2005 as part of the Crux of Capitalism initiative. These firms are located in 21 economies, which together accounted for more than 84% of global FDI flows from 2018 to 2022. We’ve calculated the median weighted average cost of capital (WACC) of the biggest 25% of firms in each of these countries measured by asset size. Our data shows how the median WACC of the largest firms in China, Germany, Japan and the US has varied since the start of 2019. Although the turning point from falling to rising WACC varies, by the second quarter of 2022 the median WACC was rising in all four economic behemoths. Since their nadirs, the median WACC has risen more than 300 basis points in each of these big four economies. The repricing of capital is occurring in all sectors that we’ve tracked. From industrials and healthcare to IT and consumer goods, no sector is immune, it seems. VIEW ARTICLE

Trade costs are expected to rise as political proximity increasingly trumps commercial convenience for the US and China. By Aliya Shibli, The Banker With political tensions increasingly impacting global trade relationships — in particular between China and the US — the term ‘friendshoring’ has entered the vernacular, representing the realignment of trade networks along geopolitical lines. The United Nations Conference on Trade and Development (UNCTAD) last month noted a significant rise in the political proximity of trade since the second half of 2022, suggesting a shift in bilateral trade preferences toward countries with similar geopolitical stances, leading to a concentration of global trade within major trade relationships. VIEW ARTICLE

- Digitalization across Association of Southeast Asian Nations’ (ASEAN) member states serves its younger demographic and comprises an economy worth $1 trillion by 2030. - While policies can help digital transformation thrive, socio-economic differences across the region, as well as development and regulatory regimes, pose challenges. - The ASEAN Digital Economy Framework Agreement offers a blueprint for achieving harmonization among nations at different stages of digital integration. Engendering greater trust among ASEAN member states in its policy tools and vision is paramount to its progress and aspiration of developing a community of opportunities for all. One such huge opportunity is its digital economy, estimated to grow from approximately $300 billion to almost $1 trillion by 2030. ASEAN is one of the world’s fastest-growing regions, with average real gross domestic product growth forecast to reach 4.6% in 2023 and 4.8% in 2024. By 2030, it is expected to be the fourth-largest economy in the world. This dynamism is driven by a population of 700 million, composed of young, educated, increasingly online individuals and a growing middle class. VIEW ARTICLE #trade #globaltrade #fdi #investment #economy #economicdevelopment #policy #government #foreigninvestment #asia #asiapacific #asean #investment #development #investmentpromotion #climate #genderequality #sustainabledevelopmentgoals #capacitybuilding #digitalization

State-owned investment in developing economies reached a decade-high of $65bn last year, Alex Irwin-Hunt, FDI Intelligence. This article underlines the opportunity for the APAC investment promotion communities to develop investable project pipelines and proactive strategies to attract institutional investors. In a recent training, we concluded with UNESCAP with 20 IPAs found that only 20% have any plans on investable project pipelines and attracting institutional investors! The FDI angle: State-backed investors have grown in number and importance. Their shift of investment to emerging markets could have huge implications for international business. Why does it matter? More state-backed investment in emerging markets has come at the expense of more developed regions where there is greater scrutiny of investment. The mammoth influence of state-backed investors is expected to grow. GlobalSWF forecasts their total global assets to reach $50tn by 2030. The World Bank has said that developing countries need an “investment boom” to shore up low growth forecasts. The SWF shift to emerging markets ought to be closely watched by economic developers and corporate leaders alike. VIEW ARTICLE