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

New UNCTAD analysis shows global FDI trends defied earlier expectations but highlights that growth was driven by a few European “conduit” economies and raises concerns about the decline in international investment projects. Global foreign direct investment (FDI) defied earlier expectations for 2023, growing by 3% and finishing the year at an estimated $1.37 trillion, according to UNCTAD's latest Global Investment Trends Monitor published on January 17. However, the report highlights a key nuance – the overall uptick was driven mainly by a few European "conduit" economies, which often act as intermediaries for FDI destined for other nations. Strikingly, when these conduit economies are excluded, global FDI flows show a steep 18% decline in 2023. The rest of the European Union recorded a steep 23% decline, and the United States, the world's leading FDI recipient, saw a 3% dip. The UNCTAD report also underscores a worrying decline in international investment project announcements last year, especially in project finance and M&As, which declined 21% and 16%, respectively. Meanwhile, greenfield project announcements dipped by 6% in number but grew by 6% in value, bolstered in part by manufacturing. Looking ahead, the report says “a modest increase in FDI flows in 2024 appears possible”, citing stabilization for inflation and borrowing costs in major markets. But it warns that significant risks persist, including geopolitical tensions, mounting debt in many countries and concerns about further global economic fragmentation. Developing Asia’s FDI engine slows The overall FDI landscape for developing countries in 2023 revealed a 9% decline, amounting to $841 billion. Developing Asian countries bore the brunt with a 12% decrease. China reported an unusual 6% drop in FDI inflows but showed an 8% growth in new greenfield project announcements. India, another regional giant, saw a 47% drop in FDI inflows but remained among the top five global destinations for greenfield projects. The Association of Southeast Asian countries (ASEAN), traditionally an engine of FDI growth, recorded a 16% decline. Yet the region remained attractive for manufacturing investments with a remarkable 37% increase in greenfield project announcements in nations like Viet Nam, Thailand, Indonesia, Malaysia, the Philippines, and Cambodia. Conversely, FDI flows fell by a modest 1% in Africa and held steady in Latin America and the Caribbean, thanks in part to increases to Central America and 21% growth in Mexico, the region’s second-largest economy. VIEW ARTICLE

Small and medium-sized enterprises (SMEs) are important contributors to economic development, representing a substantial portion of businesses globally. Global markets offer SMEs opportunities for growth, diversification and resilience. Access to international markets enables them to tap into new customer bases, gain exposure to diverse business practices and foster innovation through cross-cultural collaboration. However, SMEs encounter significant challenges that hinder their investment overseas. SME investors, relative to large Multinational Enterprises (MNEs), face distinctive bottlenecks including financial and information constraints, difficulties in dealing with regulatory complexities and, importantly, an international investment environment in which facilitation and investment promotion institutions are often geared towards attracting large-scale investment projects. Foreign direct investment (FDI) by SMEs has been in decline in recent years: the number of outward greenfield investment projects in 2022 was only about a quarter of that in 2015. There are good reasons for governments and investment promotion institutions to pay more attention to supporting SME investment. SME investment can be most beneficial for development because it is less footloose, relies more on local suppliers and partners, and is less likely to crowd out local firms. SMEs can become real game changers in a global context characterized by greater competition for a shrinking pool of large-scale projects; a general trend towards regionalization and international tax reforms that will reduce the effectiveness of incentives for large MNEs. Based on original empirical studies in different developing regions and selected developed economies, this report discusses how to reduce the common investment policy bias in home and host countries towards large MNEs, the role of SMEs in South–South and intraregional FDI, and ways and means to maximize the development impact of SME FDI. It introduces a new framework to assess the relevance and effectiveness of existing investment policies for the promotion of SME investment and presents policy options to facilitate overseas investment by SMEs and reduce the existing policy bias, including these six: Adjusting investment promotion and facilitation services towards addressing the needs and challenges that SMEs face, so that size does not hinder their access to financial incentives and facilitation mechanisms. Establishing comprehensive support networks and designing accessible matchmaking programmes and events to help small businesses connect and to foster sustained and successful. Improving SMEs’ competitiveness by supporting their innovation capacity, including through digitalization, technology adoption and capacity-building. Facilitating SMEs’ access to capital, including by improving digital services and infrastructure. Simplifying the regulatory and administrative framework and improving access to information by using digital platforms. Promoting SMEs’ participation in trade to increase their international exposure and knowledge of foreign markets. By implementing a combination of these policies, governments can create an environment that supports SMEs in their efforts to invest and thrive in international markets and to harness the related development benefits. VIEW REPORT

An excellent initiative to drive institutional investment by Spain’s sovereign wealth fund (SWF) Cofides as they are readying their first deals under a new €2bn fund that will crowd foreign capital into local greenfield projects. The Foco fund underlines the growing trend of governments mandating SWFs to attract inbound investment, developed through collaboration and investor demand. Foco is a co-investment fund that will see Cofides, foreign corporates, and institutional investors invest in Spanish businesses and projects that are pursuing activities linked to the green and digital transition. It was driven by the rationale that investing alongside a state-owned investment partner will reassure foreign investors to back more transformative, potentially higher-risk projects. “The government [putting] some skin in the game shows it is an important project that will get the necessary visibility, provides comfort that permitting and licensing will go smoothly, and reduces investment risks by covering some of the equity needs and potentially crowding in other financial partners,” says Manuel de la Rocha-Vázquez, secretary general for economic and G20 affairs at the office of Spain’s president. Mr de la Rocha-Vázquez said the real genesis was investor demand. “For the most part, it was inspired by conversations with large international funds — SWFs and pension funds — that were looking for opportunities beyond the [securities] and mature companies which they typically invest in,” he says. “We want to direct them to more greenfield projects and new technologies … But they are cautious, so if we accompany them they have more comfort.” PRIORITY ELIGIBLE SECTORS Those that contribute to strategic objectives of the Recovery, Transformation, and Resilience Plan such as, for example: Increased production of renewable energy Energy efficiency Decarbonization of the economy Electric mobility Digitization of business fabric and production processes Sustainable infrastructure development Biotechnology sustainable agriculture VIEW ARTICLE

New rules in China and Vietnam are creating uncertainty for the fast-growing sector 🌏 Projected to grow at a 12% CAGR from 2023 to 2027, the Asia-Pacific data center market is set to reach $48 billion. This growth, however, is navigating through tighter data flow restrictions imposed by regional governments, particularly impacting cross-border data exchanges. China and Vietnam have adopted stricter data regulations for national security, pushing businesses to reassess their data center strategies. Despite China's lead in data center numbers, the search for stable regulatory environments has companies eyeing Singapore, Hong Kong, and Australia as viable alternatives. 🌏 In Southeast Asia, the push towards digitalization is driving robust demand for data centers. While Singapore remains a hub for many companies' regional or global headquarters, there's a noticeable shift towards expanding data center operations into Malaysia, Indonesia, Vietnam, Thailand, and the Philippines, largely influenced by cost efficiencies... The surge in Asia's demand for data centers is propelled by advancements in artificial intelligence and augmented reality, alongside pivotal shifts such as China's move towards a cashless society and the development of next-generation 5G and forthcoming 6G networks. VIEW ARTICLE

A GROWING number of Chinese semiconductor design companies are tapping Malaysian firms to assemble a portion of their high-end chips, keen to hedge risks in case the US expands sanctions on China’s chip industry, sources said. The companies are asking Malaysian chip packaging firms to assemble a type of chip known as graphics processing units (GPUs), according to three sources with knowledge of the discussions. The requests only encompass assembly – which does not contravene any US restrictions – and not fabrication of the chip wafers, they said. Some contracts have already been agreed, two of the sources added. The sources declined to disclose the names of the companies involved or to be identified, citing confidentiality agreements. Seeking to limit China’s access to high-end GPUs that could fuel artificial intelligence (AI) breakthroughs or power supercomputers and military applications, Washington has increasingly placed restrictions on their sales as well as on sophisticated chip-making equipment. Malaysia currently accounts for 13 per cent of the global market for semiconductor packaging, assembly, and testing and is aiming to boost that to 15 per cent by 2030. Chinese chip firms that have announced plans to expand in Malaysia include Xfusion, a former Huawei unit, which said in September that it would partner Malaysia’s NationGate to manufacture GPU servers – servers designed for data centres and which are used in AI and high-performance computing. Shanghai-based StarFive is also building a design centre in Penang, and chip packaging and testing firm TongFu Microelectronics said last year it would expand its Malaysia facility – a venture with US chipmaker AMD. Offering an array of incentives, Malaysia has attracted multi-billion-dollar chip investments. Germany’s Infineon said in August that it would invest 5 billion euros (S$7.26 billion) to expand its power chip plant there. US chipmaker Intel announced in 2021 that it would build a US$7 billion advanced chip packaging plant in Malaysia. VIEW ARTICLE

In 2023, the FDI landscape was heavily influenced by the Energy transition. Major FDI announcements not only mirrored globalization patterns but also signified significant macroeconomic changes in the global economy. By Alex Irwin-Hunt, FDI Intelligence Three macro takeaways: 1️⃣ Preliminary full-year 2023 figures indicate an all-time high of 174 FDI projects valued at $1bn or more were announced worldwide, up from the previous high of 156 recorded in 2022. 2️⃣ Software & IT services — our label for the broadly defined tech industry — slipped from 6th in 2022 to 11th last year in the investment matrix. This is the first time the software industry has fallen out of the top 10 sectors for FDI capex since 2013. 3️⃣ The average capex committed to FDI projects globally stood at $314m in 2023, down slightly from the record $400m a year earlier, but at historic highs unmatched by any other year since records began in 2023. VIEW ARTICLE

No industry sector – the site selection industry included – is immune from the disruption brought on by the rise of artificial intelligence (AI). The Site Selectors Guild, the only association of the world’s foremost professional site selection consultants, took some initial steps toward understanding the potential impacts of AI on the site selection industry. Seeking answers, the Guild undertook two research projects in the fall of 2023. A survey of Guild members to gauge their current and anticipated use of AI in the site selection process, the greatest opportunities, and existing limitations to create a comprehensive overview of the integration of AI in the site selection industry. A research study designed to “test” three AI platforms against human-generated outcomes in two real-world site selection projects – one office and one industrial. As professionals who manage high-stakes location decision-making for companies across the globe, Guild members recognize the importance of understanding how AI tools might be successfully leveraged without sacrificing the quality and accuracy of site location searches. Download the white paper for the full methodology and findings.

Incredible initiative by Investment Fiji! Leveraging investments from the diaspora constitutes a crucial strategic channel for governments to actively foster economic growth and development. Attracting the Fijian diaspora overseas is a strategy Investment Fiji is working on and they will make some recommendations to the government to see how they can attract more of them and make things easier. CEO Kamal Chetty says diaspora investment is very important and they do their part in several events to attract that diaspora investment in Australia, New Zealand and other places. Chetty says last year, Investment Fiji received about 1,100 foreign investment enquiries from investors to set up businesses in Fiji. He says investors from 44 different countries expressed interest in doing business in Fiji. Chetty adds this broad spectrum of interest demonstrates Fiji's ability to attract capital from a wide range of nations, diversifying the sources of foreign investments. VIEW ARTICLE

According to the Foreign Investment Agency, cited by Vietnam+, the government granted registration certificates to 190 new projects. The registered capital hit $2bn, or 67% higher than in January 2023. In addition, investors from 39 countries and territories announced projects in Vietnam since the beginning of the year. Singaporean businesses took the lead, with over $1.4bn in FDI inflows, or 59.3% of the total investment capital spent in Vietnam. The sharp increase in the number of projects and the appearance of large-scale projects (with an investment of more than 600 million USD each) were one of the main factors driving the sharp increase in foreign investment capital. In addition, 75 projects registered to adjust investment capital with more than 235.4 million USD added, down 15.7% and 23.1% respectively. The month also saw foreign investors contribute more than 116.5 million USD to make 174 share purchases, down 14.7% and 33.1% respectively over the same period last year. Foreign investors disbursed 1.48 billion USD during the month, a year-on-year increase of 9.6%.In terms of investment fields, foreign investors invested in 15 industries out of 21 national economic sectors. Of that, the real estate sector attracted the most with more than 1.27 billion USD (53.9%) and the processing and manufacturing industry ranked second with nearly 926 million USD (39.2%). They were followed by the science and technology sector with 65.2 million USD and wholesale and retail with nearly 54.5 million USD. The wholesale and retail sector attracted the highest number of new projects (accounting for 38.9%) and capital contribution to purchase shares (accounting for 49.4%). Companies from 39 countries and territories invested in Vietnam in January 2024. Of them, Singapore led with more than 1.4 billion USD, accounting for 59.5% of total investment capital. Japan came second with nearly 297 million USD. The foreign investors invested in 35 provinces and cities across the country. Hanoi attracted the most FDI this month with over 867 million USD, or 36.7% of the total registered investment capital and 39.7 times higher than the same period in 2023. Ba Ria-Vung Tau ranked second with nearly 282 million USD, followed by Bac Giang, Bac Ninh, and Dong Nai. VIEW ARTICLE

🐉 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