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

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

As Asia Pacific FDI specialists, we endorse the World Bank's call for an "investment boom" in developing economies but this isn't a magic solution. Development donors such as WB need to step in to enhance capacity development within emerging market investment promotion communities. This empowerment is crucial for fostering strategic and targeted FDI aligned with each country's strengths rather than generic approaches. Global growth is set to slow further this year amid tight monetary policy, restrictive financial conditions, and feeble global trade and investment. Downside risks include an escalation of the recent conflict in the Middle East, financial stress, persistent inflation, trade fragmentation, and climate-related disasters. Global cooperation is needed to provide debt relief, facilitate trade integration, tackle climate change, and alleviate food insecurity. Among emerging market and developing economies (EMDEs), commodity exporters continue to grapple with fiscal policy procyclicality and volatility. Across all EMDEs, proper macroeconomic and structural policies, and well-functioning institutions, are critical to help boost investment and long-term prospects. VIEW REPORT

As we dive into the new year, we are excited to bring you Eurasia Group's latest forecast for the Top 10 Risks in 2024 (one of our favorites in 2023), authored by EG President Ian Bremmer and EG Chairman Cliff Kupchan. This annual report offers valuable insights into the challenges that will shape the world. From the complexities of the United States' internal struggles to the geopolitical tensions in the Middle East, we'll dissect the key issues that will capture the attention of world leaders and decision-makers. Here are summaries of the 10 most important risks that will preoccupy world leaders, business decision-makers, and the rest of us in 2024. 1. The United States vs. itself While America’s military and economy remain exceptionally strong, the US political system is more dysfunctional than any other advanced industrial democracy. In 2024, the problem will get much worse. The presidential election will deepen the country’s political division, testing American democracy to a degree the nation hasn’t experienced in 150 years and undermining US credibility internationally. With the outcome of the vote close to a coin toss (at least for now), the only certainty is damage to America’s social fabric, political institutions, and international standing. In a world beset by crises, the prospect of a Trump victory will weaken America’s position on the global stage as Republican lawmakers take up his foreign policy positions and US allies and adversaries hedge against his likely policies. 2. Middle East on the brink The fighting in Gaza will expand in 2024, with several pathways for escalation into a broader regional war. Some could draw the US and Iran more directly into the fighting. The conflict will pose risks to the global economy, widen geopolitical and political divisions, and stoke global extremism. The straightest path to escalation would be a decision by either Israel or Hezbollah to attack the other. Top Israeli leaders have pledged to “remove” the threat from Hezbollah. If Israel were to attack preemptively, the US military would provide support, and Iran would assist Hezbollah, its most important regional proxy. Houthi militants are also pursuing an escalatory path, and Shia militias operating in Iraq and Syria have increased attacks on US bases with Tehran’s blessing. No country involved in the Gaza conflict wants a regional conflict to erupt. But the powder is dry, and the number of players carrying matches makes the risk of escalation high. 3. Partitioned Ukraine Russia’s invasion of Ukraine remains a historic failure. NATO is strengthened by new members Finland and (soon) Sweden. The EU has opened a membership process for Ukraine, Russia has faced 11 rounds of sanctions, with more on the way, and half of its sovereign assets have been frozen — money increasingly likely to be used for Ukrainian reconstruction. Europe no longer buys Russian energy. But Ukraine will be de facto partitioned this year, and Russia now has the battlefield initiative and a material advantage. 2024 is an inflection point in the war, and if Ukraine doesn't solve its manpower problems, increase weapons production, and set a realistic military strategy soon, its territorial losses could prove permanent and may well expand. Kyiv has taken a body blow from ebbing political and material support from the United States, and the outlook for European assistance is only slightly better. Ukraine is desperate for more troops. For all these reasons, Kyiv will take bigger military risks this year, including strikes on more targets inside Russia that provoke unprecedented Russian responses and could pull NATO into the conflict. 4. Ungoverned AI Technology will outstrip AI governance in 2024 as regulatory efforts falter, tech companies remain largely unconstrained, and far more powerful AI models and tools spread beyond the control of governments. 5. Axis of rogues (and America’s dangerous friends) In 2024, Russia, North Korea, and Iran will boost one another’s capabilities and act in increasingly coordinated and disruptive ways on the global stage. Meanwhile, even Washington’s friends — the leaders of Ukraine, Israel and (potentially) Taiwan — will pull the US into confrontations it wants to avoid. 6. No China Recovery Absent an unlikely loosening of President Xi Jinping’s grip on power or a radical pivot toward large-scale consumer stimulus and structural reform, China’s economy will underperform throughout 2024. Beijing’s failure to reform the country’s sputtering economic growth model, the country’s financial fragilities, and a crisis of public confidence will expose gaps in the Chinese Communist Party’s leadership capabilities and increase the risk of social instability. 7. The fight for critical minerals Critical minerals will be a crucial component in virtually every sector that will drive growth, innovation, and national security in the 21st century, from clean energy to advanced computing, biotechnology, transportation, and defense. In 2024, governments around the world will intensify their use of industrial policies and trade restrictions that disrupt the flow of the critical minerals. 8. No room for error The global inflation shock that began in 2021 will continue to exert an economic and political drag in 2024. High interest rates caused by stubborn inflation will slow growth around the world, and governments will have little scope to stimulate growth or respond to shocks, heightening risk of financial stress, social unrest, and political instability. 9. El Nino is back After a four-year absence, a powerful El Nino climate pattern will peak in the first half of this year, bringing extreme weather events that trigger food insecurity, increase water stress, disrupt logistics, spread disease, and foment migration and political instability, particularly in countries already weakened by the pandemic and the energy and food prices shocks created by the Ukraine war. 10. Risky business Customers, employees, and investors — mostly on the progressive side — have brought the US culture wars to corporate offices, and now courts, state legislatures, governors, and activist groups — mostly conservative ones — will hit back. Companies caught in the political and legal crossfire will face higher uncertainty and costs. VIEW REPORT

The Belt and Road is having some underappreciated effects in Asia A decade ago Xi Jinping, China’s leader, declared his intention to make a world-girdling web of infrastructure China’s gift to the planet. From the start, Southeast Asia was to serve as perhaps the main focus of what came to be called the Belt and Road Initiative (bri). The region of 690m people was China’s backyard. South-East Asia needed trillions of dollars of infrastructure and other development. China-centered supply chains increasingly ran through the ten-country Association of Southeast Asian Nations (ASEAN). Some 60m-70m ethnic-Chinese citizens of South-East Asia, many of them successful businessmen, could help China’s mission. Ten years on, there is no missing the wave of Chinese money that has broken over the region, bringing giant earth-moving machines, Chinese construction crews, Chinese business folk and diplomats, and not a few criminal chancers. Many bri projects have gone well, bringing roads, railway tracks, and power plants. In Cambodia, a new Phnom Penh-Sihanoukville expressway has cut the journey from the capital to the south coast from five hours to two. VIEW ARTICLE #trade #globaltrade #fdi #investment #economy #economicdevelopment #policy #government #foreigninvestment #asia #asiapacific #asean #investment #development #investmentpromotion #climate #genderequality #sustainabledevelopmentgoals #capacitybuilding #digitalization