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ASEAN’s Share in Global FDI Expands to 17% at $230 billion in 2023

Date Published
October 23, 2024

Top semiconductor companies are expanding operations and building supply chain networks in ASEAN to meet increased demand in the world market. Photo credit: Asian Development Bank.

Foreign direct investment (FDI) inflows to Southeast Asia rose to a record $230 billion in 2023, bucking the global trend. It remains the top FDI destination among developing regions, with its share of global inflows growing to 17% from 16.5% in 2022.

The ASEAN Investment Report 2024, which was prepared with the support of the United Nations Trade and Development (UNCTAD), said the region’s strong performance is because of deeper regional integration, an improved investment climate, expanding opportunities, and positive sentiment among investors and business associations. It is expected to sustain the momentum, but ASEAN must address some policy gaps, including improving its investment facilitation framework.

The report was launched this month at the ASEAN Business and Investment Summit in Vientiane, Lao People’s Democratic Republic (Lao PDR), which was held back-to-back with the ASEAN Summit.

ASEAN comprises 10 member countries: Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Viet Nam. It has a combined population of more than 650 million people and a market size of $3.8 trillion.

Resilient amid global uncertainties

FDI in ASEAN increased less than 1% last year. In contrast, global FDI declined by 10%, affected by economic uncertainties, inflationary pressures, geopolitical tensions, and rising interest rates.

UNCTAD noted that ASEAN has seen a significant surge in FDI inflows over the past decade. Annual inflows averaged $170 billion since 2016, nearly double the figure of $92 billion recorded between 2006 and 2015. Between 2021 and 2023, foreign investments averaged $220 billion per year, solidifying ASEAN's status as a top FDI recipient among developing economies for 3 straight years.

ASEAN's 17% share of global FDI in 2023 is a leap from an average of 6% between 2006 and 2015. This rapid influx has driven FDI stock in the region to $3.9 trillion by 2023, more than double the $1.7 trillion in 2015.

UNCTAD defines FDI stock as “the value of capital and reserves attributable to a non-resident parent enterprise, plus the net indebtedness of foreign affiliates to parent enterprises.”

Emerging investment trends in ASEAN include increasing financial flows into renewable energy and manufacturing and strong investment growth from major economies, such as the People’s Republic of China, the United States, and the European Union. The report also noted that increased production network and supply chain activities are helping strengthen the industrial ecosystem and boost FDI.

Regional integration and FDI

The report said the ASEAN Economic Community Blueprint 2025 plays a pivotal role in improving the investment policy environment across the region. This includes implementing regional agreements and frameworks aimed at enhancing economic integration and stimulating growth in strategic sectors. It added that national investment policy measures and multilateral partnerships were also adopted to promote and facilitate FDI.

The AEC Blueprint 2025 set the strategic measures for transforming ASEAN into “a single market and production base, a highly competitive economic region, a region of equitable economic development, and a region fully integrated into the global economy.”

“Regional integration has a stronger effect on market-seeking and efficiency-seeking FDI because of the large market effect [and] opportunities to increase efficiency and build production networks,” the report said. For this reason, it sees bright investment prospects for ASEAN beyond 2025.

A prime example is the semiconductor industry. The world’s largest semiconductor companies are in ASEAN. These multinational enterprises are increasing their investments, expanding production capacity, developing new business functions, or growing their regional footprint to meet rising global demand.

Recommendations

The report highlights the symbiotic relationship between FDI, industrial development, and regional integration. “The stronger the integration, the more attractive the region’s investment environment, with opportunities to scale, to improve efficiency, to build regional supply chains and networks, and to benefit from complementary locational advantages.”

Among the recommendations are for ASEAN to tap into intraregional investments and facilitate the expansion of small businesses across the region. Investment opportunities with high potential include emerging industries and sectors linked to sustainable development, such as infrastructure, the digital economy, electric vehicle supply chain, renewable energy value chain, and the development of supply chain networks.

To maintain FDI growth, the report recommended deeper regional cooperation, investment in skills development, and advancing public–private partnerships to strengthen industrial ecosystems.