Singapore had the largest share of foreign direct investments at $159.7 billion or nearly 80% of the total for SEA-6 in 2023.
Southeast Asia is likely to outpace the People’s Republic of China (PRC) in gross domestic product (GDP) and foreign direct investment (FDI) growth over the next decade, according to a report led by a Singapore-based think tank.
Released this month by the Angsana Council, Bain & Company, and DBS Bank, Navigating High Winds: Southeast Asia Outlook 2024–34 gives a 10-year growth forecast for the top six economies in Southeast Asia (SEA-6): Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Viet Nam.
Their combined GDP is projected to grow at an annual rate of 5.1% on average between 2024 and 2034. Viet Nam and the Philippines will drive the region's growth with each expected to exceed 6%, while Indonesia comes close at 5.7%. The forecast was made by reviewing factors that affect labor, capital, and productivity. The report highlights historical economic performances of SEA-6 markets against traditional and contextual drivers of growth.
More foreign investments
For the first time in a decade, the report said SEA-6 has attracted more FDIs than the PRC.
Based on the latest UNCTAD data, FDI flows to SEA-6 amounted to $200.7 billion in 2023, while the PRC recorded $163.2 billion. Singapore had the largest share at $159.7 billion or nearly 80% of the total for SEA-6.
UNCTAD’s World Investment Report 2024 said FDI inflows to East Asia fell by 9% last year, primarily due to declines in the PRC and Hong Kong, China. While the estimated value of greenfield announcements shot up by 65%, overall growth was offset by a 58% decline in the value of project finance deals.
On the other hand, FDI inflows to Southeast Asia remained stable, with an increase in M&A sales. The number of greenfield announcements surged by 42%, adding $62 billion more in value. However, this gain was countered by a $64 billion fall in the value of international project finance deals.
“As a result of strong domestic growth and the [People’s Republic of] China +1 strategy, we are increasingly optimistic that Southeast Asia will outpace [People’s Republic of] China's growth in both GDP and FDI in the next decade. However, multinational investments will be highly contested, with the competition between countries improving outcomes for both businesses and consumers,” said Charles Ormiston, advisory partner at Bain & Company and chair of Angsana Council.
“The world has turned increasingly protectionist and inward-looking in recent years, a trend unlikely to change. Yet, most Southeast Asian economies and companies are well placed to find opportunities as capital allocation is recalibrated across geographies and sectors, while dealing with tech disruption and climate change. We think the doomsayers are wrong; a decade of tailwind awaits the region,” said Taimur Baig, managing director and chief economist at DBS Bank.
Outlook per country
Despite a slowdown in growth in Viet Nam, the Angsana Council-led study sees the country leading the region, growing at 6.6% GDP on average over the next decade. Viet Nam’s export-oriented economy is well-positioned to capture opportunities from supply chain shifts. Its domestic ecosystem promotes healthy inter-provincial competition and cultivates a strong workforce. This combination sets the country up well to attract diverse investment sources, while developing its economy.
The Philippines is projected to grow at an average of 6.1%. It benefits from a pro-growth administration that is prioritizing infrastructure investments, particularly with renewable energy projects garnering investor interest. It can also reap demographic dividends, unlike Singapore and Thailand which will face challenges in this area.
Average growth rate for Indonesia is at 5.7%, but the country has strong potential to exceed this forecast given the availability of resources, a growing population and workforce, and a thriving ecosystem of entrepreneurship and innovation. It needs to improve manufacturing value-added, going beyond commodities, and continue to keep the economy open and competitive.
Malaysia, which is projected to grow at 4.5% on average, shows signs of doing well with recent efforts to attract FDI, leveraging its past successes in growth sectors, such as semiconductors. It could also be the main beneficiary of flow through of opportunities from Singapore, particularly reflected in the sharp uptick in data center investments. Malaysia’s data center capacity has the potential to more than double the capacity of Singapore, which has been the leader in the region.
Thailand and Singapore are expected to grow at an average of 2.8% and 2.5%. The report said positive growth drivers for Thailand are the rebound in tourism and the development of a regional automotive hub and regional conglomerates in the country. Positive drivers for Singapore are its open and diverse economy; strong manufacturing services, and tourism sectors; safe and stable environment; and government-backed initiatives to foster growth.
The report cites the following five new growth opportunities for SEA-6:
- investing in emerging growth sectors,
- fostering technology-enabled disruptors,
- strengthening capital markets and expanding investments,
- accelerating the green transition, and
- embracing multilateral initiatives.