ASEAN FDI outlook: Who invests in where?

On March 22, at the Government Headquarters, Prime Minister Pham Minh Chinh met the US-ASEAN Business Council (USABC) delegation.

>> ASEAN FDI outlook: It’s a long story

ASEAN has seen a well-diversified pool of investors, as they have received investments from the US, the EU and Asia in different sectors. Northeast Asia as a bloc has traditionally accounted for a third of ASEAN’s FDI inflows, but intra-ASEAN investments have long been the top FDI provider if we dissect Northeast Asia by economy. Indeed, this is a strong reflection of increasing economic integration among ASEAN member states over the years, as many who have industrialised earlier (e.g., Singapore, Malaysia and Thailand) have been pouring their investments into later movers with growth potential, including Vietnam and Indonesia.

While ASEAN’s FDI share by source has remained steady, the emergence of the US as a key provider is nonetheless hard to miss. In the past three years, the US, with a 17% share, has replaced intra-ASEAN (14%) to be the region’s largest FDI provider, though by a small margin. The interesting shift reflects the supply chain relocations by US investors since the US-China trade tensions, and while it was temporarily disrupted by the pandemic, it has swiftly resumed and surged to a record high level.

Indeed, the US has been the dominating investor in ASEAN’s manufacturing and financial sectors, with each area taking an almost 30% share in FDI. Its advantage is more evident in the former, ASEAN’s backbone of foreign investment. The US has poured in an average of USD12bn over the past five years, equivalent to the sum of FDI from the EU and ASEAN.

That said, a large part of US FDI has flown into advanced manufacturing, such as high-end semiconductor production in Singapore and Malaysia. Meanwhile, Singapore also captures the region’s lion’s share of FDI into financial activities. Unsurprisingly, as indicated above, Singapore takes up 65% of the region’s FDI share.

In addition to the US, ASEAN investors also keep their eyes on these two key pillars. But interestingly, European FDI is more geared towards ‘wholesale, retail and repairs of motor vehicles’ while Japanese investors are more concentrated in ‘transport and storage’. Manufacturing comes second in terms of FDI in each of these markets. On the other hand, Chinese investors, who traditionally invested heavily in ASEAN’s real estate, has been catching up quickly to invest in ASEAN’s fast-growing manufacturing sector.