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| September and October 2014
Outlook on ASEAN
Investment 2015
– By Matthew Zito, Dezan Shira & Associates
The ten member states of ASEAN can be divided in many ways:
geographically, the bloc is split between continental states like
Myanmar, Thailand and Cambodia and the archipelagos of Indonesia
and the Philippines; culturally, the region is home to the largest
Muslim nation in the world (Indonesia), bastions of Buddhism like
Cambodia and Thailand, and the Roman Catholic majority of the
Philippines; and in economic terms, the GDP of Indonesia exceeds
that of runner-ups Thailand and Malaysia combined, and weighs
in almost one-hundred times larger than Laos. But it is the region’s
growing integration that is drawing the attention of foreign investors.
With amilestone target for economic integration fast approaching in
2015, the region is poised to be awash in FDI over the coming years.
In fact, investment into ASEAN is already at an all-time high, with FDI
inflows into the region’s five largest trading countries (the“ASEAN-5”:
Singapore, Malaysia, Indonesia, the Philippines andThailand) totaling
US$128.4 billion in 2013, according to Bank of America Merrill Lynch.
Of course any discussion of the rising competitiveness of ASEAN
must address the dragon in the room: China. In terms of both total
investment and year-on-year growth, these five powerhouses
outperformed China in 2013.
Historically, Singapore has been the greatest recipient of FDI into
the region, followed at a wide margin by the remaining ASEAN-5
members and Vietnam. The city-state is also the largest source
of intra-regional FDI at 45 percent, while the greatest outside
contributors are the European Union (25 percent of total FDI), Japan
(13 percent) and the United States (11 percent).
Investment has been variously directed into different sectors based
on its country of destination. Whereas in Malaysia, Thailand and
Vietnam, the manufacturing industry has been the main recipient
of investment, there has been a greater emphasis on the services
sector in the more advanced economies of Singapore, Indonesia
and the Philippines.
From a regulatory standpoint, manufacturing is themost liberalized
sector for foreign investment into ASEAN, contrastingwith themore
stringent restrictions placed on business services, communications
and transportation in the region. The World Bank’s East Asia Pacific
Economic Update found that Thailand, the Philippines andMalaysia
are among the most restrictive countries for foreign equity, while
Cambodia and Singapore allow for nearly 100 percent foreign
ownership in most sectors.
Where are investments into ASEAN going?
Indonesia, Malaysia, and the Philippines are surging ahead of their
regional neighbors, with FDI increases of 17, 19 and 20.4 percent,
respectively, in 2013, according to Bank of America Merill Lynch.
Meanwhile, Singapore continues to receive the lion’s share of total FDI
in the region, which last year grew 5 percent to a net value of nearly
US$64 billion. The city-state’s attraction for foreign investors derives
not only from its often overlooked manufacturing base, but also as
a channel for routing FDI into other locations in ASEAN.
Based on World Bank figures, Vietnam showed a more modest FDI
increase of 6.36 percent year-on-year for 2013. Analysts expect this
to spike, however, following Vietnam’s entry into full compliance
withASEANEconomic Community by 2015. Thiswill remove virtually
all tariffs on goods traded between Vietnam and ASEAN member
nations, as well as various quantitative restrictions and non-tariff
barriers. To date, 72 percent of registered capital for FDI into Vietnam
has come frommanufacturing and processing.
