Investment boom in ASEAN: Wherein lie the opportunities?
In 2018, the ASEAN region reached a record high of US$149 billion in FDI inflows, bucking the worldwide trend of falling FDI.
Three major factors contributing to the region's attractiveness are its young population, fast-growing economies and tech-savvy consumers.
Yet entering and navigating the ASEAN market can be challenging especially for investors new to the region, given each country's unique cultures, customs, languages and ways of doing business.
ASEAN is experiencing an investment boom. The region's fast-growing economies, young population and tech-savvy consumers make it an attractive destination for both multinationals and individual investors.
The numbers speak for themselves. Last year, ASEAN bucked the global trend of falling foreign direct investment (FDI) to emerge as the world's main driver of FDI growth. The region's FDI inflows reached a record high of US$149 billion, according to data from the United Nations Conference on Trade and Development (UNCTAD).
This marked a three per cent increase from a year ago, in contrast to a 13 per cent decline in global FDI. The data also indicated that not only did ASEAN beat Europe in terms of FDI inflows, it also surpassed China, the world's second largest FDI recipient last year.
Spearheading the growth of FDI into the region is its favourable demographic profile. Comprising 10 countries, ASEAN has the world's third-largest population of more than 660 million people, of which more than half are below 30 years of age. These demographics make ASEAN an attractive market for firms that are keen to access the region's growing consumer base. Riding on this positive trend, we have seen a wave of Japanese consumer companies such as retailers and food and beverage players expand into ASEAN in the last few years.
Cost-competitiveness, strong economic growth, and established legal frameworks have also contributed to the region's attractiveness as an investment destination. In addition, the region is the fastest-growing internet economy in the world, with an online population expanding by an estimated 124,000 new users each day, according to ASEAN's Investing in ASEAN 2019/2020 report. The booming digital generation in the region will continue to drive the demand for innovative digital solutions that provide greater convenience, giving rise to more opportunities for technology-focused investments.
While ASEAN presents vast investment opportunities, expanding into the dynamic economic bloc also comes with its share of challenges, particularly for investors who are unfamiliar with the region. With unique cultures, customs, and languages, each of the ten ASEAN member states is distinct and complex in its own way. Investors who are turning their gaze towards this region must therefore understand and embrace the varying business environments and local practices.
At UOB, we understand the complexities of entering ASEAN and the advantages that working with local partners with the relevant expertise and connections can provide. To help companies navigate their expansion across ASEAN, we set up the FDI Advisory team in 2011 to provide business and financial support through our integrated network and strong knowledge of and experience in local markets. We also partner government agencies, business associations, and professional service providers in the region to provide companies seamless connectivity and integrated market entry support. All ASEAN member states are attractive investment destinations in their own right, and here we cast a spotlight on a sampling of the golden investment opportunities abound in ASEAN.
With a highly-educated workforce and world-class infrastructure, Singapore offers a conducive and efficient business environment that appeals to investors taking their first step into the region. Of the US$149 billion in FDI that poured into ASEAN last year, more than half went to Singapore, demonstrating the city state's attractiveness to foreign investors.
The country has bilateral and multilateral agreements with other ASEAN countries, providing global companies and investors a launch pad to engage with and to understand other regional markets before taking the leap in their expansion plans. Singapore's FDI growth momentum is expected to continue. This is on the back of research and development activities, and a services cluster boosted by digitalisation and innovation.
Indonesia is the largest market in the region, with its population of more than 250 million comprising more than one-third of ASEAN's total population. The rapidly increasing demand for goods and services from its growing middle class presents enormous opportunities for foreign investors, who directed US$22 billion of FDI into the country in 2018. Given the favourable demographics, there are many investment opportunities for companies in consumer-related sectors, especially those tapping the digital economy for growth. These examples include e-commerce, mobile payments, and food delivery.
Indonesia's appeal as an FDI destination is further supported by the commitment from President Joko Widodo's Administration to build up the country's infrastructure such as housing, clean water supply, as well as transportation for greater connectivity with the region.
Known for its highly-skilled labour market and well-established manufacturing sector, Malaysia has seen steady FDI inflows, particularly in its manufacturing, logistics, and services industries. In 2018, FDI flowing into Malaysia was US$8 billion. In the first quarter of 2019, Malaysia registered a record of approximately US$7.1 billion in approved FDI for all sectors, up 73.4 per cent from a year ago, according to the country's finance ministry.
Malaysia's expanding services and manufacturing sectors, and the initiatives to support its digital economy and to encourage entrepreneurship, make investing in the country appealing to investors who wish to tap the sectors' growth. An environment of competitive tax policies will also help strengthen the country's position as an investment destination.
A traditional manufacturing base, Thailand drew US$10 billion in FDI last year, of which more than half went to its manufacturing sector. This was more than double the inflow from the year before, according to data released by UNCTAD and the Bank of Thailand.
The Eastern Economic Corridor (EEC), Thailand's pilot project for the economic development of its eastern seaboard, has also given the country impetus for attracting significant FDI. Thailand's eastern seaboard enjoys strong connectivity to neighbouring countries and established trade routes, making it fertile ground for transport and logistics infrastructure projects. The electronics sector is also growing, with approved projects in 2018 totalling US$1.2 billion, according to data from the Board of Investment. Over the next five years, the Thai government is projecting US$43 billion in investments to support the realisation of the EEC.
The country's e-commerce market has also expanded significantly in recent years to become one of the largest business-to-consumer e-commerce markets in ASEAN. This is underpinned by the Thai government's promotion of digital technologies and a young, internet-savvy, mobile-first population. Recognising the opportunity to serve the needs of the country's digital generation, UOB chose Thailand as the first market to launch its mobile-only bank, TMRW. TMRW is the first digital bank that is built for ASEAN millennials who prefer to bank on their mobile phones, anywhere and at any time.
Touted as ASEAN's rising star, Vietnam has seen an increase in FDI over the last few years. UNCTAD data shows that Vietnam received US$16 billion in FDI in 2018. In the first six months of 2019, foreign investors committed US$18.47 billion, according to the Ministry of Planning and Investment.
Vietnam's economic and industrial growth will make it a critical trade partner and market for countries in the ASEAN region over the next 10 years. Vietnam's attractiveness in the long run will be further enhanced by an ambitious government plan to develop infrastructure in major industrial hubs across the country. For example, Hai Phong, a new economic zone in northeastern Vietnam, has been attracting significant FDI in sectors such as high-tech agriculture, following the government's investment promotion strategy for the port city.
UOB has been working with key government agencies and strategic business partners such as the Foreign Investment Agency of Vietnam and Vietnam-Singapore Industrial Park (VSIP) Joint Venture to help companies tap investment opportunities in Vietnam. In 2018, UOB was the first Singapore bank to set up a foreign-owned subsidiary in Vietnam, and currently has presence in Ho Chi Minh City and Hanoi. This enables us to continue deepening our efforts to help companies accelerate their investment and expansion into and across the country.
Despite macro headwinds, ASEAN remains a bright spot for foreign investors. The region's burgeoning population, large labour force and growing affluence, coupled with the commitment from the region's governments in supporting economic development, will give rise to growth opportunities in the areas of manufacturing, infrastructure, consumer, and technology products.
This article "Investment Boom in ASEAN: Wherein Lie the Opportunities?" was first published in ASEAN Focus, Issue 4, 2019. Reproduced with permission from ISEAS – Yusof Ishak Institute.
Important notes and disclaimers
This article shall not be copied, or relied upon by any person for whatever purpose. This article is given on a general basis without obligation and is strictly for information only. The information contained in this article is based on certain assumptions, information and conditions available as at the date of the article and may be subject to change at any time without notice. You should consult your own professional advisers about the issues discussed in this article. Nothing in this article constitutes accounting, legal, regulatory, tax or other advice. This article is not intended as an offer, recommendation, solicitation, or advice to purchase or sell any investment product, securities or instruments. Although reasonable care has been taken to ensure the accuracy and objectivity of the information contained in this article, UOB and its employees make no representation or warranty, whether express or implied, as to its accuracy, completeness and objectivity and accept no responsibility or liability for any error, inaccuracy, omission or any consequence or any loss or damage howsoever suffered by any person arising from any reliance on the views expressed and the information in this article.
Sam Cheong is the Head of Group Foreign Direct Investment Advisory and Network Partnerships, UOB. Follow him on LinkedIn
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