ASEAN Maintained Strong FDI Growth and Adoption of Favourable Investment Policies in 2023

The recent United Nations Trade and Development (UNCTAD) release of its 2024 World Investment Report shows that ASEAN continues to maintain a strong FDI growth and becoming a significant global FDI destination. This achievement is attributable to the region’s continued progress in creating favourable investment environment, as well as in adopting favourable investment measures.

ASEAN surpassed global growth of FDI inflows in 3 consecutive years

In 2023, ASEAN attracted USD 226 billion of FDI, or 17 percent of global FDI. This was also a positive growth of 1.2 percent against the backdrop of global and other region’s FDI inflow slowdown in 2023 (See Table 1), reflecting its economic competitiveness as a region. Since the outbreak of the pandemic in 2020, the growth of FDI inflows to ASEAN have always surpassed the average growth rate of World, Asia, as well as developing economies indicating its not only strong but also sustainable improvement in terms of competitiveness to other countries.

 Table 1: Foreign Direct Investent Inflows by Region 2020-2023

	2020		2021		2022		2023
	Value (USD bn)	Growth (yoy, %)	Value (USD bn)	Growth (yoy, %)	Value (USD bn)	Growth (yoy, %)	Value (USD bn)	Growth (yoy, %)
ASEAN	120	-27.3	208.8	74	223.5	7	226.3	1.24
Asia	513.1	3.1	666.5	29.9	677.8	1.7	621.1	-8.4
Developing Economies	647	-8.2	890	37.6	929.5	4.5	867.4	-6.7
World	984.6	-43.1	162.2	64.7	135.6	-16.4	133.2	-1.8

Source: UNCTAD World Investment Report 2024 Annexes, Author’s analysis

The positive FDI trend is explained by both positive trends of Merger and Acquisition value and greenfield FDI Value. Both grew about 129 percent and 55 percent (year on year) to USD 28 billion and USD175 billion, respectively in 2023.

The strong growth of greenfield FDI value indicates positive investor perception towards the investment risk in the region. Greenfield FDI refers to the establishment of new facilities which is commonly associated with high capital cost (Muller, 2006)[1], the need to adapt to domestic institutional environment (Alon, Elia, & Li, 2020)[2], and only popular between countries which has established formal economic relationship which includes the provision that host countries could give support to the full control and protection over the investment of the foreign investors (Alon et al., 2020[3]; Wu, Li, & Selover, 2012). Greenfield FDI is also an important development to ASEAN as host economies as it brings in new technology and management practices as well as creating new sub-contracting opportunities (Albulescum & Tămăşilă, 2014)[4], which domestic firms in the region may benefit from.

Table 2: Greenfield FDI Announcement by Destination Region 2020-2023

	2020		2021		2022		2023
	Value (USD bn)	Growth (yoy, %)	Value (USD bn)	Growth (yoy, %)	Value (USD bn)	Growth (yoy, %)	Value (USD bn)	Growth (yoy, %)
ASEAN	69.8	-24.8	67.9	-2.8	112.9	66.3	175	55.1
Asia	180.6	-36.6	170.9	-5.4	312.6	83.0	451.3	44.4
Developing Economies	296.7	-37.9	292.8	-1.3	622	112.4	749.4	20.5
World	640.6	-29.5	829.7	29.5	1,309.1	57.8	1,380.4	5.4

 Source: UNCTAD World Investment Report 2024 Annexes, author’s analysis

 

Most Observed AMS IMD Global Competitiveness Rank Improved

ASEAN has also recorded improvements in its economic competitiveness indicated in parameters such as the recently released IMD Global Competitiveness Index 2024, which correlates to its strong FDI performance. In the recent release of IMD World Competitiveness 2024, the performance of 5 AMS included in the index namely Indonesia, Malaysia, Philippines, Singapore, and Thailand, have shown positive development with 2 AMS maintaining its competitiveness and 2 recorded increasing its competitiveness relative to other countries in the world. As can be seen from Table 3 below, Indonesia jumped from the 34^th place to the 27^th while Thailand also improved its competitiveness by going from the 30^th place to the 25^th.

In 2024, most of these 5 AMS are already in top 50 in the world across all subcategories except for infrastructure. In most of the subcategories, namely economic performance, government efficiency, business efficiency, as well as infrastructure, most of these AMS have shown strong performance. Highest improvement is in the subcategory of infrastructure with Thailand jumped 11 ranks to 5^th in the world, and in the subcategory of business efficiency with Indonesia recorded 8 ranks’ jump to 23^th in the world.  IMD suggested that ASEAN needs to focus on areas such as job-generating investment, supply-side strategy to combat inflation, research and development investment, workforce quality, continuation of bureaucracy reform, strengthening of legal infrastructure to deal with corruption, as well as climate change adaptation and mitigation in order to further enhance their competitiveness.

Table 3: ASEAN IMD World Competitiveness Rank Difference 2024

Country Name	Overall				Economic Perfomance				Government Efficiency				Business Efficiency					INFRASTRUCTURE
	2023		2024		2023		2024		2023		2024		2023		2024			2023		2024
	Score	Rank	Score	Rank	Score	Rank	Score	Rank	Score	Rank	Score	Rank	Score	Rank	Score	Rank		Score	Rank	Score	Rank
Indonesia	70,75	34	71,52	27	57,86	29	54,31	24	57,79	31	57,51	23	72,85	20	71,38	14		34,89	51	34,59	52
Malaysia	75,75	27	68,13	34	70,69	7	62,52	8	59,4	29	50,41	33	57,17	32	41,55	40		56,14	35	49,71	35
Philippines	54,14	52	52,64	52	52,53	40	48,86	40	37,88	52	36,66	49	46,45	40	38,01	43		20,13	58	18,71	61
Singapore	97,44	4	100	1	80,27	3	70,85	3	84,14	7	87,8	2	85,5	8	95,96	2		80,24	9	77,08	4
Thailand	74,54	30	72,51	25	62,52	16	64,32	5	60,78	24	55,14	24	70,88	23	62,04	20		44,38	43	40,22	43

Source: IMD, author’s analysis[5]

ASEAN Also Lead the World in Adopting Favourable Investment Measures

Investment policy trend in ASEAN is also indicating positive developments, with ASEAN leading the position globally. In 2023, there are more new measures introduced by AMS that are favourable for investors compared to global average. The proportion of favourable new measures to total new measures is almost 90%, higher than developed (43%) and average developing countries (86%) subgroups as can be seen in Table 4 below[6].

Table 4: Share of Favourable Investment Measures Against Total Investment Policy Measures

Region	Share of Favourable Investment Measures (% of total investment policy measures)
ASEAN	90%
Developing Economies	86%
Developed Economies	43%

Source: World Investment Report 2024, UNCTAD Investment Policy Monitor, author’s analysis

With regard to the introduction of more favourable investment policy measures, ASEAN follows the global trend as highlighted in World Investment Report 2024[7] whereby Facilitation-related measures led the list with 6 new measures adopted in 2023, followed by Incentives (5 measures), Liberalisation (2 measures), movement of business people (2 measures), and promotion (1 measure). The examples of facilitation measures include Cambodia’s new aftercare services, and Philippines’ established Green Lanes for strategic investments. Meanwhile, incentives are increasingly used as the measure to attract investment such as Malaysia’s Special Financial Zone in Forest City to attract foreign investment, Thailand’s new investor visa for Eastern Economic Corridor (EEC) and more liberal investment regime which allows foreigners to work or invest in 18 targeted industries. All of these national policy measures complement the regional initiatives of implementing the ASEAN Comprehensive Investment Agreement (ACIA), ASEAN Trade in Services Agreement (ATISA) or previously ASEAN Framework Agreement on Services (AFAS), as well as the ASEAN Investment Facilitation Framework (AIFF).

Looking at the development of both FDI inflows as well as the competitiveness and investment policy regime, ASEAN has strong potential to remain as attractive FDI destination in the middle of challenging global economic development. To further unlock its potential, ASEAN should continue and accelerate their current efforts in creating enabling environment for FDI to complement other efforts in enhancing competitiveness, whereby the quality of investment facilitation as the potential key area of improvement, as quoted by UNCTAD in their World Investment Report 2024.