ASEAN's Recent FDI, Competitiveness, and Integration Development

ASEAN Secretariat

Economic and Competitiveness Development

ASEAN FDI is projected to be growing in 2024 and beyond, with recent 2024 release from countries such as Indonesia, Malaysia, Singapore, Thailand^[1]showing positive development^[2]. Continuing its long-term strong growth trend, ASEAN’s FDI trend aligns with increased GDP growth of4.8% in 2024, as well as 4.7% in 2025 and 2026/projections (2023: 4.1%)^[3]. Positive factors supporting ASEAN economies include robust domestic demand, vibrant electronics exports due to global demand for semiconductors, and a recovering tourism sector, in the middle of benign inflation rate, though new U.S. tariffs and geopolitical risks pose significant risks.

Despite the risks, ASEAN will continue to have high growth of FDI inflows and GDP in the coming decade, due to “situational factors” such as the global supply chain recalibration, i.e. shift away from China, intra-ASEAN friendly competition, locational advantage, on top of “traditional growth drivers” such as improving business climate, institutional strengthening, infrastructure development, investment facilitation, and workforce improvement^[4]. In addition to these, ASEAN FDI and economic growth in the coming years will be largely supported by adoption of measures that will promote investment in emerging growth sectors such as semiconductor, digital economy, and renewable energy supply chain, accelerate green transition, foster technology, and embrace multilateral initiatives.

In terms of competitiveness, the recent 2024 IMD[5]recent release, ASEAN’s competitiveness improved overall, with several economies such as Singapore, Thailand, and Indonesia making significant leaps in key sub-factors like adaptability of government policy, labor market flexibility, and technology adoption despite disparities in infrastructure and education investment. In term of business climate, recent Release of Business Readiness index[6]by the World Bank, showed that ASEAN economies have made progresses in establishing regulatory frameworks and operational efficiency as shown in Singapore, Indonesia, and Viet Nam scores, although bottlenecks underlined in service delivery and operational execution emphasizes the region’s need for efficient implementation as well. 

Recent Assessment on Regional Economic Integration

Economic integration, through ASEAN Economic Community Blueprint 2025 (2015) implementation which comes to an end in 2025, has been playing crucial role in promoting FDI to the region and is an important fundamental to navigate trade fragmentation and external shocks ahead. These included implementation of internal agreements providing goods, services, and investmentliberalisation that now has reached nearly total liberalisation for goods trade among others, under the ASEAN Trade in Goods Agreement (ATIGA), ASEAN Framework Agreement on Services (AFAS)/ASEAN Trade in Services Agreement (ATISA), ASEAN Comprehensive Investment Agreement (ACIA) respectively. External Free Trade Agreements (FTAs) with Australia, China, Japan, India, New Zealand, and Rep. of Korea, as well as Regional Comprehensive Economic Partnership (RCEP) which all together for ASEAN these 6 other countries covered 46.3% of the world population, 62.3% of the world’s trade, 33% of the world’s GDP, and 43% of global FDI flows also provided for goods, services, and FDI liberalisation extending production and market base for the region.

From the recent report released by ADB (2025), ASEAN has seen significant improvement in trade, FDI and finance integration over the years. ASEAN also ranked highest among Asian subregions in trade, finance, and people movement integration in 2023. Trade integration, for instance, improved from a score of 0.6 in 2005 to 0.8 in 2023, outperforming Central Asia and South Asia. Similarly, FDI integration grew from 0.3 in 2005 to 0.5 in 2023, with Southeast Asia gradually catching up to East Asia’s performance. In finance, the region’s score improved from 0.4 in 2005 to 0.5 in 2023, surpassing South Asia but still lagging East Asia. This strong performance reflects Southeast Asia's enhanced role in global markets, with economies like Singapore and Vietnam benefiting from increased trade and investment.

Despite this overall strong regional performance, equitability of the progress must still be addressed. On the strong side, Singapore recorded the highest trade integration score, increasing from 0.80 in 2005 to 0.92 in 2023, and its finance integration rose markedly from 0.48 to 0.68. Viet Nam also showed strong advancement, particularly in trade (0.63 to 0.88) and FDI (0.33 to 0.58). Other countries such as Thailand and Malaysia exhibited consistent improvements across all dimensions. Thailand’s trade score rose from 0.68 to 0.85, while its FDI and finance scores reached 0.54 and 0.56, respectively. On the other hand, Myanmar and Lao PDR remain at the lower end of integration progress, with Myanmar’s trade score increasing only from 0.55 to 0.68, and finance from 0.27 to 0.39. Lao PDR similarly lagged, with modest improvements in FDI (0.26 to 0.45) and finance (0.29 to 0.41). The divergence underscores the need for targeted policy support to the less integrated economies, i.e. capacity building programs, establishment of programs supporting institutional reform and infrastructure enhancements for these lagged countries.

With the various regional trade, services, investment, and financial instruments adopted and being implemented, the region needs to step up efforts in promoting cooperation to realise the full potential of integration. In the trade area, the region must ensure it continuously monitors and improves implementation of the instruments i.e. to address administrative issues both at the regional and national level as necessary. In the investment area, the region must ensure coherence across investment policy instruments and convergence with other policy areas, both in the regional and national levels. Meanwhile, to realise potential on the finance integration, the region must work to ensure regional cooperation must live up to new policy challenges, such as geoeconomic fragmentation, climate change and technological innovations which will need improvements both at regional and national levels, i.e. on macroeconomic surveillance, regional safety nets, cross-border payments, and innovative financing.

Table 1: Regional Integration Index[7]in Asia

Dimension	Southeast Asia (2005)	Southeast Asia (2023)	Central Asia (2005)	Central Asia (2023)	East Asia (2005)	East Asia (2023)	South Asia (2005)	South Asia (2023)
Trade	0.6	0.8	0.2	0.2	0.6	0.7	0.2	0.3
FDI	0.3	0.5	0.2	0.2	0.4	0.6	0.2	0.3
Finance	0.4	0.5	0.0	0.0	0.6	0.7	0.0	0.1

Source: ADB (2025)

In addition to agreements, The ASEAN Investment Facilitation Framework (2021) has been playing a useful role in improving ease of doing business in the region, especially through simplifying procedures for foreign investors, further promoting FDI inflows to the region. As of 2024, all AMS have streamlined administrative procedures and requirements for FDI, provide end-to-end services to investors, and develop single digital platforms, among other initiatives[8]. The latest release by ADB, The Investment Facilitation Index (IFI), reflects the implementation rank of investment facilitation policies across economies. Singapore (1.2) and Malaysia (0.95) lead ASEAN in investment facilitation, excelling in regulatory transparency, electronic governance, and application processes, closely rivaling selected advanced economies (non-Asia) like Australia (1.35) and Germany (1.3). Their robust frameworks and digital systems make them highly attractive to foreign investors, though they still lag slightly behind these advanced economies in areas like focal point and review processes.

At national level, Indonesia (0.9), Cambodia (0.9), and Vietnam (0.9) perform well but face challenges in electronic governance and responsible business conduct, scoring below the ASEAN average (1.05) and the broader Asian and the Pacific average (1.25). Lao PDR (0.68) lags further, needing significant improvements in transparency and processes to catch up with regional benchmarks. Compared to the Asian and the Pacific average, ASEAN as a whole (1.05) also needs improvement in electronic governance and regulatory predictability, where streamlined systems in advanced economies like Australia and Germany set a higher standard. While Singapore and Malaysia are competitive with these advanced economies, Indonesia, Vietnam, and others must enhance their regulatory frameworks and digital governance to align with regional and global leaders, strengthening ASEAN’s overall investment climate.

Table 2: Investment Facilitation Index (IFI)[9]

Economy	Regulatory Transparency and Predictability	Application Process	Electronic Governance	Focal Point and Review	Responsible Business Conduct and Anti-Corruption
ASEAN :
Brunei Darussalam	0.25	0.15	0.2	0.05	0.1
Cambodia	0.3	0.3	0.3	0.1	0.1
Indonesia	0.25	0.2	0.35	0.1	0.1
Lao PDR	0.19	0.2	0.12	0.07	0.1
Malaysia	0.25	0.2	0.3	0.1	0.1
Philippines	0.35	0.15	0.25	0.1	0.1
Singapore	0.3	0.3	0.3	0.2	0.1
Thailand	0.3	0.2	0.4	0.15	0.1
Vietnam	0.3	0.2	0.2	0.1	0.1
Non-ASEAN :
Asia and the Pacific	0.3	0.25	0.3	0.25	0.15
Selected Advanced Economies:
Australia	0.4	0.25	0.3	0.2	0.2
Germany	0.4	0.2	0.4	0.2	0.1

 

Source: ADB (2025)

Key Regional Measures Supporting FDI Post-2025

The region’s policy stance in navigating towards the global economic uncertainty was reflected in the most recent ASEAN Leaders Statement on Responding to Global Economic and Trade Uncertainties[10](2025) and Special ASEAN Economic Ministers Joint Statement on The U.S. Unilateral Tariff (2025)[11]. The statements provided the region’s commitment to uphold multilateral systems and continue enhancing its current intra- and extra-ASEAN cooperations, including embracing new partners countries as well as new areas, among others, instead of taking unilateral and retaliatory actions. These compliments the efforts at the national levels, as well as regional measures providing for enhancement of economic integration under the ASEAN Economic Community Post-2025, as well as measures promoting FDI in targeted emerging sectors.

In terms of enhancing economic integration in the Post-2025 AEC, the region is implementing the Fifth Protocol to Amend ACIA (2025) and ASEAN Regional Investment Promotion Action Plan (RIPAP) (2025) which will enhance investment liberalisation and promotion. It also is currently upgrading internal and external trade agreements, such as through conclusion of ASEAN Trade in Goods Agreement (ATIGA) Upgrade (2025) and ASEAN-China FTA 3.0 Upgrade (2025) which upon implementation will enhance trade liberalisation and supply chain connectivity through its upgraded provisions on trade tariff, Rules of Origin (ROO), and supply chain among others.

In terms of capturing FDI opportunities in emerging sectors, the region is working towards establishing a regional semiconductor supply chain framework, guidelines on sustainable investment, and advancing ASEAN Digital Economy Framework Agreement (DEFA) which are all initiatives promoted by Malaysia’s Priority Economic Deliverables (PEDs) under its ASEAN Chairmanship in 2025. These, alongside increased national commitments in semiconductor, digital economy, and green investments, will further help the region build readiness to attract FDI in these high-tech and green sectors.