South East Asia seen to attract more FDI inflows

MANILA, Philippines — Foreign direct investments (FDI) flowing into Southeast Asia are expected to increase this year, a turnaround from the 25 percent drop last year, the United Nations Conference on Trade and Development (UNCTAD) said.

“In Southeast Asia, FDI is likely to increase, but much will depend on how the countries in the region are able to contain the new wave of the pandemic unfolding in 2021,” the UNCTAD said in its World Investment Report released yesterday.

Last year, FDI flows to Southeast Asia, which serves as an engine of global FDI growth for the past decade, contracted by 25 percent to $136 billion amid lockdown measures imposed to address the coronavirus pandemic, supply chain disruptions and economic uncertainties.

The Philippines, like most countries in Southeast Asia, had lower FDI flows last year.

In particular, FDI flows declined 25 percent to $6.54 billion in the Philippines last year from $8.67 billion in 2019.

Other countries that registered lower FDI flows in Southeast Asia last year are Singapore which fell 21 percent to $90.56 billion; Indonesia which declined 22 percent to $18.58 billion; Vietnam which dipped two percent to $15.80 billion; Thailand which sank to $6 billion; Malaysia which dropped 55 percent to $3.48 billion; Myanmar which decreased 34 percent to $1.83 billion; and Cambodia which went down slightly to $3.63 billion.

Those with higher FDI flows are Lao People’s Democratic Republic which rose 74 percent to $968 million and Brunei Darussalam which jumped 110 percent to $577 million.

The UN agency said the increase in FDIs into Southeast Asia would be helped by the economic stimulus packages implemented by the Association of Southeast Asian Nations (ASEAN) member states.

It also said the increase would be supported by the expected robust investments in service industries and technology-related activities such as the digital economy, e-commerce, digital infrastructure (5G networks and data centers) and cloud computing, as the region is seen to overtake North America and other Asia-Pacific countries to become a global data center hub in the next five years.

“Industrial production activities in the region are also gaining momentum, which will encourage further capital expenditure and investment to increase capacity,” the UNCTAD said.

In addition, the signing of the Regional Comprehensive Economic Partnership (RCEP) Agreement in November last year by ASEAN members, with trade partners Australia, China, Japan, South Korea and New Zealand, is expected to help the region attract FDIs for post-pandemic recovery.

The RCEP creates the world’s largest free trade area and promotes investment, trade and services including e-commerce.

“Relocation of production by Chinese firms and other MNEs (multinational enterprise) for cost reasons and to circumvent the impact of the US–China trade tensions, as well as to build a more resilient supply chain network, will continue to benefit the ASEAN countries in 2021 and beyond,” the UNCTAD said.