FDI flows to ASEAN dip 20% in 2016; PH 4th largest recipient

Foreign direct investments (FDI) flows to ASEAN fell by 20 percent to $96.7 billion in 2016, the second consecutive year of decline, from $120 billion in 2015, with the Philippines posting the highest growth to become 4th largest FDI recipient among the 10-ASEAN countries, according to the ASEAN Investment Report 2017 .

The report, which was released in time for the holding of the 2017 ASEAN Business and Investment Summit (ABIS) by the ASEAN Business Advisory Council, attributed the sharp $25 billion drop in investments to the general decline in global FDI but also highlighted the ASEAN-member states for investing in each other largely in mining and agriculture.

Broken down, Singapore was still the biggest FDI recipient despite its huge decline with $53.912 billion from $62.446 billion. This was followed by Vietnam with $12.6 billion from $11.8 billion, and Malaysia with $11.3.8 billion from $10.179 billion.

The Philippines posted the highest growth with 40.6 percent to $7.933 billion from $5.639 billion to land the fourth largest from its 6th place in 2015 in FDI flows in the region. Indonesia which FDI inflows dropped significantly to $3.52 billion from $16.642 billion settled at fifth place from second biggest in 2015.

Other FDI flows in ASEAN went to Myanmar with $2.989 billion from $2.724 billion in 2015, Thailand with only $2.553 from $8.027 billion, Cambodia to $2.279 billion from $1.7 billion, Lao PDR with $1.075 billion from $1.079 billion, and Brunei Darussalam with negative $150.44 million from $171.32 million in the previous year.

According to the report, the sharp decline of $25 billion in 2016 FDI from 2015 was due to one-off factors where inflows in five-member states and cross-border mergers and acquisition sales in the region fell. For instance, inflows to Indonesia and Singapore together declined by about $22 billion, which significantly depressed FDI in the region. In particular, the intracompany loan component of FDI in Singapore fell to -$12.4 billion in 2016, which suggests significant repayments of intra-company loans by affiliates based in that Member State.

In Indonesia, FDI declined significantly, from $16.6 billion in 2015 to $3.6 billion in 2016, a change linked with divestment of assets in finance.

The report noted of a number of significant acquisitions by Indonesian and Singaporean companies of foreign assets in their home countries also contributed to the decline in FDI inflows because of divestment effects.

Flows from the United States fell by 50 percent to $11.7 billion, while flows from Japan fell by 5 percent to $14.0 billion because of various factors.

Despite the declines, there were some bright spots.

In particular, FDI flows from the EU rose by 46 percent to $30.5 billion, those from China rose by 44 percent to $9.2 billion, those from the Republic of Korea rose by 3 percent to $6.0 billion and those from Australia rose by 77 percent to $3.4 billion. Significant FDI from the Netherlands, Ireland, Luxembourg, Denmark, Spain and France help pushed up the investment in ASEAN from the EU economies.

Notably, intra-ASEAN investments reached $23.948 billion to account for a quarter of total flows, which have been steadily increasing over the past few years from only $18.2 billion in 2013 to $21.556 billion and $21.340 billion in 2015.

The report showed that the rise in intra-ASEAN investment in 2016 was driven by a two-thirds increase in investment in manufacturing, to $8.3 billion, and a doubling of investment in finance, to $5 billion. Intraregional investment from seven member states rose.

Singapore, Malaysia, and Thailand dominated intraASEAN investment. Major factors behind the rise in intraregional investment are the growing financial strength and significant cash holdings of ASEAN firms and their increasing drive to internationalize to build competitiveness and to access markets, natural resources and strategic assets. Review of a selection of 100 major ASEAN companies with operations in the region shows their presence in multiple ASEAN Member States and expansion of their regional footprint.

Intra-ASEAN investment and FDI inflows in the CLMV countries rose. Inflows from a number of major source countries also rose but not enough to help overcome the decline.

The CLMV countries continued to receive increasing attention from investors in 2016. FDI flows to this group of ASEAN Member States (Cambodia, the Lao People’s Democratic Republic, Myanmar and Viet Nam) rose by 8 percent, from $17.4 billion in 2015 to $18.9 billion in 2016. As a result, their share in total ASEAN FDI inflows rose from 10 percent in 2015 to 13 percent in 2016. FDI from developing Asian economies, including intra-ASEAN investment, remained the major source of investment in these member states.