FDI flows to ASEAN fall to $120 billion

Foreign direct investment (FDI) to Association of Southeast Asian Nations (ASEAN) declined by eight percent to $120 billion in 2015 from $130 billion in 2014 on lower flows in services, cross border mergers and acquisitions and intra-company loans, according to the ASEAN Investment Report 2016.

The report prepared under a technical cooperation agreement between the ASEAN Secretariat and the UNCTAD Division on Investment and Enterprise (DIAE) was released Wednesday in time for the ongoing ASEAN Summit in Laos.

According to the report, FDI flows to the primary, manufacturing and services sectors differed markedly.

Flows to manufacturing activities rose significantly by 61 percent, from $18 billion in 2014 to $29 billion in 2015.

However, flows to the services industries declined by 21 percent, to $79 billion – dragged down by a fall in FDI in finance. Investments in the primary industries were flat, at the same level as in 2014 ($12 billion).

Direct investors were considerably more active in using equity capital to finance investment projects in ASEAN in 2015 as compared with previous years.

In contrast, the intra-company loans component of FDI finance declined significantly, from 14 percent in 2014 to only 1 percent in 2015, which contributed to the $10 billion decline in FDI flows.

The amount of outflows of intracompany loans (repayment of loans or provision of new loans to affiliates and parent companies) was greater than the amount of inflows of intra-company loans to subsidiaries based in ASEAN, in particular Singapore and Thailand. Some outflows of intra-company loans supported the financing of investment in affiliates in other ASEAN Member States.

In Singapore, the net outflows of intra-company loans went to destinations outside of ASEAN.

There were some bright spots though as FDI in manufacturing rose, equity capital financing of FDI activities was at an all-time high, and regional investment expansion by MNEs remained strong, the report noted.

Investment from the six prospective partners with ASEAN in the Regional Comprehensive Economic Partnership (RCEP) increased by 11 percent to $40 billion in 2015; and these countries contributed some 30 percent of inflows in 2014–2015, underscoring their position as a significant source of FDI for the region. Investors are also more attentive to the CLMV countries (Cambodia, the Lao People’s Democratic Republic, Myanmar and Viet Nam): total FDI flows to these countries taken together rose by 38 percent to $17.4 billion in 2015. Their share as recipients of FDI flows in the region rose from 10 percent in 2014 to 14 percent in 2015.

Notably, Intra-ASEAN investment remained the largest source of FDI flows, rising marginally by $15 million to $22.1 billion last year.

The share of intra-ASEAN investment in total FDI flows to the region rose from 17 percent in 2014 to 18.5 percent in 2015. Seven ASEAN Member States received higher levels of intraregional investment (Malaysia, the Philippines, Thailand and CLMV countries), suggesting a further increase in regional connectivity. Intra-ASEAN M&A activities also grew, contributing to an increase in intraregional corporate investment and activities by ASEAN companies. Intraregional investment is the largest source of FDI for some ASEAN Member States.

ASEAN is a major destination for outward foreign direct investment (OFDI) from the Republic of Korea. Some 16 percent of all Korean OFDI worldwide and over 40 percent of all Korean OFDI in Asia during 2010–2015 went to ASEAN.

Some $41 billion of Korean FDI stock was in ASEAN in 2015, with three Member States (Viet Nam, Singapore and Indonesia, in that order) accounting for 63 percent.

More than 3,770 Korean subsidiaries operate in ASEAN, in a wide range of industries. The top 20 most internationalized Korean MNEs all have a presence in the region, with almost half of them present in multiple locations. Large Korean companies and small and medium-size Korean enterprises (SMEs) are expanding their presence in the region, with a rapidly rising number of micro, small and medium enterprises (MSMEs).

However, compared with other major investors in ASEAN, the total amount of Korean FDI in the region is relatively small. In 2010–2015, the Republic of Korea accounted for only 3.4 percent of total FDI flows in the region. Nonetheless, the country is becoming a proportionally bigger investor in some ASEAN Member States such as the Lao People’s Democratic Republic, the Philippines, Thailand and Viet Nam. Since 2006, Korean investment in Viet Nam has risen rapidly, particularly in manufacturing activities, becoming the largest source.

South-East Asia is also host to the largest number of United States companies in Asia, with over 1,500 companies operating in ASEAN. (BCM)