Economy & Trade

Malaysia’s FDI Outlook for 2017: Trends and Opportunities

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By Harry Handley

Malaysia, ASEAN’s third largest economy (after Indonesia and Thailand), is well on track to achieve its goal of becoming a high income economy by 2020. Despite modest GDP growth of 4.1 percent in 2016 (below the ASEAN average of 4.5 percent), Malaysia is one of the top performing economies in the region in terms of efficiency and business regulations. This competitive edge has been maintained by continuous reform efforts by the government.

Firms setting up companies in Malaysia are likely to experience higher business costs than in a number of other ASEAN states, caused by the country’s minimum wage, its newly implemented Goods and Services Tax (GST) and paid vacation allowances. However, an advanced infrastructure, highly educated and growing workforce and strong regulatory environment allow Malaysia to service high value add industries effectively and continue t entice overseas investors.

For incumbent firms and potential entrants alike, understanding Malaysia’s current investment trends as well as the factors which will shape its future are of utmost importance. 

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ASEAN Market Watch: Malaysia Manufacturing, Philippines Economic Freedoms, and Singapore SME Digitization

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Malaysia: “Most attractive manufacturing market” status retained

Malaysia retains the top position as the most attractive manufacturing market of choice for future relocations according to the new Cushman & Wakefield “Manufacturing Risk Index 2017” report. The “Manufacturing Risk Index” is an annual survey of the manufacturing sector, which considers investment policies, costs, and risks including political, economic, technological, and environmental risks for their assessment. Malaysia’s ranking is attributed to its infrastructure quality, trade, and logistics performance. 

The report also highlights Asia Pacific’s varying degrees of innovation such as automation and smart manufacturing which offers diversity for manufacturers. Almost half of the top 15 positions in the index are occupied by Asia Pacific countries. ASEAN countries such as Singapore, Thailand, Philippines, and Indonesia are ranked 12th, 14th, 19th, and 20th respectively. Based on the overall assessment, cost remains the most significant criteria for relocation currently, with further changes anticipated as the manufacturing industry moves to Industry 4.0, which incorporates automation and data exchange in manufacturing technologies.

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Thailand in 2017: a Changing Investment Landscape

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By Harry Handley

Bangkok2016 was a challenging year for Thailand, both economically and socially. The death of the much-loved King, His Majesty Bhumibol Adulyadej, clouded a year also blighted by political instability, water shortages, and bearish domestic business sentiment. Although official figures have yet to be released, Thailand’s GDP growth for 2016 is expected to be 3.2 percent, the third lowest in the ASEAN bloc (after Brunei and Singapore).

Despite low business confidence from locals, foreign businesses continue to be attracted by Thailand’s strategic position between China and India, access to the ASEAN free trade area, and the incentives offered by the Board of Investment (BOI). 2017 has been touted by some as a pivotal year for the Thai economy and ‘the year of concrete national reform’, with a major election on the horizon, either at the end of 2017 or the beginning of 2018 dependent of the progress of the royal succession. As such, it is important to review the state of the market at present and identify the key factors that may affect foreign businesses, both incumbents and potential entrants, in Thailand in 2017.

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Electrifying Laos: Opportunities for FDI in 2017

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By Zolzaya Erdenebileg 

While Laos is still one of the poorest members in ASEAN, the country has posted strong growth rates for the past ten years, typically oscillating between seven and eight percent. This places Laos among the fastest-growing economies in ASEAN. The country is rich in resources, particularly agriculture, forestry, hydropower, and minerals. However, infrastructure is still underdeveloped and poverty rates are high. Efficient management of national resources is key to unlocking Lao’s development potentials, and any instability in governance will pose higher risk for potential investors.

Economy snapshot

Laos is forecasted to have reached a growth rate of 6.8 percent in 2016. In 2017, the economy is expected to improve at a slightly faster rate with seven percent. This will make Laos the third fastest growing economy in ASEAN, behind Myanmar and Cambodia. Inflation remains steady at a projected 1.6 percent and 2.3 percent in 2016 and 2017, respectively. Laos runs a negative current account balance, at about 16 percent of GDP in 2016.

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ASEAN Market Watch: e-Commerce in Thailand, Q4 Growth in Indonesia, and Myanmar-Thailand Bilateral Agreements

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Thailand: Strong growth expected in e-commerce market

Analysts say that Thailand’s e-commerce market is expected to grow around 20 percent this year as more consumers shop online. At present, only three percent of consumers shop online, underlining the significant growth potential for the online market. Thai retailer Central Group only had one percent of its revenue come from online sales. The increased online sales expected this year are attributed to growing internet and smartphone use as well as improved logistics and e-payment systems. Quality and reliability of online shopping services will further help the sector.

The Electronic Transactions Development Agency predicted that the e-commerce market in Thailand will be worth US$7.1 billion (THB 2.52 trillion) this year. Thailand has around 41 million internet users, and 41 million Facebook, 33 million Line, 7.8 million Instagram, and 5.3 million Twitter users. Analysts have further stated that omni-channel strategies, meaning a balance between physical retail stores and online shops, would benefit the country.

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Investing in the Philippines: What to Expect in 2017

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By Alexander Chipman Koty

ManilaThe Philippines garnered substantial international attention in 2016, owing largely to President Rodrigo Duterte’s unexpected rise to power, his litany of controversial remarks, and contentious war on drugs campaign. Lost in the Philippines’ political drama, however, was the country’s strong economic performance. The Philippines posted a robust 6.8 percent GDP growth rate in 2016, outperforming popular investment spots such as China (6.7 percent) and Vietnam (6.2 percent). This follows years of sturdy growth under the previous Aquino administration, where growth averaged 6.2 percent per year.

FDI into the Philippines also increased in 2016, reaching US$6.2 billion in net inflows through the first 10 months of the year – a 22.2 percent increase over the US$5.1 billion accumulated over the same period the previous year. In 2015, total FDI amounted to US$5.7 billion. Intercompany borrowings accounted for almost two thirds of net FDI inflows (US$3.9 billion) in 2016, up 34.9 percent from US$2.9 billion in 2015. Despite improved FDI, the Philippines continues to lag behind fellow ASEAN countries such as Indonesia, Malaysia, and Thailand in this regard.

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ASEAN Market Watch: Renaming of MSCI Indexes, Growth in the Philippines, and Construction Boom in Cambodia

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MSCI South East Asia Index Offerings renamed MSCI ASEAN Indexes

MSCI, a US-based provider of equity, fixed income, and hedge fund stock market indexes has renamed its MSCI South East Asia Indexes to MSCI ASEAN Indexes. In addition, MSCI also added new indexes to represent the developed, emerging, and frontier markets in the ASEAN region. While MSCI ASEAN represents all the markets, MSCI EM ASEAN focuses on emerging markets, and MSCI EFM ASEAN represents emerging and frontier markets. The MSCI AC ASEAN index covers large and mid-cap equities across Singapore and four emerging markets, namely, Indonesia, Malaysia, Philippines, and Thailand.

MSCI was granted the right to use the ASEAN designation for their index offering from the ASEAN Secretariat. The members of the ASEAN exchanges include seven exchanges across Singapore, Indonesia, Malaysia, Philippines, Thailand, and Vietnam. The rebranding of the indexes reflects the development of ASEAN members as a region of sustained growth and economic development. The change will offer global investors a deeper understanding of the various investment opportunities in the region and allows the member countries to promote their capital markets.

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Singapore and India to Include Limitation of Benefits in DTAA Amendment: Implications for Foreign Investors

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By Mike Vinkenborg 

On December 30, 2016 Singapore and India agreed on amending their Double Taxation Avoidance Agreement (DTAA) for capital gain income. With the new agreement, which will implemented on April 1, 2017, India aims to tackle investments coming into the country through shell companies and prevent tax avoidance. This follows the agreements reached by India and Mauritius in May 2016 and India and Cyprus in November that year, when they similarly amended their respective DTAAs by implementing a Limitation of Benefits (LOB) clause. The India-Singapore DTAA, last amended in 2005, had the provision that any changes in the Mauritius treaty would automatically apply to the Singapore DTAA. All three DTAA amendments will come into effect on April 1, 2017.

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ASEAN Market Watch: Indonesia Seeks Engineers, ASEAN ICT Masterplan, and Singapore-Malaysia High Speed Rail

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Indonesia faces shortage of engineers

Indonesia’s annual shortage of around 30,000 engineers is becoming a key obstacle to its infrastructure development plans. Currently, Indonesia has 57 million skilled workers but it would need 113 million by 2030 to meet the country’s requirements. Around 20 percent of Indonesia’s six million university and postgraduate students pursue Islamic studies, with most students ending up with unrelated jobs.

According to a 2015 national labor force survey, less than ten percent of Indonesia’s 250 million citizens have a university-level education. Of those, only eight percent choose an engineering study and more than half of these graduates work in different fields, such as banking. The government believes that the country needs a more skilled workforce if they are to keep up with other ASEAN countries and meet the Master Plan for Acceleration and Expansion of Indonesia’s Economic Development’s (MP3EI 2025) ambitious targets, which will be difficult to achieve with substantial infrastructure gaps.

Achieving Indonesia’s infrastructure development goals, which range from sea projects, airports, highways, and power plants, necessitates a technical workforce. The government is taking steps to establish more industry-oriented engineering colleges, technical institutes, and state-funded scholarships. The last few years have seen improvements, with 57 percent of Indonesians completing education after primary school in 2015, compared to 40 percent in 2002. Furthermore, the share of college-age Indonesians attending universities has risen from 20 percent to 25 percent over the last decade. However, economists believe that Indonesia still needs to do more to meet its infrastructure development goals by 2025.

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Investing in Myanmar: Recent Developments and Future Outlook

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By Alexander Chipman Koty

MyanmarFollowing a series of bold political reforms beginning in 2011, Myanmar has sprung onto the radar of foreign investors as one of Asia’s last frontier markets. For decades, Myanmar was an isolated and overlooked pariah state dominated by a repressive military government that crushed dissent and participated in illegal drug and jewels trades. However, the military government’s unexpected democratic reforms, which culminated in the rise of Nobel Peace Prize winner Aung San Suu Kyi to power in 2015 and the removal of American economic sanctions in 2016, quickly changed the narrative surrounding the Southeast Asian nation.

Historically one of the region’s wealthiest countries but presently among its poorest, Myanmar has long been underperforming its vast economic potential, as the military regime’s ineffective political and economic policies hamstrung the country’s development. Favorable demographics, an advantageous location, and rich natural resources – along with the introduction of substantial economic reforms – make Myanmar an intriguing destination for adventurous investors who were previously blocked from entering the market.

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