Foreign Direct Investment in ASEAN – Key Findings

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SINGAPORE – Developing countries in Southeast Asia gain much more economic benefits when they increase allowable foreign ownership, which leads to higher FDI inflows, according to the East Asia Pacific Economic Update released by the World Bank at the beginning of this month.

The ASEAN region has been the largest recipient of FDI, relative to gross domestic product (GDP), in Asia Pacific. Between 1952 and 2012, Singapore accounts for more than half of total FDI to the whole region (52 percent). Thailand ranks the second with a 13 percent share, followed by Indonesia with 11 percent, Malaysia with 10 percent, Vietnam with 8 percent and the Philippines with 3 percent.

The European Union, Japan and the United States continue to be among leaders in providing sources of FDI to ASEAN. In particular, the European Union contributes a 25 percent share to the total FDI sources, followed by Japan with 13 percent and the United States with 11 percent.  It is notable that FDI sources coming from the United States has relatively decreased, while intra-ASEAN FDI has grown rapidly, with Singapore serving as the main source of this FDI inflow.

RELATED: ASEAN Report: FDI Flows at a Record High

For a long time, FDI inflows to China and ASEAN have been complementary: The inflows to China have been mainly served for assembly processing, while the ASEAN ones have been used for production of parts. However, the Washington-based development bank expects this trend to change soon as some flows to China will be shifted to ASEAN. China’s labor advantage has been gradually offset by higher wages, which opens doors to Southeast Asian countries to take its position to move up the value chain.

Manufacturing and finance have been generally the most attractive sectors to FDI, according to the report. However, the allocation of FDI among sectors greatly varies among countries. For example, Malaysia, Thailand and Vietnam put more emphasis on manufacturing, while FDI inflows to the services sector are the highest in Singapore, Indonesia and the Philippines.

Although FDI plays an increasingly important part in promoting economic growth in ASEAN, foreign ownership is restricted in many of these countries.

Based on statistical data, the report concludes that Thailand, the Philippines and Malaysia are among the most restrictive countries for foreign equity, while Cambodia and Singapore allow nearly 100 percent foreign ownership in most sectors.

The report also found that the business services, telecommunications and transport sectors were the most restricted throughout ASEAN, while the manufacturing sectors were generally the most liberalized.

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