Bright outlook for FDI inflows to Asean nations

The report titled “FDI Development and Regional Value Chains” shows that in 2013, Asean as a whole attracted US$122 billion (Bt4 trillion) in FDI – about on par with the flows to China – compared with $114 billion the previous year. 

It highlights that growing corporate income and cash reserves of Asean companies should further support strong intra-regional investment. The combined cash reserves of the top 50 companies, determined by their market capitalisation, were put at $166 billion in 2013.

“Regional expansion strategies will continue to be a key element in FDI flows over the next few years. The economic growth prospects for the region are favourable, which is a key factor influencing FDI destination decisions. The AEC [Asean Economic Community] will be an increasingly influential factor, as the opportunities of a single market that it ushers in attract corporate attention and investment interest in Asean,” it said. 

The report was prepared jointly by the Asean Secretariat and the Division on Investment and Enterprise (DIAE) of the United Nations Conference on Trade and Development (Unctad).

It said cost factors would continue to drive the relocation of labour-intensive operations across the region. Intra-regional mergers and acquisitions will be an increasingly preferred strategy for Asean companies to strengthen their regional footprint, particularly in the services sector. 

However, M&A deals in the region are not likely to repeat the scale and number of mega-deals witnessed in 2013 – dampening the level of FDI flows in 2014. Nevertheless, 2015 is likely to usher in a rise in FDI flows, exceeding the levels achieved in 2013, with stronger performance by a number of countries. 

“Historically, during a crisis, FDI flows to the region fall and disrupt the long-term upward trajectory. For the moment, global corporate perception of the region is increasingly positive. Barring such external shocks, 2015 is expected to bring better FDI performance for the region, and the outcomes for 2014 are expected to be [around] the level recorded in 2013,” it said.

Asean companies are the main source of investment, producing intra-regional investment of $21.32 billion in 2013 or 17.4 per cent of total FDI. 

Of the total, investment from Thai companies accounted for $2.08 billion. According to Unctad, M&A deals struck by Thai companies were worth $22.87 billion, with 58 per cent or $13.3 billion channelled to other Asean countries.