Written by Sam Cheong, head of group FDI advisory and network partnerships at UOB.
Global foreign direct investment (FDI) flows have been hit harder by the COVID-19 pandemic than the global financial crisis of 2008 to 2009.
According to the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2021, global FDI flows dropped one-third from US$1.5 trillion in 2019 to US$1 trillion in 2020. In fact, 2020's FDI flows were 20 per cent lower than those in 2009, as lockdowns and the prospect of a recession led to many companies around the world reassessing their investment plans.
FDI inflows across Asia remain resilient
Despite the economic impact of the COVID-19 pandemic, Asia stood out as an attractive destination for FDI.
The UNCTAD report showed that FDI flows to Asia in 2020 rose by four per cent to US$535 billion – driven by investment flows into China, which reached US$149 billion, compared with US$141 billion in 2019.
FDI growth in Asia is expected to continue, with a five to 10 per cent year-on-year increase in 2021. According to the UNCTAD report, this momentum is driven by "growing markets, extensive regional and global linkages, and an investment climate that has remained generally open despite the pandemic".
Looking closer to home, Asean’s FDI inflows were muted in 2020. Each of the region’s top FDI recipients reported declines – Singapore by 21 per cent, Indonesia by 22 per cent and Vietnam by two per cent. These three countries accounted for more than 90 per cent of FDI inflows in 2020.
Thailand saw FDI inflows from foreign investors amounting to US$3 billion in 2019, turning into a negative inflow of US$6 billion in 2020 driven by divestments. In comparison, other ASEAN countries saw FDI inflows fall. In Malaysia, FDI fell 55 per cent to US$3 billion, while in Myanmar, FDI fell 34 per cent to US$1.8 billion.
However, the outlook for ASEAN remains bright. The signing of the Regional Comprehensive Economic Partnership (RCEP), which involves all ASEAN member countries, China, Japan, South Korea, Australia and New Zealand, is expected to be one of the major growth drivers as the trade bloc becomes more economically integrated.
Growth in energy infrastructure projects
In 2020, energy infrastructure projects globally fell 40 per cent to US$27 billion – the lowest point in eight years. For Asia the experience was the opposite. Asia was the only region to grow in the number and value of energy infrastructure projects.
For example, in Vietnam, the United States’ ExxonMobil has proposed a US$5 billion gas-fired power plant while Delta Offshore Energy (Singapore) will also be setting up a US$4 billion LNG power generation facility.
Defying the global slowdown in spending, FDI in renewable energy projects also increased, from US$30.7 billion in 2019 to US$33.4 billion in 2020. Asean's FDI in renewable energy sources is also set to grow further as the region commits to reviewing and transitioning its energy mix. B.Grimm, a Thai private power producer, is building a solar power plant in Vietnam that is set to be one of the largest in the region. Impact Electrons Siam is also developing a 600MW wind farm in Laos, which will be the biggest wind project in Asean.
Intra-regional investments by Southeast Asian companies
Much of the Asean’s FDI investment stayed within the region, due to its attractive long-term growth potential. Intra-ASEAN FDI flows saw 5.4 per cent growth in 2020, from US$22.1 in 2019 to US$23.3 billion in 2020.
Singapore and Thailand were the two largest investors in ASEAN in 2020. In fact, companies from Singapore formed the largest investor group in some countries – 25 per cent of FDI in Indonesia and 40 per cent of FDI in Vietnam was from Singapore. According to Enterprise Singapore, companies from the island-state have invested in Indonesia's consumer products and services, manufacturing, transportation, logistics and infrastructure sectors.
Thailand's FDI outflows more than doubled to US$17 billion in 2020. Almost 85 per cent of the outflows were funnelled into industries such as financial services, retail and wholesale, manufacturing, real estate, and construction activities within Asean.
Indonesia and the Philippines also invested into the region, with outward investment from the two countries rising to US$4.5 billion and US$3.5 billion respectively. For example, Japfa Comfeed (Indonesia) opened a feed mill in Vietnam while Ayala Corporation (Philippines), together with a Singaporean partner, is also constructing a wind farm in the country.
While the overall outlook for ASEAN depends on how countries are able to contain the pandemic and new virus strains, intra-regional investment will boost not only stronger economic cooperation but also long-term growth prospects for the economic bloc.
Source: The Business Times (Singapore)
Date: 15 September 2021
Reference: https://www.businesstimes.com.sg/asean-business/fdi-inflows-across-asia-remain-resilient-despite-the-prolonged-pandemic
September 21, 2021
