Opinions expressed by Digital Journal contributors are their own.
Having weathered the storm caused by the COVID-19 pandemic, the economies of Southeast Asia are set to rebound and overcome the financial turbulence of the past two years with impressive growth. In fact, despite international economic instability in other parts of the world, the region is arguably powering the growth of Foreign Direct Investment (FDI) across the Asian continent and globally.
The OECD predicts that economic growth in the region will increase by 5.2% in 2022, followed by a 5.2% expansion in 2023. While we all welcome this positive fiscal outlook, it will be critical for policymakers in the region to facilitate FDI flows by introducing new policies amenable to the private sector.
Staying on the front-foot by implementing policies that encourage innovation and investment will undoubtedly lead to greater flows of foreign capital. In turn, this will help mitigate economic risks and support the post-pandemic recovery.
After all, Southeast Asia benefits from relative geopolitical stability, a large and varied demographic base, substantial regional integration and a strategic location. Coupled with significant investment opportunities in a number of sectors, Southeast Asia is one of the most exciting areas for foreign investment in the world – and global investors are taking note.
As the Founder of Riau Capital, a Singapore-based investment group with an international focus on real estate, strategic resources and infrastructure, I have seen first-hand how investors are taking advantage of what the region has to offer.
Working across Singapore, Indonesia, Malayasia and Brunei, we are helping to facilitate the expansion of FDI flows in the region and ensuring that we achieve the best results for businesses and the people of Southeast Asia. This is an exciting time for global trade, particularly in the region I call home, where FDI is on the up.
According to the United Nations Conference on Trade and Development (UNCTAD), the rise in FDI flows in the region was underpinned by strong investment in manufacturing, the digital economy and infrastructure. This considered, governments must continue to look strategically at sectors that can attract the most investment, and see what policies can be implemented to further exploit their potential.
Take Singapore – unsurprisingly, the city-state has the region’s largest recipient of flows up 31% to US$99 billion, particularly driven by a jump in cross-border mergers and acquisitions (M&As). In fact, Singapore boasts the highest number of M&A in the region.
Cooperation between countries in the region and deeper political and economic integration is helping the region remain attractive and competitive to global capital flows. Governments already recognise the importance that cross-border collaboration has for attracting investment – but they must not be complacent.
The population of member states of the Association of Southeast Asian Nations (ASEAN) total 661.5 million and are spread across 10 countries. The international organisation recently concluded finalised and signed the monumental Regional Comprehensive Economic Partnership (RCEP) Agreement in November 2020. This regional trading agreement constitutes about 14 percent of global FDI stock and more than 33 percent of FDI flows in 2020.
It is therefore no wonder that investors are flocking to Southeast Asia when ASEAN states are offering investors the opportunity to enter a deeply integrated marketplace. The region must not lose sight that its unique market is a significant draw for global capital flows.
Looking to the future, governments should be cognisant of distributing the benefits of this growth fairly to the population. Consolidating the social impact of FDI inflows will of course help to grow and retain foreign capital. Aside from this, FDI flows can help to accelerate job creation, trigger human capital formation, bring modern technologies and managerial practices to the marketplace.
Prior to the outbreak of the COVID-19 pandemic, one of the most successful sectors in Southeast Asia was travel and tourism. The industry was responsible for an impressive 12 percent of the region’s GDP (US$341 billion) and more than 13 percent of all jobs (about 42 million). By the end of 2019, emerging Southeast Asia welcomed approximately 124 million international tourists, almost twice as many in 2010.
Renewed FDI flows can help key sectors like travel and tourism recover from the losses of the pandemic. However, this can only be possible if policymakers continue to engage the private sector by consulting on policies to make their work more effective and streamline investment. In this way, Southeast Asia can remain competitive to international audiences.
The region has shown incredible resilience since the beginning of the pandemic. Now, with an optimistic economic outlook, sustainable, inclusive and broad-based growth in the region, driven by FDI, can help to unlock the region’s future potential – so long as governments remain willing to institute policies that support growth, innovation and investment.
