Foreign direct investment (FDI) inflows to the Association of Southeast Asian Nations (ASEAN) reached a record US$230 billion in 2023 despite an overall decline in global flows, but those to the Philippines registered a fall, according to a new joint report.

The ASEAN Investment Report 2024 said the regional bloc has maintained its position at the top of FDI recipients among developing regions for three consecutive years, averaging an impressive $220 billion in foreign investments per year between 2021 and 2023.

In 2023, FDI inflows to ASEAN reached a historic $230 billion despite a 10 percent decline in global FDI flows. This led to ASEAN’s share of global FDI to soar to 17 percent, a leap from an average of 6 percent between 2006 and 2015, the new joint report showed.

Emerging trends highlighted

The report highlighted emerging trends, such as increasing financial flows into renewable energy and manufacturing, and strong investment growth from major economies such as China, the United States and the European Union.

The top five industry recipients accounted for 86 percent of inflows, namely, finance; manufacturing; professional, scientific and technical activities; wholesale and retail trade; and transportation and storage.

FDI in financial activities increased by 53 percent to $92 billion, while investment in professional, scientific and technical activities also rose from $0.3 billion to $21 billion.

Meanwhile, the other top three industries (manufacturing, wholesale and retail trade, and transportation and storage) all saw declines.

Manufacturing remained important

However, manufacturing remained important with more than $50 billion of FDI inflows, or 22 percent of the total.

Moreover, the number of new greenfield investment project announcements in manufacturing more than doubled in 2023.

Another notable transformative trend is the growth of investment in the renewable energy supply chain, evident from the robust investments in renewable energy and electric vehicles, said the report.

Foreign direct investments in ASEAN member states in 2023 were mixed, noted the paper. While most witnessed a decline in inflows, Cambodia, the Lao People’s Democratic Republic, Singapore and Vietnam saw investment rising to all-time highs.

Singapore led the pack with nearly $160 billion in FDI flows, followed far behind by Indonesia with $21.6 billion, Vietnam with $18.5 billion, the Philippines with $8.9 billion, Malaysia with $8.8 billion, Thailand with $4.5 billion, Cambodia with $4 billion, Myanmar with $2.2 billion, and Lao PDR with $1.8 billion.

Philippine FDI declined by 7 percent to $8.9 billion from $9.5 billion in 2022.

Investment fell in most industries, with the exception of manufacturing and renewable energy.

Large wind power projects involving companies such as those from Europe sustained investment in renewable energy.

Companies based in Singapore invested significantly less, with a drop from $539 million in 2022 to $183 million in 2023, while FDI from companies in Japan rose 8 percent to $849 million.

Divestment or scaling down of operations by some multinational enterprises in the face of challenges related to a value added tax rebate also contributed to the declining situation in the Philippines, the report said.

Strong performance

Meanwhile, the report attributed ASEAN’s strong performance to deeper regional integration, an improved investment climate, expanding opportunities, and more positive sentiment among investors and business associations.

The ASEAN Economic Community Blueprint 2025 also plays a pivotal role in improving the investment policy environment across the region. This includes implementing regional agreements and frameworks aimed at enhancing economic integration and stimulating growth in strategic sectors.

Moreover, numerous national investment policy measures and multilateral partnerships were adopted to promote and facilitate FDI, according to the report launched October 9, 2024 by the ASEAN Secretariat and the United Nations Trade and Development or UNCTAD.

Looking ahead, the paper is optimistic about ASEAN’s investment prospects beyond 2025.

With a favorable investment climate, continued regional integration, and stable GDP growth, the region is poised to continue attracting significant investment.

However, some policy gaps remain, such as the need to further strengthen ASEAN’s investment facilitation framework.

To further stimulate FDI, ASEAN can tap into intraregional investments and facilitate small businesses to expand their operations across the region, the joint paper said.

ASEAN also has the potential to attract greater investment in emerging industries and sectors linked to sustainable development.

Some examples are infrastructure, the digital economy, electric vehicle supply chain, renewable energy value chain and the development of supply chain networks.

Deeper regional cooperation

To keep up FDI momentum, the report recommends deeper regional cooperation, investment in skills development and advancing public-private partnerships to strengthen industrial ecosystems.

It also highlights that now and into the future, ASEAN should continue to leverage the symbiotic relationship between FDI, industrial development, and regional integration.