Singapore and Vietnam preferred by Asia’s investors
Asia Pacific has become the world’s most popular destination for foreign direct investment, taking in almost half of all spending globally in 2018, according to the UN’s Economic and Social Commission for Asia and the Pacific (Escap).
The UN figures comprise cross-border deals and on the ground projects — about $600 billion and $300 billion respectively. Intraregional foreign investment, excluding Oceania (Australasia, Melanesia, Micronesia and Polynesia), has also grown markedly over the past decade. China in particular has become an important investor into the rest of the region and, with nearly 20%, is now the top source of FDI after Japan.
Asean’s share of intraregional foreign investment has grown to 47% of capital investment in 2019. Vietnam was the favourite destination for intraregional foreign investors targeting Asean, followed by Indonesia, Thailand and Singapore. It has enjoyed strong growth in FDI for financial services — Asean’s top sector for foreign investors — but also in manufacturing, especially textiles and automotive components.
Although intraregional foreign investment into Indonesia and Thailand has focused noticeably on heavy industry and manufacturing, Asean as a whole has increasingly drawn FDI for the services sector. Singapore has been the principal beneficiary of this, while also becoming the top destination for regional companies setting up headquarters. Pragmatic regulation, especially for fund management and venture capital, is a key driver.
In respect of innovation, Singapore’s start-ups drew more than $7 billion of global venture capital in 2019. Although this is behind China and India — both far more populous – Singapore is one of the preferred destinations for fintech and technology investments.
The information and communications technology (ICT) sector has enjoyed the sharpest growth in FDI, with China, India, Hong Kong and Singapore respectively the top destinations for intraregional investment spending.
Other sectors seeing rapid growth in intraregional FDI are renewable energy, hotels and tourism, and real estate, with China and Vietnam recording the most foreign investment projects.
Generally, intraregional investment to Asia Pacific’s smaller countries has grown strongly for a decade, with Cambodia, Laos and Sri Lanka standing out. Even Japan — the regional heavyweight, but traditionally a limited market for intraregional FDI — has increasingly drawn investment from China, South Korea, Singapore and Hong Kong.