intra-regional investment
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Questions addressed in the paper
Why these questions
Outward FDI from Asean
Conclusions and implications
Can intra-regional investment contribute to the closer regional integration in Asean?
If so, how?
Regional integration in Southeast Asia› Goal: to establish the Asean Economic Community
(AEC) as a single market with a free flow of goods, services, investment and capital by 2015
› State-led regionalism not as significant as market-led regional integration through the globalisation of production networks of extra-regional MNEs. But Asean continues to be top-down and state-led!
› Intra-Asean FDI in 2008 = 18.2% compared to 66% of intra-EU FDI a lot of room to grow?
Surge of outward FDI from developing countries› Southeast Asia is the 2nd largest source of
investors from developing countries, following East Asia (OFDI stock)
› As these economies develop, more OFDI is expected and the nature of OFDI should be more complex and sophisticated
› The rise of China and India as source and destination of FDI what would happen to Asean
How significant is Asean as outward investors?
How important is intra-Asean investment?
Who are Asean investors?
Where and in which sectors do they invest?
What drives their investment strategies
Inward FDI far outweighs outward FDI
Singapore and Malaysia are top performers, with Indonesia and Thailand following far behind (10th, 22nd, 52nd, and 66th in UNCTAD outward FDI performance index)
Outward FDI from Singapore and Malaysia = 85% of Asean outward FDI
Inward FDI: › Asean is heavily dependent on FDI inflows
from non-members (82%v.s 18%) Outward FDI:
› Asean more important to each other as destinations
› But China is luring Asean outward FDI away from the region
-2,000
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
US$ MILLION
Brunei
Darus
salam
Cambodia
Indo
nesia
Lao P
DR
Mala
ysia
Mya
nmar
Philipp
ines
Singap
ore
Thaila
nd
Viet N
am
HOST COUNTRY
ACCUMULATED INTRA-ASEAN FDI FLOWS BY HOST AND SOURCE COUNTRY, 1995-2007
Singapore
Malaysia
Indonesia
Thailand
Philippines
Brunei Darussalam
Viet Nam
Myanmar
Lao PDR
Cambodia
Source: ASEAN Secretariat - ASEAN FDI Database, 2008.
Singapore is the clear leader, both as source and host countries
Two layers of integration among Asean countries› Extensive cross-country investment among Asean-
5, esp Singapore, Malaysia and Indonesia› Uni-dimensional investment from more advanced
members to CLMV
-2,000
0
2,000
4,000
6,000
8,000
10,000
12,000
US$ MILLION
SECTOR
Viet Nam
Thailand
Singapore
Philippines
Myanmar
Malaysia
Lao PDR
Indonesia
Cambodia
Brunei Darussalam
Source: ASEAN Secretariat - ASEAN FDI Database, 2008
Key sectors: manufacturing, financial services, real estate, and mining
Intra-Asean investment is driven most by market-seeking, followed by efficiency-seeking (esp. lower cost locations), and resource-seeking objectives
Key indigenous players are large firms and government-linked companies
Asean regional integration is more driven by inward FDI from outside the region
Intra-Asean investment exists, but tends to be limited among the more advanced members.
Increased competition among Asean firms.
China poses a major challenge as alternative destination for FDI from non-Asean and Asean members
Regional level: Asean needs to be flexible enough to accommodate extra-regional (e.g. Asean +3) and sub-regional structures (e.g. GMS, growth triangle)
Country level: a need for a clear and proactive policy on outward FDI. OFDI is an indicator of the country’s competitiveness.
Firm level: Asean firms should not be limited to market- , low-cost, and resource-seeking investment only. More complex activities for the region should be encouraged.
Key challenges:› Intraregional competition (ex. PTT and Petronas)› Sensitivity to government-linked companies (ex.
Temasek)
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