In 2022, global Foreign Direct Investment (FDI) strengthened in post-pandemic Southeast Asia and reached a record high of US$224 billion (S$300.3 billion).

Singapore led the way, taking in about 60 per cent of FDI (Pg 5) with Malaysia and Vietnam also achieving record-high investments. Key drivers of these strong investment trends included a strong rebound in manufacturing, burgeoning digital economies, and strategic supply chain enhancements (Pg 8, 11). Multinational corporations (MNCs) also continued proactive expansion across the region, according to the ASEAN Investment Report, published on 20 December 2023.
 

Here’s what the report highlighted:

1. Improvement in ASEAN’s investment policy landscape: Between 2021 and 2022, ASEAN Member States adopted 24 investment policy measures, with 16 being favourable to FDI. These measures included liberalising policies and allowing fully owned foreign equity ownership in sectors such as insurance, renewable energy, and telecommunication. For example, Vietnam opened up its insurance sector completely to foreign investment, while the Philippines allowed full foreign investment in renewables. Indonesia established a Ministry of Investment to facilitate the ease of doing business in the country (Pg 31).

2. New regional agreements gave FDI a boost: New regional agreements on the development of the digital economy, Industry 4.0 transformation, investment facilitation and the establishment of an electric vehicle (EV) ecosystem have been pivotal in driving economic cooperation and fostering investment across the region (Pg 33).

3. Key industries attracted the lion’s share of FDI: Manufacturing, finance, wholesale and retail trade, and sectors linked to the digital economy were the top recipients, accounting for 86 per cent of total FDI inflows. Manufacturing investment alone climbed to an all-time high of US$62 billion (S$83.1 billion), demonstrating the industry's robust recovery and resilience (Pg 8).
 

4. US, UK and Japan were key investment sources: The United States took the top spot, followed by intra-ASEAN investment and Japan. FDI from the United Kingdom rose the most, from negative US$3 billion (S$4 billion) in 2021 to US$10 billion (S$13.4 billion), with a significant increase in Singapore in wholesale and retail, finance and professional and scientific services. The top 10 sources of FDI accounted for 71 per cent of investment into ASEAN (Pg 11 - 12).

5. All investment modes gained traction: Investment project numbers increased across all three main modes of international investment: announced greenfield projects, international project finance and cross-border mergers and acquisitions (M&As). Most greenfield investment announcements were in services and manufacturing, the bulk of international project finance deals were in infrastructure-related industries whilst an overwhelming level of the activities in M&As were concentrated in services (Pg 19 - 22). 

6. Renewable energy supply chain - a new focus for FDI: This included not just investment in renewable power generation but also in transmission, distribution, and technology solutions (Pg 47). Cambodia, for instance, witnessed a sixfold increase in investment in the manufacturing of solar equipment, reaching about US$100 million (S$134.1 million) in 2022 (Pg 24).

7. Rapid growth in the EV Supply Chain investment: The EV sector in ASEAN saw investments skyrocket to to US$18 billion (S$24.2 billion) in 2022, growing sixfold from the previous year, spotlighting Indonesia, Malaysia, and Thailand as key players (Pg 66) . Key drivers for FDI include access to critical materials, proximity to suppliers, and a focused policy on energy transition amongst others (Pg 79).

8. New international supply chain opportunities for ASEAN: Recent geopolitical and pandemic-related disruptions, along with rising costs, are driving a shift in global supply chains. Investors are now spreading production in industries like electronics to manage risks, notably benefiting the ASEAN region. Google (United States) is expanding its Pixel phone production to the region, Infineon Technologies (Germany) is expanding capacity in Batam, Indonesia to strengthen supply chain facilities and for exports, and HP (United States) has continued to expand in Thailand (Pg 41). 
 

ASEAN's impressive performance in attracting FDI in 2022 sets a promising outlook for the region. Despite global economic uncertainties, ASEAN's continued efforts in improving its investment environment, capitalising on supply chain shifts, and focusing on sustainable industries position it as a compelling destination for international investors.

For more insights into Southeast Asia and how you can expand into the region, download the “A SEA of Opportunities” guidebook here.