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)