1-8-2024 (SINGAPORE) Southeast Asia has overtaken China as the preferred destination for foreign direct investment (FDI) for the first time in ten years. This significant development, revealed in a comprehensive report by the Angsana Council, Bain & Company, and DBS Bank, signals a pivotal change in the region’s economic landscape and highlights the growing attractiveness of Southeast Asian markets to international investors.
The report, titled “Navigating High Winds: Southeast Asia Outlook 2024-2034”, paints a picture of robust growth in the region, particularly among its six largest economies – Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam (SEA-6). In 2023, these nations collectively attracted a staggering US$206 billion in FDI, dwarfing China’s US$43 billion.
Charles Ormiston, Advisory Partner at Bain & Company and Chair of the Angsana Council, expressed optimism about the region’s prospects: “We anticipate Southeast Asia will outpace China’s growth in both GDP and FDI over the next decade, driven by strong domestic growth and the increasing adoption of ‘China + 1’ strategies by multinational corporations.”
This shift is attributed to several factors, including rising manufacturing costs in China, increasing tariffs on Chinese goods, and a global push for supply chain diversification. The trend towards building “China + 1” supply chains has accelerated, with companies seeking to reduce their reliance on a single market.
Among the SEA-6, Singapore leads in FDI per capita, while Indonesia and the Philippines, despite having the lowest FDI per capita, are experiencing the fastest growth alongside Vietnam. Malaysia, although currently showing slower FDI growth, has committed to reversing this trend, particularly in its semiconductor, electronics, and data centre industries.
The report highlights key sectors driving FDI growth in Southeast Asia:
- Electric Vehicle (EV) Manufacturing: Thailand and Indonesia have attracted approximately US$14 billion in FDI over the past five years, leveraging their strong original equipment manufacturer base and government incentives.
- EV Battery Manufacturing: Indonesia dominates this sector, drawing US$26 billion in FDI, primarily due to its abundant nickel reserves.
- Semiconductor Manufacturing: Malaysia and Singapore lead with US$38 billion in FDI, with Singapore specialising in wafer fabrication and Malaysia in packaging and testing.
- Data Centres: Thailand, Indonesia, and Malaysia are emerging as regional leaders, benefiting from reliable infrastructure and growing digital economies.
Despite these positive trends, the report cautions that Southeast Asia still lags behind China in service provision and innovation. Peng T. Ong, trustee of the Angsana Council, emphasises the need for increased technology investments to drive innovation in the private sector, similar to the trajectories observed in China and the United States.
The report also acknowledges China’s enduring strengths. Despite rising labour costs, China remains the world’s lowest-cost producer, boasting a vast pool of engineering and research talent, a massive domestic market, and manufacturing facilities of unparalleled scale.
