Significant FDI Rebound in ASEAN

1. The Seventh AIA Council met on 2 September 2004 in Jakarta, Indonesia. Reviewing the developments in investments over the past year, the Council was pleased to note the significant rebound in ASEAN FDI for the year ending 2003, making the region one of the largest FDI destinations. The Council was encouraged by the 48% year-on-year increase in FDI flows[1] to US$20.3 billion, underscoring the region’s resilience despite the many challenges encountered in 2003 (refer to Figure 1).

Figure 1. FDI flows to ASEAN 1996-2003

 96-03

Source: ASEAN Secretariat: Statistics of FDI in ASEAN, 6th Edition, 2004, Apportionment basis

2. FDI flows were mainly into financial intermediation (27%), manufacturing (23%), mining and quarrying (20%) and trade/commerce (11%). Furthermore, the Council noted that the increase was achieved despite global FDI flows decreasing consecutively for the past three years, e.g., declining 12% in 2003 to US$575 billion (refer to Figure 2).

Figure 2. ASEAN and Global FDI Trend

FDI Trend
Source: ASEAN Secretariat: Statistics of FDI in ASEAN, 6th Edition, 2004, EIU, World Investment Prospects, 2004

3. The Council also noted that FDI for the year ending 2004 is likely to further improve, given that preliminary data for the 1st Quarter of 2004 yielded FDI flows of US$7.3 billion, which is a 188% increase over FDI flows in the same period in 2003.

4. The top 10 investors contributed 78 % of total ASEAN FDI in 2003. United Kingdom, Netherlands, United States, intra-ASEAN and Japan, in that order, dominated flows to the region.

5. The improved global demand for ICT products, the successful privatisation of assets and an increase in oil investment in some ASEAN Member Countries contributed to the overall improved regional situation. Improving corporate profitability of firms listed in U.S. Fortune 500 that are operating in ASEAN allowed firms to reinvest earnings, which have been consistently high and increasing in the region (37%[2] of total FDI flows to ASEAN between 1995-2002), to reduce their financial exposure, resulting in marked increases in the marginal rate of return of many MNCs.

6. The Council also recognised the importance of intra-ASEAN FDI, which have been consistently over US$2billion annually for the last three years. This comprised both Greenfield investments and intra-regional cross-border Mergers & Acquisitions.

Rise in Approved Manufacturing FDI

7. In tandem with the overall improvement in ASEAN FDI, approved manufacturing
FDI in 2003 increased to US$18 billion, representing a 29% year-on-year growth from the amount of US$14 billion recorded in 2002 (refer to Figure 3). The increase reinforces the region as a growing and important manufacturing base. The top five FDI sectors in manufacturing were refined petroleum products, electrical and electronics, basic metals, transport equipment and wood products.

Figure 3. Approved Manufacturing FDI in ASEAN

FDI in ASEAN
Source: ASEAN Secretariat: Statistics of FDI in ASEAN, 6th Edition, 2004, Apportionment Basis

Progress in the Implementation of the AIA and beyond

8. The Council noted the continued progress and efforts made in advancing the AIA process. During the past year, efforts were undertaken to promote awareness of the development in ASEAN’s supporting industries and enhance the understanding of trans-national corporations’ strategies. Some Member Countries have unilaterally reviewed their Temporary Exclusion Lists and Sensitive Lists in the AIA and submitted revised lists. In addition, to provide up-to-date information on ASEAN’s investment situation, the 2003 FDI data set was released and the data set for 1st half 2004 will be released by year-end.

9. The Council welcomed the initiative of the ASEAN Business Advisory Council (ABAC) in successfully concluding the First ASEAN Business and Investment Summit in October 2003, in Bali, Indonesia, in cooperation with the Coordinating Committee on Investments (CCI). The Council acknowledged the role of ABAC in contributing towards the region’s efforts in deepening economic integration.

10. The Council welcomed the successful convening of the First CCI-Japan Investment Consultation in May 2004. The Council noted the importance of holding such consultations and reaffirmed its commitment to supporting future consultations with Japan and other ASEAN dialogue partners.

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Attendance:

The Seventh AIA Council Meeting was chaired by H.E. Rini M. Sumarno Soewandi, Minister of Industry and Trade, Indonesia and attended by:

Mr. Lim Jock Hoi
Director-General
Representing Minister
Ministry of Industry and Primary Resources
Brunei Darussalam

H.E. Mr. Kong Vibol
First Secretary of State of Economy and Finance
Cambodia

H.E. Dr. Liane Thikeo
Deputy Minister
Committee for Planning and Investment
Lao PDR

H.E. Dato’ Ahmad Husni Mohamad Hanadzlah
Deputy Minister
Ministry of International Trade and Industry
Malaysia

H.E. U Tin Winn
Minister for Economic Cooperation
Myanmar

H.E. Mr. Elmer C. Hernandez
Undersecretary of Trade and Industry
Philippines

H.E. Mr. Lim Hng Kiang
Minister for Trade and Industry
Singapore

Mr. Satit Sirirangkamanont
Deputy Secretary-General
Office of the Board of Investment
Thailand

H.E. Mr. Phan Huu Thang
Ministerial Level
Head of Foreign Investment Agency
Ministry of Planning and Investment
Viet Nam

H.E. Mr. Ong Keng Yong
Secretary-General of ASEAN

[1] All FDI data refers to BOP basis unless otherwise stated
[2] Reinvested earnings as a percentage of FDI composition in 1995-2002 averaged about 15% for the world, 12% in Eastern Europe and Central Asia, 11% in Latin America and the Caribbean, Source: World Investment Report, UNCTAD, 2003.