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Intra-regional investment

Intra-regional investment. The neglected aspect of Asean integration Pavida Pananond T hammasat B usiness S chool Thammasat University. Outline. Questions addressed in the paper Why these questions Outward FDI from Asean Conclusions and implications. Questions.

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Intra-regional investment

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  1. Intra-regional investment The neglected aspect of Asean integration PavidaPananond ThammasatBusinessSchool Thammasat University

  2. Outline • Questions addressed in the paper • Why these questions • Outward FDI from Asean • Conclusions and implications

  3. Questions • Can intra-regional investment contribute to the closer regional integration in Asean? • If so, how?

  4. Why these questions? • 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?

  5. Why these questions? (cont.) • 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

  6. Outward FDI from 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

  7. Asean as outward investors

  8. Asean as outward investors • 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

  9. How important is intra-Asean investment?

  10. How important is intra-Asean investment?

  11. How important is intra-Asean investment? • 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

  12. Outward FDI from Singapore

  13. Nature of intra-Asean investment

  14. Nature of intra-Asean investment • 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

  15. Nature of intra-Asean investment

  16. Nature of intra-Asean investment • 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

  17. In sum… • 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

  18. Implications on regional integration • 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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