Asean shines bright in foreign investor surveys
East and West investors are broadly upbeat about the region's rising growth prospects, though corruption, trade barriers and regulatory uncertainly are still concerns
Foreign investors’ love affair with Southeast Asia shows no signs of diminishing, but business lobbies are growing frustrated at the region’s failure to tackle corruption and ease trade restrictions.
About three-quarters of European firms, a main source of foreign capital for the 10 Association of Southeast Asian Nations (Asean) members, expect their earnings to improve in 2017, while 86% say their trade and investment will rise in the next five years, the European Union-Asean Business Council recently reported.
“Asean is becoming the next key driver of global economic growth,” EU-ABC chairman Donald Kanak commented in an upbeat assessment released in early September. “This survey shows that European businesses will continue to contribute to ASEAN by increased trade, investment and employment.”
An annual survey of US executives’ business perceptions on the region conducted by the American Chamber of Commerce in Singapore found that 78% believe their companies’ profits will rise this year. Almost 70% said their firms’ trade and investment in Asean had increased in 2016, down only slightly from 72% in the previous 12 months.
Meanwhile, Asean’s relations with East Asian partners Japan, China, South Korea, Taiwan and Hong Kong have been complicated by recent policy changes in China, but are mostly upbeat.
China’s clampdown on capital flows, aimed at easing pressure on the renminbi and preserving foreign exchange reserves, will affect investments in “non-essential” sectors like real estate. But Asean is benefiting from the relocation of production to countries like Vietnam and Cambodia as China moves out of low-cost industries.
A study by international accountancy company Ernst & Young has predicted that China will have US$150 billion of investment parked in Asean and will conduct US$1 trillion of bilateral trade with the region by 2020.
Meanwhile, more than 55% of Japanese companies expect to expand their investments in Asean in 2017-18, up slightly from 54.2% in 2015 but well down on the peak of 63.1% in 2013, according to the most recent questionnaire by the Japan External Trade Organization, an independent government trade promotion agency.
In an online survey published in July by Japan’s Nikkei and the US think tank Center for Strategic and International Studies, 50% of Japanese executives named India and 38% Asean when asked which emerging economy their company would invest in today. Only 4% of the 2,800 respondents said they would choose China.
Indonesia and Thailand are schedule to take most of the Japanese investment. One of the apparent biggest draws will be Thailand’s US$45-billion redevelopment of its industrial eastern seaboard, which was warmly endorsed by a gathering of 570 investors flown from Japan on September 11.
South Korea is preparing a framework for closer economic ties that will be released at a November summit. Bilateral trade with Asean reached a record US$72 billion in the first half of the year.
Hong Kong is about to sign a free trade agreement with Asean that should attract more investment in services and funnel exports through China’s Belt and Road Initiative; Taiwan and India are pursuing separate plans for more engagement with the region.
Investors are attracted by Southeast Asia’s solid economic outlook – growth is expected to average 5% in 2017-18 – rising incomes and market integration under the Asean Economic Community, a regional free trade pact.
“We have seen steady growth momentum over the past 10 years and we forecast that between now and 2022 the ready-to-drink market will almost double,” Iain McLaughlin, president of Coca-Cola’s Asean Business Unit, said in feedback to AmCham’s survey.
Reflecting Asean’s surging demand, suppliers of consumer goods, information technology, financial services and infrastructure are among the most optimistic of the foreign investors and traders.
At the same time, there is an undercurrent of dissatisfaction with the slow pace of structural reform, with some respondents warning a lack of change could prevent Asean from reaching its maximum economic potential.
Nearly two-thirds of European firms complained that non-tariff barriers were hampering supply chain efficiency and 55% thought they were disadvantaged by the lack of a free trade agreement between the EU and Asean. Support for an FTA has risen to 88% among European companies, up from 66% of those surveyed in 2016.
US businesses also want their government to negotiate bilateral FTAs with Asean now that Washington has quit the Trans-Pacific Partnership, and most want the TPP to proceed even without US involvement. Vietnam, Indonesia and Thailand were cited as the most attractive partners for pursuing bilateral agreements.
The investment environment has generally improved in the Philippines (77% of respondents), Vietnam (72%) and Myanmar (70%), according to the AmCham survey, while Malaysia (23%), Thailand (22%), and Brunei (16%) have not done quite as well.
Companies involved in the software, information technology and telecommunications sectors have seen the biggest improvement, while those in the healthcare industry reported the least change.
American investors’ main beef is corruption, with 62% saying it should be a priority area for reform. Improved transparency (57%), good governance (56%), removing non-tariff trade barriers (48%) and responsive regulatory regimes (44%) are other issues.
Southeast Asia mostly ranked poorly in the World Bank’s 2017 Ease of Doing Business survey, with only Singapore (2), Malaysia (23) and Thailand (50) ranked among the top 50 of 190 assessed nations. Brunei (72), Vietnam (82), Indonesia (91), the Philippines (99), Cambodia (131), Laos (139) and Myanmar (170) all trailed.
It was a similar story in Transparency International’s annual corruption index, which surveyed 176 countries and territories. Singapore (7) again did the best, followed by Brunei (41), Malaysia (55), Indonesia (90), Thailand and the Philippines (101), Vietnam (113), Laos (123), Myanmar (136) and Cambodia (156).
The 2016 scores of Singapore, Malaysia, Thailand and the Philippines all declined, largely due to domestic political issues; Indonesia, Vietnam, Laos and Myanmar improved, while Cambodia’s score was the same. Brunei was not assessed in 2015.