Southeast Asia is one of the countries receiving the largest FDI inflows among emerging regions. FDI flows into the region are increasingly driven by emerging opportunities in sectors such as industrial real estate,  the digital economy and green technology.

FDI capital flows into Southeast Asia market increased sharply

FDI flows into Southeast Asia have increased ninefold over the past two decades, with more than half of these going to Singapore, which tends to serve as a regional hub for many investors. However, new “green” investment projects have had a serious decline since the Covid-19 pandemic began, with no signs of improvement yet. In the region, Vietnam and Indonesia have attracted the largest FDI capital in the green sector in the past decade (232-242 billion USD), followed by Malaysia and Singapore (153-164 billion USD).

FDI capital flows into Southeast Asia increased 9 times in 20 years.

Governments in Southeast Asia devote a lot of resources to attracting FDI in the hope of creating jobs. Green FDI projects create an average of three direct jobs per million USD invested in the region (similar to the worldwide average), but the intensity of job creation varies significantly across countries according to level of development and economic structure. Lower-income countries, such as Myanmar and Laos, as well as countries with abundant fossil fuel resources, such as Brunei Darussalam, tend to attract significant FDI in natural resource exploitation and energy production, which creates relatively few direct jobs.

Emerging economies with diverse and solid industrial capacities, such as Vietnam and Thailand, create the most jobs per dollar of investment. Countries with highly skilled workforces, advanced industries and relatively larger financial sectors, such as Malaysia and Singapore, attract FDI in high-tech products and services Knowledge-intensive, requiring less labor. The high capital intensity of manufacturing FDI in Indonesia is driven by the metal and chemical industries, while the high labor intensity of FDI in the Philippines is mainly driven by business support services.

In addition to capital and employment, FDI has contributed significantly to sustainable development in Southeast Asia. More foreign firms introduce significantly more new products and services than their domestic counterparts in most countries in ASEAN, and this greater innovation capacity suggests that there is potential for knowledge and technology transferred to domestic enterprises.

Foreign companies are also more likely to provide training opportunities for their employees, and the gap between foreign and domestic companies is significantly larger in many ASEAN countries than in central countries. OECD and non-OECD averages, suggesting that foreign companies contribute unevenly to workplace skills development in the region. By employing more women in their workforce in most ASEAN countries, foreign businesses also help improve gender equality in the workplace.

However, some economies have benefited more than others, and the benefits of FDI are not felt equally across different sections of society. While FDI creates jobs and contributes to improving skills and living standards, it can also create risks of irresponsible and unsustainable business practices, while also exacerbating grievances. income equality, potentially leaving vulnerable segments of the population behind.

The contribution of FDI to green growth and decarbonization is unclear. For example, in Indonesia and Thailand, FDI performed worse than domestic investment in terms of CO2 emissions per unit of output, especially in the mining, metals and energy industries, in While in Vietnam and the Philippines, the carbon footprint of FDI is lower than that of domestic investment, especially in the energy and manufacturing sectors. The shift of FDI away from fossil fuels and toward renewable energy in Southeast Asia also lags behind other regions and varies significantly across regions.

In Laos and Cambodia, renewable energy has attracted more than half of new foreign investments in the energy sector over the past decade; However, fossil fuels still account for more than 88% of FDI capital in the energy sector in 6 ASEAN countries.

As in the case of other major crises, the Covid-19 pandemic has motivated ASEAN governments to reconsider the fundamentals of their economic policies and reorient priorities towards more resilient and sustainable. Promoting sustainable investment is an integral part of the ASEAN Comprehensive Recovery Framework (ACRF) and its implementation, identifying broad strategies to respond to the crisis in a coordinated and long-term manner.

The challenge for governments is not only to attract foreign investors at a time when global FDI flows are dwindling, but also to ensure that the investment brings sustainable benefits to the host economy. . Attracting investment and deriving maximum benefits in terms of sustainability depends primarily on the overall policy framework within which the investment occurs. Policymakers need to maintain a healthy, transparent and open investment environment, and adopt policies that maximize the benefits of FDI and minimize the potential harm to the economy, local society and environment.

Furthermore, targeted promotional tools and measures for responsible business conduct (RBC) are equally important to a sustainable investment framework. This requires a whole-of-government effort, evidence-based policymaking and meaningful stakeholder consultation.

Investment promotion agencies (IPAs) also need to align their strategies with government sustainability goals and adopt target indicators to prioritize investments and measure results. sustainability of FDI. In ASEAN, while sustainable development goals are considered one of the leading factors influencing IPA priorities, only three IPAs use sustainability-related indicators to measure impact. of their activities.

Well-designed and targeted incentives can also be powerful tools to attract sustainable value-added FDI, especially investment that can contribute to the low-carbon transition; but existing incentive packages for carbon-intensive industries may reduce the effectiveness of green incentive programs.

Enabling RBC is an equally important part of the equation for governments to promote sustainable investment by creating conditions that favor responsible investors, improving their attractiveness to investors. Invest in high quality and protect resources for the future. Investors with a strong RBC risk management framework are also better equipped to identify, assess and address risks in their supply chains.

Source: Bao Cong Thuong Newspaper

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