Foreign direct investment in ASEAN forecast to rise

Foreign direct investment in ASEAN forecast to rise

Foreign direct investment (FDI) into Southeast Asia is likely to rise despite the recent cutback in the flow of capital, a U.S. investment bank said on Friday.

"As ASEAN's cyclical upswing progresses, we would expect FDI to re-emerge in a more dominant role," Goldman Sachs said in its latest Asia-Pacific Economics Analyst report.

From the current level of 1.5 per cent of gross domestic product, Goldman forecast FDI to the 10-member Association of Southeast Asian Nations (ASEAN) to return to a long-term average rate of about 2.5 per cent of GDP.

This means an extra US$10 billion a year in FDI inflows at current prices, the report said, which will reinforce the return of domestic capital and capital spending.

Contrary to prevailing fears, Goldman does not accept the theory that China's rise as an economic powerhouse will divert FDI away from ASEAN.

Noting the main shrinkage in ASEAN's FDI share occurred after the financial crisis triggered in mid-1997, Goldman said, "The sharp drop-off in FDI in the past five years was mainly due to ASEAN's inability to establish new macro and geopolitical anchors."

"Essentially, ASEAN made itself uninvestable," Goldman said.

ASEAN groups Singapore, Malaysia, the Philippines, Thailand, Brunei, Indonesia, Cambodia, Laos, Vietnam and Myanmar (Burma).

Goldman said a signal that capital is starting to return is seen in the improvement in the capital accounts of Malaysia and Thailand.

Capital flight is also starting to reverse, Goldman said, specifically mentioning the Philippines, Malaysia and Indonesia

"ASEAN's wild card will be how rapidly the regional geopolitical landscape improves," Goldman said. --DPA