Asia’s Foreign Direct Investments: Understanding the Trend

Foreign Investment channeled into Asia has reached a record high exceeding $600 billion in 2021. In stark contrast to the plummeting rates of global FDI, flows to the developing economies in Asia marked an all-time high in the post-pandemic period. Witnessing a rise for the third consecutive year despite recurring pandemic waves, there are notable underlying trends that are driving such levels of investment. A report shows that Asia received the largest FDI in the world, accounting for nearly 40% of the global inflows.  

‍Investments remained highly concentrated

China followed by Hong Kong, Singapore, India, the United Arab Emirates, and Indonesia accounted for nearly 80% of the investment in the region. Up from just a 6% increase marked in 2020, China witnessed a more than 20% increase in levels in 2021. With about a 4% increase in investment levels from 2020, Hong Kong has accounted for more than $140 billion in investment. Even though the United Arab Emirates remained the largest recipient in the West Asia region, Saudi Arabia and Turkey witnessed massive rises in inflows of investment. Singapore has been at the forefront of the highest inflows in the Southeast Asian region accounting for nearly one-third, amounting to nearly $100 billion. India witnessed a historically high annual FDI inflow of $80 billion in FY 2021-22.

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‍Prominence of sectors

Providing attractive opportunities for improving ESG standards, Asia represents investors with a lucrative opportunity. Hence, investment in sectors synonymous with sustainable development goals has been one of the major trends witnessed. These sectors have accounted for a more than 2-fold increase between 2020 to 2021. The manufacturing sector in India marked a massive inflow of FDI in FY2021-22 accounting for a nearly 80%  rise compared to FY2020-21. Compared to FY2020, UAE witnessed FDI inflows increase by 13% in the manufacturing sector and a 9% increase in the healthcare sector. Japan recorded maximum FDI inflows in the finance sector along with transportation and electric machinery production, communication sector, and pharmaceuticals. With advanced technology, R&D and a highly skilled workforce have been at the core of garnering maximum investment in Japan.

Digital adaptability, technology resilience, and favorable demographics are the primary driving force behind such inflows of FDI in the region. With rising income levels and evolving behavior fuelled by technological innovations, the consumer sectors in Asia represent a potential pool of investment opportunities. With long-term growth and diversification opportunities, Asia is set to outperform its western counterparts by becoming the most dynamic economic region.

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_{Source : World Investment Report 2022, Milken Institute, Fidelity, UNCTAD}