Investors Rediscover Asia
Thursday, November 02, 2006SUSIE GHARIB: In the early 1990s, Southeast Asia was a preferred destination for foreign investment, particularly by American companies. Then in 1997, the Asian financial crisis hit those so-called tiger economies, and the flow of foreign money dried up. Since then, China has been the foreign investment destination of choice, and many predicted Southeast Asia would never recover.
But as Rian Maelzer reports, Southeast Asia is now regaining some of its allure for foreign investors.
RIAN MAELZER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Some talked of the "hollowing out" of industry in Southeast Asia with the region becoming unable to compete for foreign investment with its giant neighbor, China. But in both 2004 and 2005, foreign direct investment into the Association of Southeast Asian Nations, ASEAN, grew 50 percent year-on-year.
And last year, FDI into the region finally exceeded pre-crisis levels at $38 billion, with this year's figures also looking good. One key draw appears to have been the lowering of trade barriers under the ASEAN Free Trade Agreement.
MICHAEL YEOH, CEO, ASIAN STRATEGY & LEADERSHIP INSTITUTE: That creates a lot of excitement for investors in the sense that we are half the size of China, half the size of India, and there is I think considerably higher consumption power.
MAELZER: Much of the new investment into the region is flowing to a sector many thought was on the decline, electronics. But foreign investment is also headed into other manufacturing, commodities and services. Take this General Electric operation in Malaysia that services aircraft engines, some made by GE, others not. The engines come from its two local partner airlines as well as otherairlines from right across Asia and beyond.
STUART DEAN, PRESIDENT, GE SOUTHEAST ASIA: You know, it is always a trade off both of labor costs as well as labor productivity. So you have got some very good skilled workers here who are very productive.
MAELZER: GE was one of the pioneer foreign investors in Southeast Asia.
DEAN: We have enormous opportunities for GE to continue to grow here. We have been growing 20 percent per year and we think we can continue that kind of growth over the next four or five years.
MAELZER: Some see the renewed interest in ASEAN as a sign that China, with its rising costs and intense competition for skilled labor, is losing some of its allure.
YEOH: We are beginning to get companies coming to ASEAN, coming with the idea of a China- plus-one strategy, that they will have an operation in China but they would hedge their bet and not have everything into China, and have one other additional location.
MAELZER: But to ensure this FDI upturn becomes a long-term trend, analysts say ASEAN countries need to work toward clean, efficient government. And on that score, ASEAN has both extremes. Singapore was recently named the world's easiest country in which to do business. It is among the world's least corrupt, while neighbors the Philippines, Indonesia, and Cambodia are among the most.
The tiger economies of Southeast Asia may be beginning to roar again, but getting some of them to change their stripes is likely to prove a much longer-term challenge.
Rian Maelzer, NIGHTLY BUSINESS REPORT, Kuala Lumpur.
