Globalisation
business lines suitable for investment incentives. FDI inflows into ASEAN reached its highest ever level in 2019 at $182bn, making ASEAN the largest recipient of FDI in the developing world, according to the organisation’s report. The commitment to global investment and trade constitutes about 15% of global FDI stock and more than 33% of global FDI flows in 2020 – and is expected to provide an opportunity for ASEAN and its partners to boost investment and enhance the region’s overall development. Malaysia is a good example here. An ASEAN member, it boasts a ripening FDI market, with one of the factors being “very dynamic” local companies that started producing semiconductors. Some of these have become leading suppliers worldwide.
A continent ripe with potential If Southeast Asia is one exciting area of growth, Pfister is also keen to focus on Africa. As he argues: “If you manage to get that same dynamism into Africa, particularly in the bigger economies such as Senegal and Ghana, then these countries will appeal to investors too”. Happily, Africa recently completed its own continental free trade agreement and savvy investors may soon begin to see it as another Southeast Asia.
“Lots of countries introduce a one-in-one- out approach [for regulation] – before you introduce a new one, you have to get rid of an existing one.”
Even so, the picture isn’t totally rosy. That’s particularly true given the pandemic-related challenges some developing countries are facing. “Africa, for example, has been really struggling with the Covid pandemic because investors have been holding back,” Pfister explains, adding that the recent weaker variants have meant “the fear of operating within a crisis environment has subdued a bit” – but not enough for significant change. Yet Covid-19 aside, the African Continental Free
15 ASEAN 60
The number of countries who signed the RCEP in November 2020, assisting FDI growth across most members.
Trade Area (AfCFTA) presents a major opportunity for African countries. It has the potential to bring millions of people out of poverty and drive huge income gains on a continental and global scale. Even better, Pfister notes that Africa as a continent has a “very young population working in its favour”. Why does this matter? After all, young people typically have less capital than their parents, and indeed less business experience. Yet Pfister says they nonetheless represent a dynamism that is rapidly gaining admirers. “West Africa is somewhere to watch out for, particularly because it has a booming youthful population that’s going to be very influential
if the economy picks up again.” At the same time, strong middle classes are emerging in African countries like Nigeria, where consumer-friendly markets drive interest both in local companies and in global investment – whether via exports, or in building up the local and regional economies. “One thing Africa will always have in its favour is an extremely high return on investment,” Pfister says. “The economic benefits for companies are huge.” What needs to happen now, the analyst adds, is for those investments to directly help African economies on their development paths – by creating equitable and profitable jobs for regular citizens.
Resilience first
Before anyone places bets on the future of FDI, it’s important to recognise how unpredictable the past few years have been, and how uncertain the next few will be. Resilience, therefore, has never been so valuable – both in a demographic and economic sense. This includes adapting and streamlining government processes to cope with uncertainty, and to appeal to sceptical investors. One large deterrent is heavy regulation, something that holds back developing economies who have not reformed these processes with time. “You have to strike the right balance,” Pfister comments, adding that taking regular stock of regulations and distilling them to their essence is crucial.
“Lots of countries introduce a one-in-one-out approach [for regulation] – before you introduce a new one, you have to get rid of an existing one,” he continues. This works for building trust in governments too – and benefits politicians keen to show their business-friendly side. Of course a strong foundation of regulation – particularly social and environmental – is critical. But for emerging FDI hotspots to truly succeed, they need to make the process as easy for investors as possible. “We always say that economies don’t follow geopolitics,” Pfister adds. “They follow markets, so wif there’s a market then economies will go where there are opportunities.” At the moment, Africa is still lagging. In fact, on a regulatory front, so is the Philippines. As Pfister puts it, the archipelago represents “one of the most closed economies for foreign investment,” not least because it’s hard to totally own a company as a foreign investor. Traditional centre or not, investors want certainty. “In every crisis there is an opportunity,” says Pfister, “and this is an opportunity for governments to really put policies in place that can help attract more sustainable investment”. If ever there was a need for a more globalised economy, it’s in the aftermath of a pandemic when developing nations have been hit the hardest. But with resilience, regulation strategy, and indeed the right investment, they could ultimately bounce back strongest. ●
Finance Director Europe /
www.ns-businesshub.com
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