South-east Asia is one of the world's hottest spots for foreign investors. With a total population of more than 600 million, and containing a number of dynamic, fast-growing economies, the region has attracted increasing investment over the years, with FDI into its five largest economies – Indonesia, Malaysia, the Philippines, Singapore and Thailand – growing fourfold in the past 10 years. However, the general consensus is that there is plenty of room for further growth.

South-east Asian countries feature at the top of the global ranking for restrictions to FDI, according to a 2014 report by the World Bank. As the move towards a south-east Asian economic community (AEC) gains traction, it is widely hoped is that current FDI restrictions will be gradually lifted, shoring up investment flows and further integrating the region into the global economy.

“East Asian countries, and particularly Asean [the Association of South-East Asian Nations] countries, impose more stringent [laws regarding] foreign ownership restrictions than any other region,” reads the World Bank's east Asia-Pacific economic update, published in April 2014.  

An onus on ownership

The average allowable foreign ownership in Asean countries does not go beyond 72%, whereas it stands at more than 90% in other developing regions. “The Philippines and Indonesia are the most restrictive of the 73 economies studied, while Malaysia... and Thailand also rank in the top 10 most restrictive economies,” the World Bank report states.

Despite the restrictions in place, mostly targeting business services (particularly media), telecommunications and transport, Asean countries are quickly climbing the order of preference of international investors. Japan, for example, the world's second largest source of foreign investment after the US, has been reportedly shifting investments away from China to south-east Asia.

Total FDI inflows into the Asean-5 countries (Indonesia, Malaysia, the Philippines, Thailand and Vietnam) reached $128.4bn in 2013, up 7% from a year earlier, according to figures from the Bank of America Merrill Lynch. On the other hand, China saw total FDI inflows decrease by 3% year on year to $117.6bn.

An attractive market

Investors largely cite domestic market growth potential as the biggest appeal of Asean economies, as highlighted by information collected by greenfield investment monitor fDi Markets. Regulation and business climate barely feature as motives for investment, but things may be changing soon as the development of the AEC will act as an additional driver for market liberalisation and FDI growth.

“Asean’s efforts to form a single market and production base by 2015 will bring lower trade and investment barriers, and economies of scale,” Hak Bin Chua, Asean economist at Bank of America Merrill Lynch, wrote in a report.

As part of a broader effort to enhance regional co-operation by establishing an Asean community, the AEC aims to set up a single regional market and common production base. Member countries are expected to meet the goals outlined in a 2009 to 2015 road map, including the gradual opening of priority sectors – such as health, tourism, air transport and logistics – to foreign ownership.

So far, four Asean countries have achieved foreign investment liberalisation rates of about 90%, three stand at more than 80%, two are near this, and one is at 75%, according to an AEC blueprint 2012 mid-term report.

“I think we are on track and I'm confident [that] by December 2015 the integration deadline will be met," secretary-general Le Luong Minh said in the latest Asean summit held in Myanmar in May.