Asia-Pacific FDI inflows are increasing, according to the 2012 Economic and Social Survey from the United Nations Economic and Social Commission for Asia and the Pacific (Unescap), and this is partly due to the rise in multinational corporations and their desire to compete in new markets. Asian FDI tends to be more labour intensive, and it has the potential to accelerate employment and income growth.
Trade between developing countries in Asia-Pacific, as well as in Africa and Latin America and the Caribbean (LAC), has grown substantially. Between 1990 and 2010, imports from Africa and LAC to developing countries in Asia-Pacific increased from $6bn to $107bn and $158bn, respectively, while exports from developing Asia-Pacific to Africa and LAC increased from $5bn and $4bn to $114bn and $194bn, respectively. Hence, South-South FDI has accelerated significantly. However, FDI inflows to Asia-Pacific are volatile, and sensitive to global cycles and national factors. Unescap warns of financial instability and a further economic slowdown caused by the eurozone debt crisis.
Historically, FDI to Asia was mostly in infrastructure and extractive industries. Lately, it has broadened to other sectors such as agriculture and manufacturing. Yet over the past five years, contractions in Asia’s manufacturing sector have affected the demand for primary products, and in early 2011, commodity prices peaked.
Amid this backdrop, the performance of Asian ports and shipping operators reveals an interim struggle. While intra-Asia trade volumes have been robust, they face challenging prospects. Regional Asia terminal operators are making huge investments in upgrading their port infrastructures, to handle increasing volumes and larger vessel sizes. This is challenging the dominance of stalwart leaders such as Hong Kong and Singapore. It is happening at a time when their shipping customer segments are facing financial strains, with vessel oversupply, oil price increases of more than $120 per barrel for Brent crude, and decreasing freight rates.
Container traffic from Europe to Asia is projected to increase by just 1.2% this year, compared with an expected 8.3% increase in container vessel fleet growth.
While Asian ports can keep improving their operational productivities and adopting new technologies, their niche differentiation strategies may be limited in addressing these macro and margin challenges. They will have to constantly adapt with ongoing changing conditions, such as restructuring.
Lawrence Yeo is CEO and principal consultant of AsiaBIZ Strategy, a Singapore-based management consulting firm providing Asia market research, market entry and expansion strategy and export/FDI promotion services.