Despite the global economic slowdown, which has been exacerbated by the COVID-19 pandemic, the Ukraine-Russia war, and other infectious disease threats, Private Equity or PE trends in Southeast Asia continue to support growth and demonstrate the encouraging potential for fiscal stability in the region.
Before the global health crisis slowed funding, Foreign Direct Investment (FDI) in Southeast Asia (SEA) was at an all-time high. With $182 billion USD in FDI In 2019, ASEAN was the beneficiary of the highest levels of FDI in the world. However, due to the implementation of lockdowns and their domino effect on manufacturing, supply chains, and sectors such as travel and tourism, the investment rate decreased to just over $137 billion USD in 2020.
In 2021, there was around a 35% increase in FDI investments across ASEAN countries. While the United Nations Conference on Trade and Development (UNCTAD) is optimistic about FDI inflows in 2022, it remains cautious. Due to the ongoing pandemic and rising geopolitical tensions, UNCTAD fears that FDI totals may be less impressive than the previous year’s recovery figures.
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A bustling region
In 2018, global consultancy firm Bain & Company predicted that $70 billion USD of investment will be invested into the region by 2024. It pinpointed technology and consumer goods as the main winners in the funding stakes. The 2021 VC investment levels far exceeded this expectation, reaching $152 billion USD in the first three quarters of the year. PE firms’ investment levels achieved double 2020s value, finishing the year at $25 billion USD.
Despite the global economic turmoil, the region’s continued growth is a testament to the region’s appeal to investors. Changes in policies and the implementation of recent initiatives to make SEA more accessible for business investment and encourage startup growth are two important contributors to this surge in FDI.
Regional agreements such as the new ASEAN Trade in Services Agreement and updates to the ASEAN Comprehensive Investment Agreement help to show the area as a unified, safer conglomerate for trade and innovation. These agreements encourage PE firms to consider SEA as a market that works together and supports one another, resulting in improved cross-border opportunities and more stability.
A technology hub
Many of the region’s countries are rapidly embracing Web3.0, deploying 5G, investing in 6G research and implementing smarter, digitalised economies. This eagerness to build progressive startup ecosystems and technologically advanced landscapes saw Singapore, Malaysia, and Thailand take the top three positions for the region in The Venture Capital & Private Equity Country Attractiveness Index, with Singapore ranking 6th globally.
The large, predominantly young, tech-savvy populations help many ASEAN countries appear to be in a favourable position for growth in technology and innovation. Individual governmental support and joint regional agreements provide a buttress for technological development and mitigate some of the risks for investors. As the economies continue to grow and move away from more traditional business methods, fueled by the need to digitalise during the pandemic, there will be even more opportunities for PE firms to make good investments.
The robustness of SEA’s economies has proved to investors that they are well-positioned to weather the turbulence of the global economic situation.
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To survive the pandemic, many companies had to restructure their cash flow or pivot away from their core business strategies. With most countries returning to some kind of normalcy, these companies are picking up the pieces of their earlier decisions and attempting to restart their growth. Many companies took advantage of government incentives and low-interest rates to stymie the losses, but they now have to pay the piper. Due to the need to repay debts and find alternative methods of raising funds when interest rates rise again, investors who choose to invest their money into the technology and digital manufacturing and services sectors will have more options.
The pandemic’s unexpected emergence has shown how vulnerable economies can be when faced with natural disasters. This, in turn, has brought into focus the need for more vigorous protections and ways to ensure that economies do not collapse due to environmental factors. When it comes to investing in startups, PE firms are now more likely to consider environmental, social, and governance (ESG) factors, with renewable energy being a popular choice for many.
The ASEAN nations’ demonstrated resilience in the face of the global economic slowdown, which has led investors to see the region as a potential goldmine for those looking to profit from good investments. The current PE trends in Southeast Asia reflect this confidence in the region’s ability to withstand the pressures of war, pandemics and natural disasters. Those seeking a good return on their investments should look into the opportunities that abound in SEA.