From Semiconductors to Clean Energy: ASEAN Reshapes Its Foreign Investment Strategy

ASEAN’s record USD 225 billion in FDI signals a shift toward technology, digital industries and cleaner energy, but investment quality now matters as much as volume. The OECD urges governments to strengthen skills, regulations and infrastructure while targeting incentives to turn foreign capital into productivity, better jobs and sustainable growth.

ASEAN has become one of the world's most important destinations for foreign investment, but its next challenge is not simply attracting more money. The OECD's Review of Investment Policies in ASEAN: Mobilising Investment for the Green and Digital Transitions, prepared with the Services and Investment Division of the ASEAN Secretariat and the ASEAN Coordinating Committee on Investment, argues that governments must increasingly focus on investment that improves productivity, develops skills, supports domestic businesses and accelerates green and digital transformation.

The region attracted a record USD 225 billion in foreign direct investment (FDI) in 2024, accounting for around 15% of global inflows. ASEAN's inward FDI stock increased more than twelvefold, from roughly USD 286 billion in 2003 to USD 3.59 trillion in 2024. Excluding Singapore, inward FDI stock is about 59% of GDP, showing how deeply foreign investment is embedded in regional economies.

Technology Investment Reshapes ASEAN's Growth Model

The composition of investment is changing rapidly. Greenfield investment increased 16%, from about USD 500 billion in 2016-2020 to USD 581 billion in 2021-2025, with manufacturing accounting for nearly 54% of the latter total.

Medium- and high-technology manufacturing increased from 17% to 32% of greenfield investment, driven by semiconductors, electronic components, batteries and electrical equipment. ICT services reached around 20%, while more than half of greenfield projects since 2020 have involved digital-related activities.

This allows governments to move beyond low-cost manufacturing towards higher-value production. But foreign factories alone will not guarantee technological upgrading. Policymakers need stronger technical education, digital infrastructure, reliable electricity, research capabilities and programmes connecting local suppliers with multinational companies.

Investment is also highly concentrated. Singapore received around 62% of ASEAN FDI inflows during 2020-2024, while Indonesia, Vietnam, Malaysia, Thailand and the Philippines together attracted roughly another third. Smaller economies received less than 4%, highlighting the need to improve infrastructure and investment conditions across the region.

More Skilled Jobs, But Employment Equation Is Changing

Greenfield FDI generated approximately 1.6 million jobs between 2021 and 2025, equivalent to around 6% of ASEAN's net employment growth and 13% of global FDI-related job creation.

However, increasingly automated and capital-intensive projects are producing fewer jobs for every dollar invested. Digital activities increased their share of FDI-related employment from around 20% to 44%.

The jobs created can nevertheless offer better conditions. Foreign companies generally provide higher wages and greater access to training, with the report estimating a foreign-firm wage premium of about 33.7%, compared with 22% in OECD economies.

Governments therefore need to connect investment policy with education and employment policy. Universities, vocational institutions and businesses will need to prepare workers for electronics, engineering, digital services and advanced manufacturing. Development partners can support vocational training, digital skills, infrastructure and programmes helping small businesses enter multinational supply chains.

Tax Breaks Cannot Replace a Strong Investment Climate

Corporate income-tax incentives remain widely used across ASEAN, but the OECD warns that broad exemptions can impose high fiscal costs while sometimes rewarding investments that would have happened anyway.

More targeted expenditure-based incentives, such as tax credits or allowances linked to qualifying investments, could provide governments with greater value for money. Incentives should increasingly reward activities contributing to research, technology, digitalisation, skills or environmental objectives.

For policymakers, this means evaluating incentives according to measurable outcomes rather than the number of projects announced. Infrastructure, skilled workers, predictable regulations and efficient administration can ultimately matter more to investors than generous tax holidays.

Restrictions also remain in important sectors such as telecommunications, transport, construction, finance, distribution and real estate. Carefully reducing unnecessary barriers could unlock additional investment in infrastructure supporting ASEAN's green and digital transition while governments retain the ability to regulate in the public interest.

Green and Digital Investment Opens the Next Opportunity

Renewables accounted for approximately 40% of energy-related greenfield investment over the past decade and have become the dominant component of energy-related greenfield projects since around 2020. This creates opportunities for renewable-energy developers, battery producers, electric-mobility companies and suppliers of low-carbon technologies.

But investment security and responsible business conduct are becoming equally important. Geopolitical tensions and supply-chain disruptions have increased concerns surrounding critical infrastructure, technologies and data. ASEAN governments need transparent and proportionate safeguards that address genuine security risks without discouraging legitimate investment.

Companies will also face rising expectations around environmental performance, labour rights, responsible sourcing, sustainability reporting and supply-chain due diligence. Development partners can help governments strengthen regulatory institutions, sustainable finance systems, investment-security frameworks and enforcement capacity.

ASEAN's investment strategy is therefore approaching a turning point. With USD 225 billion in annual FDI already entering the region, success should increasingly be measured not simply by how much capital arrives, but by what that investment produces. For governments, development institutions and businesses, the central objective should be turning foreign capital into higher productivity, stronger domestic companies, skilled employment, technological capability and a faster transition towards greener and more resilient economies.