Bangladesh

Executive Summary

Bangladesh is the most densely populated non-city-state country in the world, with the eighth largest population (over 165 million) within a territory the size of Iowa. Bangladesh is situated in the northeastern corner of the Indian subcontinent, sharing a 4,100 km border with India and a 247 km border with Burma. With sustained economic growth over the past decade, a large, young, and hard-working workforce, strategic location between the large South and Southeast Asian markets, and vibrant private sector, Bangladesh will likely continue to attract increasing investment, despite severe economic headwinds created by the global outbreak of COVID-19.

Buoyed by a young workforce and a growing consumer base, Bangladesh has enjoyed consistent annual GDP growth of more than six percent over the past decade, with the exception of the COVID-induced economic slowdown in 2020. Much of this growth continues to be driven by the ready-made garment (RMG) industry, which exported $28.0 billion of apparel products in fiscal year (FY) 2020, and continued remittance inflows, reaching a record $18.2 billion in FY 2020. (Note: The Bangladeshi fiscal year is from July 1 to June 30; fiscal year 2020 ended on June 30, 2020.) However, the country’s RMG exports dropped more than 18 percent year-over-year in FY 2020 as COVID-19 depressed the global demand for apparel products.

The Government of Bangladesh (GOB) actively seeks foreign investment. Sectors with active investments from overseas include agribusiness, garment/textiles, leather/leather goods, light manufacturing, power and energy, electronics, light engineering, information and communications technology (ICT), plastic, healthcare, medical equipment, pharmaceutical, ship building, and infrastructure. The GOB offers a range of investment incentives under its industrial policy and export-oriented growth strategy with few formal distinctions between foreign and domestic private investors.

Bangladesh’s Foreign Direct Investment (FDI) stock was $16.9 billion in 2019, with the United States being the top investing country with $3.5 billion in accumulated investments. Bangladesh received $1.6 billion FDI in 2019. The rate of FDI inflows was only 0.53 percent of GDP, one of the lowest of rates in Asia.

Bangladesh has made gradual progress in reducing some constraints on investment, including taking steps to better ensure reliable electricity, but inadequate infrastructure, limited financing instruments, bureaucratic delays, lax enforcement of labor laws, and corruption continue to hinder foreign investment. Government efforts to improve the business environment in recent years show promise but implementation has yet to materialize. Slow adoption of alternative dispute resolution mechanisms and sluggish judicial processes impede the enforcement of contracts and the resolution of business disputes.

As a traditionally moderate, secular, peaceful, and stable country, Bangladesh experienced a decrease in terrorist activity in 2020, accompanied by an increase in terrorism-related investigations and arrests. A December 2018 national election marred by irregularities, violence, and intimidation consolidated the power of Prime Minister Sheikh Hasina and her ruling party, the Awami League. This allowed the government to adopt legislation and policies diminishing space for the political opposition, undermining judicial independence, and threatening freedom of the media and NGOs. Bangladesh continues to host one of the world’s largest refugee populations, more than one million Rohingya from Burma, in what is expected to be a humanitarian crisis requiring notable financial and political support for years to come. International retail brands selling Bangladesh-made products and the international community continue to press the Government of Bangladesh to meaningfully address worker rights and factory safety problems in Bangladesh. With unprecedented support from the international community and the private sector, the Bangladesh garment sector has made significant progress on fire and structural safety. Critical work remains on safeguarding workers’ rights to freely associate and bargain collectively, including in Export Processing Zones (EPZs).

The Bangladeshi government has limited resources devoted to intellectual property rights (IPR) protection and counterfeit goods are readily available in Bangladesh. Government policies in the ICT sector are still under development. Current policies grant the government broad powers to intervene in that sector.

Capital markets in Bangladesh are still developing, and the financial sector is still highly dependent on banks.

The World Bank announced in 2020 it would pause the Doing Business publication while it conducts a review of data integrity.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Brazil

Executive Summary

Brazil is the second largest economy in the Western Hemisphere behind the United States, and the ninth largest economy in the world (in nominal terms), according to the World Bank.  The United Nations Conference on Trade and Development (UNCTAD) named Brazil the sixth largest destination for global Foreign Direct Investment (FDI) flows in 2019 with inflows of $72 billion, which increased 26 percent since Brazil announced its privatization plan that same year.  In recent years, Brazil received more than half of South America’s total incoming FDI and the United States is a major foreign investor in Brazil.  According to the International Monetary Fund (IMF), the United States had the second largest single-country stock of FDI by final ownership (UBO) representing 18 percent of all FDI in Brazil ($117 billion) behind only the Netherlands’ 23 percent ($147.7 billion) in 2019, the latest year with available data, while according to the Brazil Central Bank (BCB) measurements, U.S. stock was 23 percent ($145.1 billion) of all FDI in Brazil, the largest single-country stock by UBO for the same year. The Government of Brazil (GoB) prioritized attracting private investment in its infrastructure and energy sectors during 2018 and 2019.  The COVID-19 pandemic in 2020 delayed planned privatization efforts.

The Brazilian economy returned to an expansionary trend in 2017, ending the deepest and longest recession in Brazil’s modern history.  However, the global coronavirus pandemic in early 2020 returned Brazil to recession after three years of modest recovery. The country’s Gross Domestic Product (GDP) dropped 4.1 percent in 2020.  As of March 2021, analysts forecast growth of 3.29 percent for 2021.  The unemployment rate was 13.4 percent at the end of 2020.  The nominal budget deficit stood at 13.7 percent of GDP ($196.7 billion) in 2020 and is projected to end 2021 at around 4 percent depending on passage of the 2021 budget.  Brazil’s debt to GDP ratio reached a new record of 89.3 percent in 2020 with National Treasury projections of 94.5 percent by the end of 2021, while the Independent Financial Institution (IFI) of Brazil’s Senate projects 92.67 percent and the IMF estimates the ratio will finish 2021 at 92.1 percent.  The BCB lowered its target for the benchmark Selic interest rate from 4.5 percent at the end of 2019 to 2 percent at the end of 2020, and as of March 2021, the BCB anticipates the Selic rate to rise to 5 percent by the end of 2021.

President Bolsonaro took office on January 1, 2019. In late 2019, Congress passed and President Bolsonaro signed into law a much-needed pension system reform and made additional economic reforms a top priority.  Bolsonaro and his economic team have outlined an agenda of further reforms to simplify Brazil’s complex tax system and the onerous labor laws in the country, but the legislative agenda in 2020 was largely absorbed by response to the COVID-19 pandemic.  However, Brazil advanced a variety of legal and regulatory changes that contributed to its overall goal to modernize its economy

Brazil’s official investment promotion strategy prioritizes the automobile manufacturing, renewable energy, life sciences, oil and gas, and infrastructure sectors.  Foreign investors in Brazil receive the same legal treatment as local investors in most economic sectors; however, there are restrictions in the health, mass media, telecommunications, aerospace, rural property, and maritime sectors.  The Brazilian Congress is considering legislation to liberalize restrictions on foreign ownership of rural property.

Analysts contend that high transportation and labor costs, low domestic productivity, and ongoing political uncertainties hamper investment in Brazil.  Foreign investors also cite concerns over poor existing infrastructure, relatively rigid labor laws, and complex tax, local content, and regulatory requirements; all part of the extra costs of doing business in Brazil.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

China

Executive Summary

In 2020, the People’s Republic of China (PRC) became the top global Foreign Direct Investment (FDI) destination. As the world’s second-largest economy, with a large consumer base and integrated supply chains, China’s economic recovery following COVID-19 reassured investors and contributed to higher FDI and portfolio investments. In 2020, China took significant steps toward implementing commitments made to the United States on a wide range of IP issues and made some modest openings in its financial sector. China also concluded key trade agreements and implemented important legislation, including the Foreign Investment Law (FIL).

China remains, however, a relatively restrictive investment environment for foreign investors due to restrictions in key economic sectors. Obstacles to investment include ownership caps and requirements to form joint venture partnerships with local Chinese firms, industrial policies such as Made in China 2025 (MIC 2025) that target development of indigenous capacity, as well as pressure on U.S. firms to transfer technology as a prerequisite to gaining market access. PRC COVID-19 visa and travel restrictions significantly affected foreign businesses operations increasing their labor and input costs. Moreover, an increasingly assertive Chinese Communist Party (CCP) and emphasis on national companies and self-reliance has heightened foreign investors’ concerns about the pace of economic reforms.

Key investment announcements and new developments in 2020 included:

On January 1, the FIL went into effect and effectively replaced previous laws governing foreign investment.

On January 15, the U.S. and China concluded the Economic and Trade Agreement between the Government of the United States of America and the Government of the People’s Republic of China (the Phase One agreement). Under the agreement, China committed to reforms in its intellectual property regime, prohibit forced transfer technology as a condition for market access, and made some openings in the financial and energy sector. China also concluded the Regional Comprehensive Economic Partnership (RCEP) agreement on November 15 and reached a political agreement with the EU on the China-EU Comprehensive Agreement on Investment (CAI) on December 30.

In mid-May, PRC leader Xi Jinping announced China’s “dual circulation” strategy, intended to make China less export-oriented and more focused on the domestic market.

On June 23, the National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM) announced new investment “negative lists” to guide foreign FDI.

Market openings were coupled, however, with restrictions on investment, such as the Rules on Security Reviews on Foreign Investments – China’s revised investment screening mechanism.

While Chinese pronouncements of greater market access and fair treatment of foreign investment are welcome, details and effective implementation are still needed to ensure foreign investors truly experience equitable treatment.

Table 1: Key Metrics and Rankings

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Hong Kong

Executive Summary

Hong Kong became a Special Administrative Region (SAR) of the People’s Republic of China (PRC) on July 1, 1997, with its status defined in the Sino-British Joint Declaration and the Basic Law.  Under the concept of “one country, two systems,” the PRC government promised that Hong Kong will retain its political, economic, and judicial systems for 50 years after reversion.  The PRC’s imposition of the National Security Law (NSL) on June 30, 2020 undermined Hong Kong’s autonomy and introduced heightened uncertainty for foreign and local firms operating in Hong Kong.  As a result, the U.S. Government has taken measures to eliminate or suspend Hong Kong’s preferential treatment and special trade status, including suspension of most export control waivers, revocation of reciprocal shipping income tax exemption treatments, establishment of a new marking rule requiring goods made in Hong Kong to be labeled “Made in China,”  and imposition of sanctions against former and current Hong Kong government officials.

On July 16, 2021, the Department of State, along with the Department of the Treasury, the Department of Commerce, and the Department of Homeland Security, issued an advisory to U.S. businesses regarding potential risks to their operations and activities in Hong Kong.

Since the enactment of the NSL in Hong Kong, U.S. citizens traveling or residing in Hong Kong may be subject to increased levels of surveillance, as well as arbitrary enforcement of laws and detention for purposes other than maintaining law and order.

On economic issues, Hong Kong generally pursues a free market philosophy with minimal government intervention.  The Hong Kong government (HKG) generally welcomes foreign investment, neither offering special incentives nor imposing disincentives for foreign investors.

Hong Kong provides for no distinction in law or practice between investments by foreign-controlled companies and those controlled by local interests.  Foreign firms and individuals are able to incorporate their operations in Hong Kong, register branches of foreign operations, and set up representative offices without encountering discrimination or undue regulation.  There is no restriction on the ownership of such operations.  Company directors are not required to be citizens of, or resident in, Hong Kong.  Reporting requirements are straightforward and are not onerous.

Despite the imposition of the NSL by Beijing, significant curtailments in individual freedoms, and the end of Hong Kong’s ability to exercise the degree of autonomy it enjoyed in the past, Hong Kong remains a popular destination for U.S. investment and trade.  Even with a population of less than eight million, Hong Kong is the United States’ twelfth-largest export market, thirteenth largest for total agricultural products, and sixth-largest for high-value consumer food and beverage products.  Hong Kong’s economy, with world-class institutions and regulatory systems, is bolstered by its competitive financial and professional services, trading, logistics, and tourism sectors, although tourism suffered steep drops in 2020 due to COVID-19.  The service sector accounted for more than 90 percent of Hong Kong’s nearly USD 348 billion gross domestic product (GDP) in 2020.  Hong Kong hosts a large number of regional headquarters and regional offices.  Approximately 1,300 U.S. companies are based in Hong Kong, according to Hong Kong’s 2020 census data, with more than half regional in scope.  Finance and related services companies, such as banks, law firms, and accountancies, dominate the pack.  Seventy of the world’s 100 largest banks have operations in Hong Kong.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

India

Executive Summary

The Government of India continued to actively court foreign investment. In the wake of COVID-19, India enacted ambitious structural economic reforms, including new labor codes and landmark agricultural sector reforms, that should help attract private and foreign direct investment. In February 2021, the Finance Minister announced plans to raise $2.4 billion though an ambitious privatization program that would dramatically reduce the government’s role in the economy. In March 2021, parliament further liberalized India’s insurance sector, increasing the foreign direct investment (FDI) limits to 74 percent from 49 percent, though still requiring a majority of the Board of Directors and management personnel to be Indian nationals.

In response to the economic challenges created by COVID-19 and the resulting national lockdown, the Government of India enacted extensive social welfare and economic stimulus programs and increased spending on infrastructure and public health. The government also adopted production linked incentives to promote manufacturing in pharmaceuticals, automobiles, textiles, electronics, and other sectors. These measures helped India recover from an approximately eight percent fall in GDP between April 2020 and March 2021, with positive growth returning by January 2021.

India, however, remains a challenging place to do business. New protectionist measures, including increased tariffs, procurement rules that limit competitive choices, sanitary and phytosanitary measures not based on science, and Indian-specific standards not aligned with international standards, effectively closed off producers from global supply chains and restricted the expansion in bilateral trade.

The U.S. government continued to urge the Government of India to foster an attractive and reliable investment climate by reducing barriers to investment and minimizing bureaucratic hurdles for businesses.

Indonesia

Executive Summary

Indonesia’s population of 270 million, Gross Domestic Product (GDP) over USD 1 trillion, growing middle class, abundant natural resources, and stable economy all serve as very attractive features to U.S. investors; however, a range of stakeholders note that investing in Indonesia remains challenging.  Since 2014, the Indonesian government under President Joko (“Jokowi”) Widodo, now in his second and final five-year term, has prioritized boosting infrastructure investment and human capital development to support Indonesia’s economic growth goals.  The COVID-19 pandemic has accelerated the Indonesian government’s efforts to pursue major economic reforms through the issuance of the 2020 Omnibus Law on Job Creation (Omnibus Law).  The law and its implementing regulations aim to improve Indonesia’s economic competitiveness and accelerate economic recovery by lowering corporate taxes, reforming rigid labor laws, simplifying business licenses, and reducing bureaucratic and regulatory barriers to investment.  The regulations also provide a basis to liberalize hundreds of sectors, including healthcare services, insurance, power generation, and oil and gas.  Sectoral or technical regulations may still present obstacles.  Regardless of the outcome of these positive reforms and their implementation, factors such as a decentralized decision-making process, legal and regulatory uncertainty, economic nationalism, trade protectionism, and powerful domestic vested interests in both the private and public sectors can contribute to a complex investment climate.  Other factors relevant to investors include:  government requirements, both formal and informal, to partner with Indonesian companies, and to manufacture or purchase goods and services locally; restrictions on some imports and exports; and pressure to make substantial, long-term investment commitments.  Despite recent limits placed on its authority, the Indonesian Corruption Eradication Commission (KPK) continues to investigate and prosecute corruption cases.  However, investors still cite corruption as an obstacle to pursuing opportunities in Indonesia.

Other barriers to foreign investment that have been reported include difficulties in government coordination, the slow rate of land acquisition for infrastructure projects, weak enforcement of contracts, bureaucratic inefficiency, and delays in receiving refunds for advance corporate tax overpayments from tax authorities.  Businesses also face difficulty from changes to rules at government discretion with little or no notice and opportunity for comment, and lack of stakeholder consultation in the development of laws and regulations at various levels.  Investors have noted that many new regulations are difficult to understand and often not properly communicated, including internally.  The Indonesian government is seeking to streamline the business license and import permit process, which has been plagued by complex inter-ministerial coordination in the past, through the establishment of a “one stop shop” for risk-based licenses and permits via an online single submission (OSS) system at the Indonesia Investment Coordinating Board (BKPM).

In February 2021, Indonesia introduced a priority list consisting of sectors that are open for foreign investment and eligible for investment incentives to replace the 2016 Negative Investment List.  All sectors are at least partially open to foreign investment, with the exception of seven closed sectors and sectors that are reserved for the central government.  Companies have reported that energy and mining still face significant foreign investment barriers.

Indonesia established the Indonesian Investment Authority (INA), also known as the sovereign wealth fund, upon the enactment of the Omnibus Law, aiming to attract foreign equity and long-term investment to finance infrastructure projects in sectors such as transportation, oil and gas, health, tourism, and digital technologies.

Indonesia began to abrogate its more than 60 existing Bilateral Investment Treaties (BITs) in 2014, allowing some of the agreements to expire in order to be renegotiated, including through ongoing negotiations of bilateral trade agreements.  In March 2021, Indonesia and Singapore ratified a new BIT, the first since 2014.  The United States does not have a BIT with Indonesia.

Despite the challenges that industry has reported, Indonesia continues to attract significant foreign investment.  Singapore, the Netherlands, the United States, Japan, and Malaysia were among the top sources of foreign investment in the country in 2019 (latest available full-year data).  Private consumption is the backbone of Indonesia’s economy, the largest in ASEAN, making it a promising destination for a wide range of companies, ranging from consumer products and financial services, to digital start-ups and franchisors.  Indonesia has ambitious plans to continue to improve its infrastructure with a focus on expanding access to energy, strengthening its maritime transport corridors, which includes building roads, ports, railways and airports, as well as improving agricultural production, telecommunications, and broadband networks throughout the country.  Indonesia continues to attract U.S. franchises and consumer product manufacturers.  UN agencies and the World Bank have recommended that Indonesia do more to grow financial and investor support for women-owned businesses, noting obstacles that women-owned business sometimes face in early-stage financing.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Israel

Executive Summary

Israel has an entrepreneurial spirit and a creative, highly educated, skilled, and diverse workforce. It is a leader in innovation in a variety of sectors, and many Israeli start-ups find good partners in U.S. companies. Popularly known as “Start-Up Nation,” Israel invests heavily in education and scientific research. U.S. firms account for nearly two-thirds of the more than 300 research and development (R&D) centers established by multinational companies in Israel. Israel has the third most companies listed on the NASDAQ, after the United States and China. Various Israeli government agencies, led by the Israel Innovation Authority, fund incubators for early stage technology start-ups, and Israel provides extensive support for new ideas and technologies while also seeking to develop traditional industries. Private venture capital funds have flourished in Israel in recent years.

The economic impact of the COVID-19 pandemic on Israel is unprecedented but successful pre-pandemic economic policy buffers – steady/strong growth, low debt, a resilient tech sector among them — mean Israel entered the COVID-19 crisis with relatively low vulnerabilities, according to the International Monetary Fund’s Staff Report for the 2020 Article IV Consultation. The fundamentals of the Israeli economy remain strong, and Israel’s economy enjoyed strong growth prior to the COVID-19 pandemic. With low inflation and fiscal deficits that have usually met targets pre-pandemic, most analysts consider Israeli government economic policies as generally sound and supportive of growth. Israel seeks to provide supportive conditions for companies looking to invest in Israel, through laws that encourage capital and industrial R&D investment. Incentives and benefits include grants, reduced tax rates, tax exemptions, and other tax-related benefits.

The U.S.-Israeli bilateral economic and commercial relationship is strong, anchored by two-way trade in goods that reached USD 25.5 billion in 2020 and USD 33.9 billion in 2019, according to the U.S. Census Bureau, and extensive commercial ties, particularly in high-tech and R&D. The total stock of Israeli foreign direct investment (FDI) in the United States was USD 36.6 billion in 2019, according to the U.S. Department of Commerce. Since the signing of the U.S.-Israel Free Trade Agreement in 1985, the Israeli economy has undergone a dramatic transformation, moving from a protected, low-end manufacturing and agriculture-led economy to one that is diverse, open, and led by a cutting-edge high-tech sector.

The Israeli government generally continues to take slow, deliberate actions to remove some trade barriers and encourage capital investment, including foreign investment. The continued existence of trade barriers and monopolies, however, have contributed significantly to the high cost of living and the lack of competition in key sectors. The Israeli government maintains some protective trade policies, usually in favor of domestic producers.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Malaysia

Executive Summary

Malaysia continues to focus on economic recovery following its deepest recession in 20 years, brought on by the COVID-19 pandemic and restrictions on domestic travel and business operations intended to curb the spread of the virus. Under Prime Minister Muhyiddin Yassin, the government has spent an estimated USD 82 billion in stimulus measures since the start of the pandemic. Despite these setbacks, Malaysia’s economy is expected to rebound in 2021, buoyed by manufacturing export sector growth and public initiatives to increase digital investments and construction activity. Malaysia’s finance ministry and central bank have noted the pace of the recovery will also be impacted by the government’s vaccine rollout, which has experienced delays.

On April 21, the government announced the National Investment Aspirations, a framework intended to reform Malaysia’s investment policies. Among the goals of the new investment framework are to expand and integrate Malaysia’s linkages with regional and global supply chains and further develop economic clusters tied to key sectors, including advanced manufacturing and technology (broadly referred to in Malaysia as the electrical and electronics, or E&E, sector). On February 19, the government announced the MyDigital initiative, intended to add 500,000 jobs and grow Malaysia’s digital economy to nearly one-quarter of GDP by 2030.

On January 12, Prime Minister Muhyiddin announced a six-month state of emergency intended to strengthen the government’s ability to respond to the pandemic. However, the resulting suspension of parliament has also contributed to political uncertainty in Malaysia since a change in government in March 2020, the second in a two-year period.

The Malaysian government has traditionally encouraged foreign direct investment (FDI), and the Prime Minister and other cabinet ministers have signaled their openness to foreign investment since taking office. In its 2021 budget, the government proposed tax incentives which include extensions of existing relocation incentives for the manufacturing sector (including a zero-percent tax rate for new companies or a 100-percent investment tax allowance for five years) and extensions of existing tax incentives for certain industrial sectors.

The business climate in Malaysia is generally conducive to U.S. investment. Increased transparency and structural reforms that will prevent future corrupt practices could make Malaysia a more attractive destination for FDI in the long run. The largest U.S. investments are in the oil and gas sector, manufacturing, technology, and financial services. Firms with significant investment in Malaysia’s oil and gas and petrochemical sectors include ExxonMobil, Caltex, ConocoPhillips, Hess Oil, Halliburton, Dow Chemical, and Eastman Chemicals. Major semiconductor manufacturers, including ON Semiconductor, Texas Instruments, Intel, and others have substantial operations in Malaysia, as do electronics manufacturers Western Digital, Honeywell, and Motorola.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Singapore

Executive Summary

Singapore maintains an open, heavily trade-dependent economy. The economy is supported through unprecedented government spending and strong supply chains in key sectors, despite the COVID-19 pandemic. The government’s predominantly open investment policies support a free market economy while actively managing and sustaining Singapore’s economic development. U.S. companies regularly cite transparency, business-friendly laws, tax structure, customs facilitation, intellectual property protection, and well-developed infrastructure as attractive investment climate features. The World Bank’s Doing Business 2020 report ranked Singapore second overall in “ease of doing business,” while the World Economic Forum ranked Singapore as the most competitive economy globally. Singapore actively enforces its robust anti-corruption laws and typically ranks as the least corrupt country in Asia. In addition, Transparency International’s 2020 Corruption Perception Index placed Singapore as the third-least corrupt nation globally. The U.S.-Singapore Free Trade Agreement (USSFTA), which came into force in 2004, expanded U.S. market access in goods, services, investment, and government procurement, enhanced intellectual property protection, and provided for cooperation in promoting labor rights and environmental protections.

Singapore has a diversified economy that attracts substantial foreign investment in manufacturing (petrochemical, electronics, pharmaceuticals, machinery, and equipment) and services (financial, trade, and business). The government actively promotes the country as a research and development (R&D) and innovation center for businesses by offering tax incentives, research grants, and partnership opportunities with domestic research agencies. U.S. direct investment in Singapore in 2019 totaled USD 288 billion, primarily in non-bank holding companies, manufacturing, finance, and insurance. Singapore received more than double the U.S. FDI invested in any other Asian nation. The investment outlook was positive due to Singapore’s proximity to Southeast Asia’s developing economies. Singapore remains a regional hub for thousands of multinational companies and continues to maintain its reputation as a world leader in dispute resolution, financing, and project facilitation for regional infrastructure development. In 2020, U.S. companies pledged USD 6.9 billion in future investments (over half of all-investment commitments) in the country’s manufacturing and services sectors.

Singapore is poised to attract future foreign investments in digital innovation, pharmaceutical manufacturing, sustainable development, and cybersecurity. The Government of Singapore (hereafter, “the government”) is investing heavily in automation, artificial intelligence, and integrated systems under its Smart Nation banner and seeks to establish itself as a regional hub for these technologies. Singapore is also a well-established hub for medical research and device manufacturing.

Singapore relies heavily on foreign workers who make up more than 20 percent of the workforce. The COVID-19 pandemic was initially concentrated in dormitories for low-wage foreign workers in the construction and marine industries, which resulted in strict quarantine measures that brought the construction sector to a near standstill. The government tightened foreign labor policies in 2020 to encourage firms to improve productivity and employ more Singaporean workers, and lowered most companies’ quotas for mid- and low-skilled foreign workers. Cuts, which primarily target the service sector and foreign workers’ dependents, were taken despite industry concerns about skills gaps. During the COVID-19 pandemic, the government has introduced more programs to partially subsidize wages and the cost to firms of recruiting, hiring, and training local workers

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

South Korea

Executive Summary

The Republic of Korea (ROK) offers foreign investors political stability, public safety, world-class infrastructure, a highly skilled workforce, and a dynamic private sector.  Following market liberalization measures in the 1990s, foreign portfolio investment has grown steadily, exceeding 36 percent of the Korea Composite Stock Price Index (KOSPI) total market capitalization as of February 2021.

Studies by the Korea International Trade Association, however, have shown that the ROK underperforms in attracting FDI relative to the size and sophistication of its economy due to a complicated, opaque, and country-specific regulatory framework, even as low-cost producers, most notably China, have eroded the ROK’s competitiveness in the manufacturing sector.  A more benign regulatory environment will be crucial to foster innovations such as fifth generation (5G) mobile communications that enable smart manufacturing, autonomous vehicles, cloud computing, and the Internet of Things – technologies that could fail to mature under restrictive regulations that do not align with global standards.  The ROK government has taken steps to address regulatory issues over the last decade, notably with the establishment of a Foreign Investment Ombudsman to address the concerns of foreign investors.  In 2019, the ROK government created a “regulatory sandbox” program to spur creation of new products in the financial services, energy, and tech sectors.  Industry observers recommend additional procedural steps to improve the investment climate, including Regulatory Impact Analyses (RIAs) and wide solicitation of substantive feedback from foreign investors and other stakeholders.

The revised U.S.-Korea Free Trade Agreement (KORUS) entered into force January 1, 2019, and helps secure U.S. investors broad access to the ROK market.  Types of investment assets protected under KORUS include equity, debt, concessions, and intellectual property rights.  With a few exceptions, U.S. investors are treated the same as ROK investors in the establishment, acquisition, and operation of investments in the ROK.  Investors may elect to bring claims against the government for alleged breaches of trade rules under a transparent international arbitration mechanism.

The ROK’s COVID-19 response has been exemplary, serving as a global role model.  It has been science-driven, with the Korea Disease Control and Prevention Agency leading from day one; transparent, with public health experts briefing the public almost every day; and trusted, with public compliance on social distancing guidelines, including universal mask-wearing.  Largely due to successful handling of COVID-19, including through sound fiscal and monetary responses, the ROK was able to manage the pandemic without shutting down the economy, and GDP dropped a mere one percent in 2020.  The ROK government was also aggressive in pursuing economic stimulus, devoting more than USD 220 billion to stimulus in 2020.  As a result, the Korean domestic economy fared better than nearly all its OECD peers.  The risk of a COVID resurgence still looms, and Korea’s export-oriented economy remains vulnerable to external shocks, including supply chain disruptions, going forward.  The attention of the public, the government, and the health establishment has now turned to the task and logistics of mass vaccination.  In late February, the Moon administration launched the vaccination program nationwide, with the goal of achieving herd immunity by November.  President Moon has promised to inoculate all residents for free in 2021, beginning with front-line healthcare workers.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Thailand

Executive Summary

Thailand is an upper middle-income country with a half-trillion-dollar economy, pro-investment policies, and well-developed infrastructure. General Prayut Chan-o-cha was elected by Parliament as Prime Minister on June 5, 2019. Thailand celebrated the coronation of King Maha Vajiralongkorn May 4-6, 2019, formally returning a King to the Head of State of Thailand’s constitutional monarchy. Despite some political uncertainty, Thailand continues to encourage foreign direct investment as a means of promoting economic development, employment, and technology transfer. In recent decades, Thailand has been a major destination for foreign direct investment, and hundreds of U.S. companies have invested in Thailand successfully. Thailand continues to encourage investment from all countries and seeks to avoid dependence on any one country as a source of investment.

The Foreign Business Act (FBA) of 1999 governs most investment activity by non-Thai nationals. Many U.S. businesses also enjoy investment benefits through the U.S.-Thai Treaty of Amity and Economic Relations, signed in 1833 and updated in 1966. The Treaty allows U.S. citizens and U.S. majority-owned businesses incorporated in the United States or Thailand to maintain a majority shareholding or to wholly own a company, branch office, or representative office located in Thailand, and engage in business on the same basis as Thai companies (national treatment). The Treaty exempts such U.S.-owned businesses from most FBA restrictions on foreign investment, although the Treaty excludes some types of businesses. Notwithstanding their Treaty rights, many U.S. investors choose to form joint ventures with Thai partners who hold a majority stake in the company, leveraging their partner’s knowledge of the Thai economy and local regulations.

The Thai government maintains a regulatory framework that broadly encourages investment. Some investors have nonetheless expressed views that the framework is overly restrictive, with a lack of consistency and transparency in rulemaking and interpretation of law and regulations.

The Board of Investment (BOI), Thailand’s principal investment promotion authority, acts as a primary conduit for investors. BOI offers businesses assistance in navigating Thai regulations and provides investment incentives to qualified domestic and foreign investors through straightforward application procedures. Investment incentives include both tax and non-tax privileges.

The government passed laws on cybersecurity and personal data protection in 2019; as of April 2021, they are still in the process of drafting implementing regulations. The government unveiled in January 2021 a Made In Thailand initiative that will set aside 60 percent of state projects for locally made products.

Gratuity payments to civil servants responsible for regulatory oversight and enforcement remain a common practice, though some government agencies enforce strict “gift” bans. Firms that refuse to make such payments can be placed at a competitive disadvantage to other firms that do engage in such practices. The government launched its Eastern Economic Corridor (EEC) development plan in 2017. The EEC is a part of the “Thailand 4.0” economic development strategy introduced in 2016. Many planned infrastructure projects, including a high-speed train linking three airports, U-Tapao Airport commercialization, and Laem Chabang Port expansion, could provide opportunities for investments and sales of U.S. goods and services. In support of its “Thailand 4.0” strategy, the government offers incentives for investments in twelve targeted industries: next-generation automotive vehicles; intelligent electronics; advanced agriculture and biotechnology; food processing; tourism; advanced robotics and automation; digital technology; integrated aviation; medical hub and total healthcare services; biofuels/biochemical; defense manufacturing; and human resource development.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Turkey

Executive Summary

Turkey experienced strong economic growth on the back of the many positive economic and banking reforms it implemented between 2002 and 2007, and it weathered the global economic crisis of 2008-2009 better than most countries, establishing itself as a relatively stable emerging market with a promising trajectory of reforms and a strong banking system.  However, over the last several years, economic and democratic reforms have stalled and by some measures, regressed.  GDP growth was 2.6 percent in 2018 as the economy entered a recession in the second half of the year.  Challenged by the continuing currency crisis, particularly in the first half of 2019, the Turkish economy grew by only 0.9 percent in 2019.   Turkey’s expansionist monetary policy and spending of over USD 100 billion in central bank foreign reserves caused Turkey’s economy to grow by 1.8 percent in 2020 despite the pandemic, though high inflation and persistently high unemployment have been exacerbated.  This year growth is expected to be around 3.5 percent with significant downside risks.

Despite recent growth, the government’s economic policymaking remains opaque, erratic, and politicized, contributing to long-term and sometimes acute lira depreciation.  Inflation in 2020 was 14.6 percent and unemployment 13.2 percent, though the labor force participation rate dropped significantly as well. 

The government’s push to require manufacturing and data localization in many sectors and the introduction of a 7.5 percent digital services tax in 2020 have negatively impacted foreign investment into the country.  Other issues of import include tax reform and the decreasing independence of the judiciary and the Central Bank.  Turkey hosts 3.6 million Syrian refugees, which creates an additional economic burden on the country as the government provides them services such as education and healthcare.  

Recent laws targeting the Information and Communication Technology (ICT) sector have increased regulations on data, social media platforms, online marketing, online broadcasting, tax collection, and payment platforms.  In particular, ICT and other companies report Government of Turkey (GOT) pressure to localize data, which it views as a precursor to greater GOT access to user information and source code.  Law #6493 on Payment and Security Systems, Payment Services and e-money Institutions, also requires financial institutions to establish servers in Turkey in order to localize data.  The Turkish Banking Regulation and Supervision Agency (BDDK) is the authority that issues business licenses as long as companies 1) localize their IT systems in Turkey, and 2) keep the original data, not copies, in Turkey.  Regulations on data localization, internet content, and taxation/licensing have resulted in the departure of several U.S. tech companies from the Turkish market, and has chilled investment by other possible entrants to the e-commerce and e-payments sectors.  The laws potentially affect all companies that collect private user data, such as payment information provided online for a consumer purchase.    

The opacity and inconsistency of government economic decision making, and concerns about the government’s commitment to the rule of law, have led to historically low levels of foreign direct investment (FDI).  While there are still an estimated 1,700 U.S. businesses active in Turkey, many with long-standing ties to the country, the share of American activity is relatively low given the size of the Turkish economy.  Increased protectionist measures add to the challenges of investing in Turkey, which saw 2019-2020 investment flows from the world drop by 3.5 percent, although investment flows from the United States increased by 135 percent.

Turkey’s investment climate is positively influenced by its favorable demographics and prime geographical position, providing access to multiple regional markets.  Turkey is an island of relative stability in a turbulent region, making it a popular hub for regional operations.  Turkey has a relatively educated work force, well-developed infrastructure, and a consumption-based economy.   

Table 1: Key Metrics and Rankings 

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Vietnam

Executive Summary

Vietnam continues to welcome foreign direct investment (FDI), and the government has policies in place that are broadly conducive to U.S. investment. Factors that attract foreign investment include recently-signed free trade agreements, political stability, ongoing economic reforms, a young and increasingly urbanized population, and competitive labor costs. Vietnam has received USD 231 billion in FDI from 1988 through 2020, per the Ministry of Public Affairs (MPI), which oversees foreign investments.

Vietnam’s exceptional handling of the COVID-19 pandemic, which has included proactive management of health policy, fiscal stimulus, and monetary policy, combined with supply chain shifts, contributed to Vietnam receiving USD 19.9 billion in FDI in 2020 – almost as much as the USD 20.3 billion received in 2019. Of the 2020 investments, 48 percent went into manufacturing – especially in the electronics, textiles, footwear, and automobile parts industries; 18 percent in utilities and energy; 15 percent in real estate; and smaller percentages in assorted industries. The government approved the following significant FDI projects in 2020: Delta Offshore’s USD 4 billion investment in the Bac Lieu liquified natural gas (LNG) power plant; Siam Cement Group’s (SCG) USD 1.8 billion investment in the Long Son Integrated Petrochemicals Complex; a Daewoo-led, South Korean consortium’s USD 774 million investment in the West Lake Capital Township real estate development in Hanoi; and Taiwan-based Pegatron’s USD 481 million investment in electronics production.

Vietnam recently moved forward on free trade agreements that will likely make it easier to attract future FDI by providing better market access for Vietnamese exports and encouraging investor-friendly reforms. The EU-Vietnam Free Trade Agreement (EVFTA) came into force August 1, 2020. Vietnam signed the UK-Vietnam Free Trade Agreement on December 31, 2020, which will come into effect May 1, 2021. On November 15, 2020, Vietnam signed the Regional Comprehensive Economic Partnership (RCEP). While these agreements lower certain trade and investment barriers for companies from participating countries, U.S. companies may find it more difficult to compete without similar advantages.

In February 2021, the 13th Party Congress of the Communist Party approved a ten-year economic strategy that calls for shifting foreign investments to high-tech industries and ensuring those investments include provisions relating to environmental protection. On January 1, 2021, Vietnam’s Securities Law and new Labor Code Law, which the National Assembly originally approved in 2019, came into force. The Securities Law formally states the government’s intention to remove foreign ownership limits for investments in most industries, and the new Labor Code provides more contract flexibility – including provisions that make it easier for an employer to dismiss an employee and allow workers to join independent trade unions – although no such independent trade unions yet exist in Vietnam. On June 17, 2020, Vietnam passed a revised Investment Law and a new Public Private Partnership Law, both designed to encourage foreign investment into large infrastructure projects, reduce the burden on the government to finance such projects, and increase linkages between foreign investors and the Vietnamese private sector.

Despite a comparatively high level of FDI inflow as a percentage of GDP – 7.3 percent in 2020 – significant challenges remain in Vietnam’s investment climate. These include corruption, weak legal infrastructure, poor enforcement of intellectual property rights (IPR), a shortage of skilled labor, restrictive labor practices, and the government’s slow decision-making process.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics