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As the world acknowledges the real threat of global recession, where and how a company should invest has never been more challenging. General counsel hold the keys to unlocking opportunity, and more than ever are relied on for sound advice. There are many positives, but market knowledge is paramount in an insecure world. Putro Harnowo sheds light by turning to key trends


ollowing a significant rebound last year with booming M&A markets and rapid growth in international project finance, the UN Conference on Trade and Development’s (UNCTAD) World Investment Report 2022 highlighted the war in Ukraine and the lingering effects of the pandemic have caused a triple crisis regarding food, fuel and finance in many countries.

The June report expected global foreign direct investment (FDI) flows in 2022 to move on a downward trajectory or remain flat at best, while signalling an increasing trend in FDI screening among developed countries. Countries that conduct such screening account for 63% of global FDI inflows.

The UNCTAD report notes the recovery brought growth in all regions last year, mostly caused by M&A transactions and high levels of retained earnings of multinational enterprises. In 2021, multinational companies from developed economies more than doubled their investment abroad to USD1.3 trillion, from USD408 billion in the previous year.

For in-house counsel at companies either investing or considering investment abroad, there are trends to be both welcomed and wary of. Evolutions of regulation to accompany policies surrounding sovereignty and security need constant vigilance from legal teams, and trends outbound and inbound reflect these vigilant times.

Steven Okun

“Companies recognise they must make their supply chains resilient and to do so will require investment abroad,” says Steven Okun, founder and CEO of APAC Advisors and chair of AmChams of Asia-Pacific in Singapore.

Okun adds that trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP) provide great flexibility in the region to diversify their supply chains – of which companies are just starting to take advantage.

The US-led, 14-nation Indo-Pacific Economic Framework (IPEF) is committed to making supply chains more resilient, robust and well-integrated, which could include creating an information sharing and crisis response mechanism, strengthening supply chain logistics and transparency, and investing in training and development to ensure enough skilled workers.

“These actions, if taken, will further increase the appetite for Asian companies to invest abroad,” says Okun.

Being the region’s powerhouse, Japan is expected to continue to expand abroad and seek targets of investment. “Japanese companies need to invest abroad since the economic growth rate has been slim domestically,” says Junko Suetomi, a partner at Baker McKenzie’s Tokyo office.

“Overall in Asia, life sciences, artificial intelligence [AI], the IT industry, semiconductor industry as well as energy sectors are the industries in which I anticipate seeing an increase in investment.”

Outward FDI from Japan rose by 53% to USD147 billion, making it the third-largest investor country in 2021. Cross-border M&A from Japan rose to USD60 billion from USD18 billion, mainly in information and communication, and in chemicals. Outflows from South Korea in 2021 doubled to USD61 billion compared to the previous year.

Companies interested in investing in Japan should note the Foreign Exchange and Foreign Trade Act, which requires foreign investors to submit pre-transaction notifications filed through the Bank of Japan before acquiring equity, changing a shareholder in a reorganisation, or taking certain other corporate actions. The 2019 amendment lowered the ownership threshold for foreign investment approval from 10% to 1% in companies regarded as sensitive to national security.

Ian Robertson, senior director of the Association of Corporate Counsel (ACC) for East Asia in Hong Kong, says that the US is still the world’s largest market and is relatively straightforward from a foreign investment point of view. The US was the largest recipient of FDI in the world in 2021, with Japan being the largest country investor, surpassing Canada, the UK and Germany.

“The attraction to Japanese and Asian investors generally is the sheer size of the US market – still the largest and wealthiest market in the world with a GDP of USD23 trillion and 333.9 million population,” says Robertson. “An added attraction for Asian investors generally is the ability to establish research and development units in the US, which, despite all the rhetoric about China, is still where most of the world’s innovation gets done.”

The UNCTAD data show that FDI inflow to the US more than doubled to USD367 billion in 2021, the third-highest level recorded after 2015 and 2016, and sealed the country’s position as the largest recipient.

Rise of Southeast Asia

Southeast Asia is hailed as the engine of growth for FDI with inflows of up to 44% in 2021 compared to the previous year, according to the UNCTAD report. In general, FDI inflows to developing Asia increased by 19% to reach a new high of USD619 billion, driven mostly by East and Southeast Asia. The rise of Southeast Asia was underpinned by strong investment in manufacturing, the digital economy and infrastructure.

Global FDI inflows and outflows had shown improvement in 2021. In Southeast Asia, only outflows from Singapore and Malaysia increased. Being a dynamic and diverse region, investment flow in many parts of Asia in the past five years can be seen in the graphic above.

As Asian multinationals represent a good amount of outward FDI and will continue to access more profitable markets in North America, the EU, and within Asia, the City University of Hong Kong’s professor of law, Julien Chaisse, observes the share of investment coming from developing Asia keeps increasing and will further increase in the next year.

“A number of indicators suggesting that three to four key sectors will attract the largest share of FDI, namely manufacturing, services, high-tech sectors [i.e. digital economy] and infrastructure,” says Chaisse. “As for decline, I think two sectors will emerge: extractive industries and transportation.”

Julien Chaisse

When it comes to inbound investment, Chaisse sees Southeast Asia has shown a considerable increase in the past three years, especially Malaysia. Notable examples include investment from China-based Risen Solar Technology for USD10 billion, US-based Intel for USD7 billion, and Austria-based AT&S for USD2.1 billion.

“Malaysia has attracted a significant volume of FDI, as Vietnam and Singapore, but it could attract FDI in semiconductors, which is going to be of considerable importance in the coming years with a significant potential for further expansion,” says Chaisse.

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