Although China and India have been new favorable destinations for Arab investors, Southeast Asian countries offer distinctive and profitable investment markets, featuring high demand and relatively low labor costs. In recent years, investments from the Gulf Cooperation Council (GCC) to the Association of Southeast Asian Nations (ASEAN) have surged.
The General Trend
The United Nations Conference on Trade and Development (UNCTAD) recently reported that Southeast Asia has experienced faster foreign direct investment (FDI) growth than East Asia, recording inflows of US$117 billion in 2012, up 26% from the previous year. Four of the Association of Southeast Asian Nations (ASEAN) in particular — Brunei Darussalam, Indonesia, Malaysia and Singapore — saw a considerable rise in FDI.
Investment from the Middle East forms an important part of this trend. For example, in 2011, Saudi Arabia ranked fifth among Malaysia’s leading sources of investment, behind Japan, Korea, the United States and Singapore. Saudi investment in Malaysia rose to an estimated US$865 million in 2012.
The increasing flow of Arab investment into the ASEAN economies is the result of a confluence of factors:
Gulf Arab investors have abundant liquidity. Unlike many of their Western counterparts — the traditional leading sources of FDI for ASEAN countries — despite the global economic downturn, they have been flush with cash.
Persistent economic imbalances in Europe and the United States — the traditional destinations for Arab petro-dollars — have made these investment markets somewhat less appealing. At the same time, Arab investors are facing limited growth options in their own economies; thus, their search for investment opportunities in emerging markets.
Southeast Asian countries either managed to weather/endure the global economic downturn or have begun to recover from it, thereby maintaining investors' confidence.
Southeast Asian countries are strategically well-positioned to serve as financial and as petrochemicals and refining hubs to feed Asian markets; moreover, the ASEAN region’s middle classes are growing and its demand for oil is rising.
The structures and development priorities of ASEAN economies have offered promising returns on investment. Malaysia and Singapore are cases in point. Both are relatively technologically advanced countries, have services-based economies, and have assigned high priority to infrastructure development. These factors have been partly responsible for drawing interest from Arab investors.
ASEAN governments have been proactive in taken steps to court Arab investors. These range from the sending of investment missions to the Gulf and establishment of fast-track application and approval processes to the provision of counselling and advisory services for prospective Arab investors.
ASEAN and GCC ministries have agreed to further deepen and enhance current economic cooperation to forge a more substantive partnership. In 2010, they adopted the ASEAN-GCC Two-Year Action Plan (2010-2012) aimed at facilitating closer cooperation in various areas, including investment.
The Energy Sector: Primary Focal Point of Gulf Arab Investment in the ASEAN Region
Arab petroleum companies are showing great interest in investing their sur cash in Southeast Asian countries. Companies such as Saudi Aramco, Qatar Petroleum, Abu Dhabi National Oil Company, Saudi Arabia's Petro Saudi International Limited, Qatar Investments Authorities, Mubadala Company, and others have been venturing in the petroleum and petrochemical industries in Southeast Asian countries by buying stakes or forming partnerships.
For example, Malaysian National Petroleum Company (PETRONAS) entered a joint venture in gas exploration in offshore Sarawak (North Malaysia) with the UAE investment organization, Mubadala. This Dubai-based Company has also widened the scope of its involvement in Southeast Asia by engaging in the development of oil fields in Thailand, Indonesia, and Vietnam. Read moreover, 1Malaysia Development Berhad (1MDB) — a Malaysian government-owned company — has partnered with Saudi Arabia's Petro Saudi International Limited (PSI) in various oil and gas projects locally and abroad. The Qatar Investment Authority (QIA) has likewise shown interest in Malaysia, investing an estimated $5 billion in the strategic real estate, commodities and energy sectors. Recently, Qatar Holdings (an arm of QIA) expressed interest in investing in the new Pengerang Integrated Petroleum Complex (PIPC) project in Johor, which is aimed at making the country a petrochemicals regional hub. The complex will house oil refineries, naphtha crackers, petrochemical plants as well as a liquefied natural gas (LNG) import terminal and a degasifications plant.
In 2012, Qatar Petroleum also took a stake in a $4 billion petrochemical complex in Vietnam. And Qatar Petroleum was not alone in seeking investment opportunities in Vietnam. That same year, Kuwait Petroleum joined forces with a local Vietnamese firm and a Japanese partner in a refinery construction project in Hanoi valued at $9 billion. In Thailand, Qatargas and Thailand’s oil giant PTT have recently concluded a 20-year LNG contract. Indonesia, too, has been showered with petro-dollar investments from the GCC countries. In 2012, Kuwait Petroleum Corporation partnered with Pertamina Limited and Indonesia’s state-owned gas company to develop a refinery complex in Tuban, East Java. The complex is expected to process as much as 300,000 barrels of crude oil per day. The same project also attracted Saudi Aramco to invest $8 billion in the construction of the refinery project.
The Arab Gulf strategic investment in oil and gas exploration and refinery projects has been bolstered by efforts to develop the maritime and other supporting infrastructure. For example, Dubai’s Drydocks is involved in a $2.5 billion project to develop infrastructure on Batam Island in Indonesia needed to serve the region’s petroleum and petrochemicals industries. Singapore, too, has been a strong partner for investors from the GCC countries. Firms such as Dubai Drydocks, AlJaber, Aabar and the Emirates National Oil Company have all made substantial investments in Singapore’s oil refinery, exploration and petrochemicals industries.
The Widening Scope of Gulf Arab Investments in ASEAN Countries
Gulf petro-dollars have flowed into non-energy sectors as well. Arab investors have targeted real estate, agriculture, financial services and health services sectors in ASEAN countries.
With new economic policies and strategies implemented to attract investment from abroad, some areas of development have successfully secured an amount of investment from the Gulf.
Saudi Arabia and United Arab Emirates (UAE) have been active in the Malaysian banking and real estate sectors. In 2009 Abu Dhabi’s state-owned Advanced Technology Investment Co. (ATIC), an arm of Mubadala Company purchased Singapore’s Chartered Semiconductor Pte Ltd. Since then, Investments from Qatar have flowed into real estate in Vietnam, the financial services industry in Malaysia, the hospitality sector in Singapore, farming projects in Thailand and Cambodia, tourism complexes in Myanmar and Laos, and a planned mining project in the Philippines.
Agriculture and Islamic banking/financing are two sectors which have received a great deal of attention from Gulf investors in recent years. Amid the growing concern about food security in the GCC region, Gulf countries have made strategic investments in agriculture in East Africa, South Asia and Southeast Asia as well. Saudi Arabia has entered a joint venture with a Philippine company to produce various crops on about 5,000 hectares of land. Bahrain currently produces bananas on 1,000 hectares of land in the Philippines. Kuwait investors are looking at 1,000 acres for rice cultivation in the Philippines. Qatar’s Sovereign Wealth Fund (QIA) is engaged with a local company in investing $1 billion to develop Vietnam’s agricultural sector and also expanded its agricultural investment in Indonesia by establishing a $1 billion (Dh3.67bn) investment fund in Indonesia. Thailand, which has a vast amount of agricultural land, has attracted investment from the Kingdom of Bahrain. In 2012, the governments of Thailand and Bahrain set up a joint steering committee to address food and energy security issues.
Another field of investments that has attracted Arab investors is the stock market, private equity, capital acquisitions and Islamic banking and finance. For the past five years, the Malaysian, Singaporean and Philippine stock markets have seen an uptick in investments from the GCC countries. Dubai-based Abraaj Capital, the biggest private equity firm in the Middle East, operates in Singapore and has been avidly seeking capital acquisition in ASEAN countries. One of its recent successes is the acquisition of the Philippines-based Aureos Capital. In 2011, a joint venture between Kuwait and China company, known as Kuwaiti-Chinese Investment Company (KCIC), acquired the Philippines-based engineering and construction company Atlantic Gulf Pacific (AGP) for PHP1.75 billion (US$ 39.7 million).
Apart from the direct acquisition of the companies, Arab investors are also keen on the issuance of Initial Public Offerings (IPO) in the ASEAN market. In 2012, Qatar Holding, for example, became a cornerstone investor in Malaysia’s state-owned plantation firm Felda Global Ventures Holdings Bhd (FGV) and the Kuwait Investment Authority became a cornerstone investor in Asia’s largest hospital operator IHH Healthcare Bhd. Both IPOs were listed in the Kuala Lumpur Stock Exchange (KLSE).
The rapid growth of Islamic banking and finance industry has also contributed to the investments flow from the Arab Gulf. Malaysia, which has an established Islamic banking system, has succeeded in attracting investments from the Gulf. In 2007, for example, Dubai Islamic Investment Bank purchased a 40% stake in Bank Islam Malaysia Berhad (BIMB). The issuance of sukuk, an Islamic bond, has also become a key factor in ASEAN–Arab Gulf investment relations. The Kuwait-based Gulf Investment Cooperation (GIC) and National Bank of Abu Dhabi (NBAD) are the active sukuk issuers in Malaysia. The GIC had two sukuk issuances in 2011 totalling RM1.35 billion (US$455 million) while NBAD issued a sukuk in 2012 valued at RM500 million ($163.4 million). Malaysia and Indonesia are expected to launch more IPOs and sukuk issuances in 2013 and this is most likely to attract more investors from the Arab Gulf region.
Arab Sovereign Wealth Fund (SWF) investments from the Gulf in the ASEAN region are rising. In recent years Arab investments have targeted an increasingly broad range of economic sectors, including agriculture and Islamic banking and finance.
Still, there remain a few uncertainties and challenges for ASEAN countries. The main challenge is one of sustainability. Most of the investments coming from the Arab Gulf countries are concentrated in the private equity, real estate, and oil and gas sectors — those with comparatively little value-added potential. In addition, the growth potential of Arab investment might be hampered by the allure of larger, possibly more lucrative emerging markets such as China and India.
Nevertheless, with an expected growth of 4% to 5%, the major Southeast Asian economies continue to pursue economic development and implement structural changes. Bright IPO prospects, as well as mergers and acquisitions plans, are expected to be catalysts for attracting Gulf investors in the coming years. Business promotion strategies are already being set in place in ASEAN countries so as to continue to attract investors from the Gulf region.
 UNCTAD, “World Investment Report 2012: Towards a New Generation of Investment Policies” (2012).
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 See, for example, Ghazanfar Ali Khan, “Malaysia Woos Investment in Oil, Gas Industry,” Arab News (May 13, 2010), http://www.arabnews.com/node/344961.
 ASEAN Secretariat, “Overview of Relations between ASEAN and GCC,” http://www.asean.org/asean/external-relations/international-regional-organisations/item/overview-of-relations-between-asean-and-gcc. See also ASEAN Secretariat, “ASEAN-GCC Agree to Extend and Maximise Cooperation” (October 1, 2012), http://www.asean.org/news/asean-secretariat-news/item/asean-gcc-agree-to-extendand-maximisecooperation.
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 “Gulf companies Invest in southeast Asia Petrochemicals,” Global Processing (February 1, 2013), http://www.processingmagazine.com/articles/125051-gulf-companies-invest-in-southeast-asia-petrochemicals.
 Arno Maierbrugger, “Looking East: Petro dollars shower on Southeast Asia," Investvine (February 10, 2013), http://investvine.com/looking-east-petro-dollars-shower-on-southeast-asia/,
 Nadeen El Ajou, “Qatargas 3 signs long-term agreement with PTT of Thailand” http://www.ameinfo.com/qatargas-3-signs-long-term-agreement-ptt-32246 (December 12, 2012). See also “Qatargas 3 signs long-term agreement with PTT of Thailand” (December 12, 2012), http://www.qatargas.com/English/MediaCenter/news/Pages/12DecSPAwithPTT.aspx.
 Yanto Soegiarto, “Transforming Pertamina,” Jakarata Globe (September 8, 2012), http://www.thejakartaglobe.com/coverstory/transforming-pertamina/543232. See also Saudi Aramco, “Memorandum of Understanding signed with PT Pertamina” (2012), http://www.saudiaramco.com/content/mobile/en/home/news/latest-news/2012/-memorandum-of-understanding-signed-with-pt-pertamina.html?switchToMobile=1.
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 Mohd Fauzi Abu-Hussin, “Leveraging Arab Gulf Market: What Determines Malaysia’s Interest in the GCC Economy?” Paper presented at the Gulf Research Meeting, Cambridge, United Kingdom (July 11–14, 2012).
 Sofiah Jamil, “Beyond Food for Fuel: The Little Red Dot in GCC-ASEAN Relations.” Paper presented at the Gulf Research Meeting, Cambridge, United Kingdom (July 11–14, 2012).
 Alicia Buller, “GCC to Invest Billions in ASEAN Region,” Gulf Business (November 12, 2012), http://gulfbusiness.com/2012/11/eastern-promises/#.UUh5b9vNGWU.
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 “Qatar and Vietnam Set Up Agriculture Fund,” Reuters (September 3, 2008), http://uk.reuters.com/article/2008/09/03/qatar-vietnam-agriculture-idUKARO33162120080903. See also Daliah Merzaban, “Qatar Sets Up $1bn Fund with Vietnam,” , Arabian Business.com (September 2, 2008), http://www.arabianbusiness.com/qatar-sets-up-1bn-fund-with-vietnam-44102.html.
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 Arno Maeirbrugger, “Thailand, Bahrain Step Up Food Security,” Investvine (December 3, 2012), http://investvine.com/thailand-bahrain-step-up-food-security/.
 Arif Sharif, “Abraaj Buys Aureos Capital to Expand in Asia, Latin America,” Bloomberg (February 21, 2012), http://www.bloomberg.com/news/2012-02-20/abraaj-buys-aureos-capital-to-expand-in-asia-latin-america-1-.html.
 “Felda Global Ventures Gets Qatar Holding as Cornerstone Investor,” The Star (Malaysia) (May 31, 2012), http://biz.thestar.com.my/news/story.asp?file=%2F2012%2F5%2F31%2Fbusiness%2F11386271. See also SWF Institute, “Qatar Holding to be a cornerstone investor in Malaysian Firm IPO,” (May 31, 2012), http://www.swfinstitute.org/swf-news/qatar-holding-to-be-a-cornerstone-investor-in-malaysian-firm-ipo/.
 Abhrajit Gangopadhyay and Jason Ng, “IHH Stages Strong Trading Debut,” The Wall Street Journal (July 25, 2012), http://online.wsj.com/article/SB10000872396390443343704577548163218159748.html.
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 “Kuwait’s Gulf Investment Corp Issues RM750mil Sukuk,” The Star (Malaysia) August 4, 2011), http://biz.thestar.com.my/news/story.asp?file=/2011/8/4/business/9232943&sec=business; “NBAD Issues 500m Malaysian Ringgit Sukuk,” Gulfnews (November 23, 2012), http://gulfnews.com/business/banking/nbad-issues-500m-malaysian-ringgit-sukuk-1.1109148. See also Securities Commission of Malaysia, http://www.sc.com.my/sc/search_adviser.asp?stype=A&skey=M.