The OECD has engaged in policy dialogue and mutual learning with Southeast Asia for over 25 years on policy areas including investment, taxation, education, digitalisation and innovation, among others. In 2014, the OECD launched the Southeast Asia Regional Programme (SEARP) which has played an instrumental role in deepening co-operation between the region and the OECD. In February 2024 the OECD opened accession discussions with Indonesia.
Southeast Asia
Southeast Asia and the OECD
Key messages
While economic growth in Southeast Asia remains robust, it is vulnerable to external headwinds such as any slowdown in global demand. Many Southeast Asian countries are heavily reliant on one or two major trading partners or export sectors, exacerbating the risks of global uncertainty. Despite this, robust regional demand is increasingly helping to buffer against these risks, with intraregional exports now surpassing exports to the United States, European Union, or Japan. The rapid rise of the consumer class is also fuelling a trade transition, with the region moving away from being merely the source and destination of intermediate goods to becoming the main export destination for final goods. Services trade is also accounting for an increasing share of trade for many regional economies. Southeast Asia can further boost its growing economic vibrancy by continuing to address regional economic barriers, especially in services trade and investment openness.
Over the past two decades, Southeast Asia has experienced significant economic growth, lifting 100 million people out of poverty. The region is attracting increased foreign direct investment (FDI), which hit record levels of USD 223 billion in 2022. The focus is now shifting towards ensuring that FDI not only boosts economic growth but also contributes to sustainability objectives in the region. However, Southeast Asia's rapid economic development presents challenges for the decarbonisation of industry and the energy sector. Well-designed FDI policies, including further reducing investment restrictions, aligning investment promotion strategies with international development objectives, and promoting and enabling responsible business conduct, can boost the green dividend of foreign investment.
Improving public administration, including regulatory policy and collection of tax revenues, is an important focus for Southeast Asia. International regulatory co-operation at the regional level continues to have a strong impact, through ASEAN-led initiatives such as the ASEAN Guidelines on Good Regulatory Practice and the implementation of the ASEAN Single Window. Digitalisation is also a clear driver for administrative reforms, although managing the uneven gains from technology to promote fairness is an ongoing challenge. Southeast Asia is also increasingly co-operating on tax transparency and revenue collection through participation in OECD initiatives such as the Global Forum on Transparency and Exchange of Information for Tax Purposes and the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting.
Context
Southeast Asia is improving its investment climate
The OECD FDI Regulatory Restrictiveness Index shows that, while the ASEAN average is still higher than the OECD and non-OECD averages, countries in the region continue to gradually remove barriers to FDI and improve their regulatory environment to attract FDI.
OECD analysis suggests that a 10% improvement in the Index score would lead to a 2% increase in the stock of inward FDI. Reducing FDI restrictions, while creating an enabling business climate for better quality investments, is needed to support more sustainable, inclusive and greener development.
Southeast Asian economies show resilience through global challenges
Southeast Asian economies have shown economic resilience through a series of global challenges, notably the impact of the COVID-19 pandemic as well as conflict, supply chain vulnerabilities and an economic slowdown. ASEAN countries’ real GDP is projected to grow up to 4.8% by the end of 2024, following strong recovery from the economic shocks caused by the COVID-19 pandemic.
But major challenges remain and require addressing risks linked to climate change, food security and disruption of global supply chains.
