ASEAN Business Entity: Integration at the Cost of Inclusion

The ASEAN Business Entity (ABE), initiated during Indonesia’s chairmanship in 2023,  recently started a pilot programme in November 2025 under Malaysia’s watch. The ABE’s goal of increasing regional economic integration via greater intra-ASEAN investment concurs with the ASEAN Economic Community, but it will likely retain, if not reinforce, existing disparities in FDI flows.

The ABE, developed by the ASEAN Business Advisory Council (ABC), aims to ease the cross-border movement of capital, goods and skilled labour under more liberal operational rules. Rather than adopting a uniform model, each ASEAN Member State (AMS) will define its own eligibility criteria and concessions, while aligning with the overarching goal of regional integration. In principle, the ABE is meant to make the “ASEAN identity” more meaningful for businesses and address the region’s persistent fragmentation through operational flexibilities and incentives. 

The implementation terms are not fixed. Instead, the ABE suggests some qualification criteria, such as, having an operational presence in at least four countries, and a minimum of 30 per cent ASEAN shareholder base.

While these ambitions appear sound, the question remains: who benefits from the ABE initiative, and will it reinforce existing inequalities?

Intra-ASEAN investment is still limited and highly uneven. Figure 1 shows that annual intra-ASEAN investment, as a share of total foreign direct investment (FDI) inflows, fluctuating over the past six years and dipping to a low of 10.4 per cent in 2023. The value of these investments reached a high of US$31 billion in 2024, which raised its share to 14 per of total FDI, second only to investment from the United States.

Figure 1. Intra-ASEAN Investments, 2018–2024 (US$ billion and per cent of total FDI)

The low share of intra-ASEAN FDI reflects the outward orientation and globalization of ASEAN economies. However, the heavy presence of external capital exposes the region to global economic shocks — an increasing concern amid rising geo-economic tensions. The ABE was conceived as a pragmatic solution to increase the share of intra-ASEAN investments, thus reducing the region’s dependence on the US, China, Japan, EU, and other FDI sources.

The region’s more developed economies, namely Singapore, Indonesia, Vietnam, Malaysia and Thailand, receive the bulk of FDI inflows into ASEAN (Figure 2). They continue to attract FDI due to advantages in location, governance, infrastructure, skilled labour and other determinants. We would also expect these countries to be the main sources of intra-ASEAN investment, while the region’s less advanced economies are predominantly FDI-receiving.

Likewise, intra-ASEAN investments are also highly concentrated – in the same set of countries that are also getting the mammoth share of FDI from outside ASEAN. In 2024, Indonesia alone received nearly 40 per cent of intra-ASEAN investment (US$12 billion), and while Singapore, Vietnam, and Malaysia, together accounted for 52 per cent (Figure 3).

Figure 2. ASEAN’s Inflows of FDI by Country, 2024

Figure 3. Intra-ASEAN Investments by Host Country, 2023–2024 (USD billion)

In contrast, less developed economies such as Cambodia, Lao PDR, and Myanmar continue to attract minimal investment, constrained by their weaker regulatory environments, limited infrastructure, and smaller markets. The ABE design does not show an inclination to alter these prevailing FDI patterns. Indeed, the ABE may exacerbate ASEAN’s developmental divide.

Singapore-based firms remain the region’s dominant investors. Much of what is counted as “intra-ASEAN investment” actually involves foreign multinationals routing funds through ASEAN-based entities, particularly those headquartered in Singapore. These investments raise the question of whether ABE-designated firms would even be truly ASEAN-owned. The requirement of a 30 per cent ASEAN shareholder base does little to guarantee ASEAN ownership or control. Instead, it risks legitimising entities that are merely domiciled in ASEAN but owned or directed by external multinational enterprises (MNEs). Therefore, sources of intra-ASEAN investments are also biased towards the more developed economies since Singapore, Malaysia and Thailand contribute 95 per cent of intra-ASEAN investments.

Consequently, the ABE could further privilege large corporations, whether ASEAN-based or foreign, while further marginalising micro, small, and medium enterprises (MSMEs) that make up over 90 per cent of businesses in the region.

The ABE design does not show an inclination to alter these prevailing FDI patterns. Indeed, the ABE may exacerbate ASEAN’s developmental divide.

ASEAN’s challenge is less about raising intra-regional investment but more about attracting and channelling high quality investment that can enhance the region’s supply chain resilience and industrial upgrading, while diversifying investment sources to mitigate geopolitical risk. These steps are crucial amid intensifying geo-economic rivalry and global supply chain reconfiguration.

To strengthen its regional value chains, ASEAN must help its members address persistent policy gaps, uneven implementation, infrastructure deficits, and skills mismatches that deter inclusive industrial development. Deepening regional integration under the ASEAN Economic Community (AEC) remains essential, but investment mobilisation must go hand-in-hand with industrial upgrading. Enhancing upstream capabilities, encouraging research and development (R&D), and accelerating adoption of Industry 4.0 technologies are key to driving innovation and development. Ultimately, the source of investment is less important than its quality, and the effective use of the investment to build and upgrade regional capabilities. ASEAN’s priority should therefore be to foster a more inclusive investment environment that empowers MSMEs, reduces the development gap, and strengthens the region’s collective position in global supply chains, rather than creating a business entity that may deepen existing inequalities under the guise of increasing integration.

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