Opinion: What should New Zealand businesses expect from ASEAN in 2025?

Leaders of ASEAN Countries and East Timor line up at the end of the ASEAN Summit 2023

As a bloc, the Association of Southeast Asian Nations (ASEAN) is the world’s third most populous region (around 700 million people) and rates fifth in terms of nominal GDP. About half of its population are under 30, and about the same percentage live in cities, reflecting increasing urbanisation and the growing buying power of its expanding middle class.

For New Zealand businesses, these stats represent a significant opportunity for our own expansion and new ventures in a region close to our shores. While there has been a general slowing down among ASEAN economies in recent years, this trend is expected to reverse in 2025.

ASEAN has benefited from ongoing foreign direct investment (FDI) from several countries, but especially the US, parts of the EU, Japan and China. This will continue into 2025 and beyond. As many regions deal with turmoil, ASEAN is seen as relatively resilient and stable, providing growth opportunities for foreign multinational corporations (MNCs).

ASEAN’s digital economy, manufacturing, renewable energy and infrastructure sectors, as well as new supply chains for areas such as electric vehicles provide sound investment opportunities in the near-term. Niche opportunities continue to grow in the areas of sustainability-related services, food safety and bio-technology.

The low levels of merger and acquisition deal activity in ASEAN (and in the whole of Asia more generally) has contributed significantly to slower economic growth in Southeast Asia.

While there have been pockets of activity in the likes of Singapore and Indonesia, the volume is considerably lower compared to the heady days of a few years ago. My sense is that we will start to see a pick-up in the second half of 2025 with the upward trajectory continuing in the near to mid-term.

Opportunities vary across ASEAN

Supply chain disruption, especially post-COVID-19, benefitted ASEAN countries such as Vietnam and Thailand. And while the level of FDI slowed down in Vietnam due to domestic political issues, as internal matters stabilise, the upward trend for FDI should resume in 2025.

Infrastructure continues to be a priority for Indonesia, Malaysia and Vietnam. Accordingly, FDI opportunities exist for investors as well as for suppliers of related goods and services. Similarly, energy and technology sectors remain good investment opportunities. Indonesia and Malaysia are going through periods of relative economic and political stability, with both having held elections in recent years.

Singapore continues to be an atractive regional hub

Singapore remains an attractive regional hub, having benefitted from post-COVID-19 recovery and stability.

It has historically been popular as a commercial and financial hub and more recently, due to COVID-19 and disruption in Hong Kong, Singapore has gained a larger market share of MNCs’ growth and activity.

Singapore has also promoted itself as a robust base for asset management, with a focus on high-net-worth individuals with a strong push for setting up family offices.

Singapore is often chosen as the hub for regional investments, especially in ASEAN, with regional headquarter incentives as well as an efficient tax regime for movement of funds and repatriation of profits. 

Singapore is also seen as a good base for investments into China and India for the above reasons, as well as providing a robust local base.

The Philippines has traditionally been well recognised as an attractive centre for outsourcing activities.

While competition from other countries such as India and Malaysia (for shared service activities) has meant that momentum in the Philippines has slowed, the last few years have seen renewed interest in foreign MNCs setting up or expanding outsourcing and related operations in the Philippines.

A worker assembling a motorcycle in the Philippines

Rising costs for these activities in other countries such as India have given the Philippines a boost, which is also aided by its sizeable and well-educated English-speaking population. Similarly, while technology infrastructure has posed challenges in the past, this is less of an issue now.

Cambodia remains strong for the textile and garment sector, which has been boosted by both government and industry efforts to bring in better, safer and more ethical practices.

The Cambodian Government has also been pushing for more development in the renewable energy sector, especially with targeted incentives.

Given the country’s relatively young population, technology and related opportunities in e-commerce and start-ups are on the rise. Relative to some of the other more developed ASEAN countries, challenges remain for businesses in Cambodia seeking skilled labour and better infrastructure.

Some areas to keep in mind

Taxation always requires careful consideration for any cross-border trade and investment.

In recent times significant international tax reforms, and particularly new rules relating to the global minimum tax regime, have resulted in a number of countries, including those in ASEAN (who have used incentives to drive competition for FDI), to change or propose to change the way they tax businesses and the incentives offered.

It is important to understand the impact of these reforms and have early discussions with relevant government agencies to see what is possible. Jurisdictions such as Singapore have and are working directly with foreign businesses to see how Singapore can continue to support investors.

The other important taxation factor is the impact of the New Zealand taxation rules on any foreign investments. Lower taxes and incentives provided in ASEAN countries may become academic where full New Zealand taxation is payable anyway.

Another important area to consider properly and seek relevant advice is on the regulations and local practices with respect to labour, as the rules vary considerably from country to country. For example, some countries have specific notice requirements when restructuring the workforce. Local governments may get involved if there are issues with unwanted media publicity affecting businesses.

My final point is that while we look at ASEAN as a whole, it is important to recognise and appreciate that each of the 10 countries in the bloc are distinctively different to each other with diverse histories, unique cultures and languages, different religious beliefs, different political systems and diverse business practices.

Good preparation and local insight are musts in order to avoid unnecessary obstacles, misunderstandings, delays and unwanted reputational damage.

The outlook for ASEAN in 2025 is relatively upbeat given the resilience it has shown during COVID-19, global turmoil, and economic slow downs. Emerging technology and e-commerce continue to be embraced especially given the expanding younger population base as well as government push for infrastructure development.

This represents opportunities for New Zealand businesses who are looking to expand into or grow their presence in the region.

About the author:

Brahma Sharma is a Fellow Chartered Accountant and a former KPMG New Zealand and Asia Pacific senior partner. He has recently returned to New Zealand after 15 years in senior KPMG Executive Leadership roles in Asia Pacific and Global.

The Foundation's Asia in Focus initiative publishes expert insights and analysis on issues across Asia, as well as New Zealand’s evolving relationship with the region.