Foreign Investment in the Lower Mekong Region

Foreign Direct Investment (FDI) is a category of cross-border investment in which an investor resident in one economy establishes a lasting interest in, and retains a significant degree of influence over an enterprise resident in another economy. FDI involves capital flows from one country to another, granting the foreign investors extensive ownership stakes in domestic companies and assets. Foreign investment denotes that foreigners have an active role in management as a part of their investment or an equity stake large enough to enable the foreign investor to influence business strategies.

Since 2003, Southeast Asia has emerged as the leading region for attracting foreign investment with ASEAN reporting that FDI levels reached $224 billion in 2022. Countries across Southeast Asia compete to attract foreign investment, with China and the USA competing to invest in the region, supplanting the traditional leading investor in this field – Japan.

Foreign Investment has long been thought of as being a resilient means of private capital inflow for developing countries, particularly to financial crises.1

The main benefits of foreign investment are seen as:

  • Economic development stimulation
  • Easy International trade
  • Employment and economic boost
  • Tax incentives
  • Development of resources
  • Resource transfer
  • Reduced costs
  • Increased productivity
  • Increase in a country’s income2

In short, the main benefits ascribed to FDI include job creation, the transfer of technology and knowledge, access to international markets (as with the cases of Lower Mekong Countries (LMCs) signing up to free-trade agreements), as well as access to international financing.3

FDI in the Lower Mekong

The LMCs, comprising Cambodia, Laos, Myanmar, Thailand, and Vietnam are home to around 245 million people. The main industries across the region include textiles, tourism, mining, agriculture, manufacturing, and services, among others. The Mekong River itself is a driver of the economies of the LMCs, providing for agricultural systems, energy production, manufacturing, and food security providing an economic livelihood for tens of millions of people. Worldwide FDI is worth as net inflow, as of 2022, $1.76 trillion, whilst for LMCs this accounts for a $34.56 billion net inflow. Thailand and Vietnam lead the way in the Lower Mekong Region (LMR), with Thailand receiving nearly three times the amount of net inflows of foreign investment as Cambodia in 2022- $11.2 billion compared to $3.6 billion. 

Made with Flourish

Laws and Regulations

All five of the LMCs are members of ASEAN, and signatories to the ASEAN Free Trade Area (AFTA). The AFTA is a trade bloc agreement by ASEAN to support local trade and manufacturing across the region. It also facilitates economic integration with regional and international allies. In 2009 an international treaty, the ASEAN–Australia–New Zealand Free Trade Area (AANZFTA), was signed between the ASEAN countries, and Australia and New Zealand. Similar treaties exist between ASEAN and China (ACFTA), India (AIFTA), Japan (AJCEP), South Korea (AKFTA), and Hong Kong (AHKFTA).4 In total ASEAN are signatories to 15 Treaties with Investment Provisions (TIPs).5

The LMCs have also signed a number of bilateral investment treaties (BITs) with other nations. As of 2024, Cambodia has signed bilateral investment treaties (BITs) with 27 countries (11 of which are not in force or have been terminated),6 Laos with 25 (3 are currently terminated or not in force),7 Myanmar with 11 (2 of which have been terminated or are not in force),8 Thailand has signed 41 (7 of which have been terminated or are not in force),9 and Vietnam which has 67 (16 of which have been terminated or are not in force).10

As of 2024, all of the LMCs have signed laws, beneficial to the promotion of foreign investment into law. Though most of these agreements allow for up to 100% foreign ownership (in the instance of Cambodia, for example), restrictions remain across the LMCs. For example, sectors such as financial and banking, telecommunications, and other sectors designated as having a bearing on national security may be excluded from investment or require a domestic partner.

Cambodia 🇰🇭The Cambodian government has prioritised attracting foreign investment and a new law on Investment in the Kingdom of Cambodia was passed in 2021, introduced with the intention of creating an open, transparent, and reliable legal environment for attracting both domestic and foreign investment in the country.

Introduced in 2009 the Law on Investment Promotion was amended in November 2016, with 32 new articles introduced and 59 existing articles revised. These amendments clarified investment incentives and revised restrictions on capital requirements for opening a business. Although most sectors and businesses are open for foreign investors to invest in, the reality is that restrictions remain for sectors or businesses that are designated as a potential national security risk or are in the case of some industries local equity participation is required. Whilst foreign investors are able to attain full ownership of businesses in some instances it is more likely to see investors partnering with local partners, or in instances of large projects, such as in mining or hydropower, investors are likely to seek partial government ownership. This is due to, what is perceived to be, the complicated official and unofficial processes of obtaining the rights to invest.
Laos 🇱🇦Introduced in 2009 the Law on Investment Promotion was amended in November 2016, with 32 new articles introduced and 59 existing articles revised. These amendments clarified investment incentives and revised restrictions on capital requirements for opening a business. Foreign investors are able to invest in any sector or business with those considered as a potential national security risk restricted from investment. Whilst foreign investors are able to attain full ownership of businesses in some instances it is more likely to see investors partnering with local partners, or in instances of large projects, such as in mining or hydropower, investors are likely to seek partial government ownership. This is due to, what is perceived to be, the complicated official and unofficial processes of obtaining the rights to invest.
Myanmar 🇲🇲Myanmar’s Foreign Investment Law was enacted in 1988 soon after the adoption of a market-oriented economic system to boost the flow of FDI into the country. The 2016 Myanmar Investment Law (MIL) and the 2018 Companies Law continue to govern treatment of foreign investment. The MIL designates which sectors are available for investment with it also listing a list of prohibited and restricted sectors. Whilst the Companies Law stipulates that foreign investment can be up to 35% in domestic companies. Since the coup in 2021 the economy shrank by 18% with a significant drop in commercial activity being evident. The current political situation in Myanmar presents a multitude of challenges for investors, with opaque regulations, policies and rules for governing foreign investment. As a result of the political instability and opaque process, foreign investment has decreased year on year since 2021.
Thailand 🇹🇭Thailand has been and continues to be one of the most successful countries in the region for attracting Foreign Direct Investment due to the advantageous environment for investors.11 The Foreign Business Act (FBA) of 1999 governs most investment activity by non-Thai nationals. On September 14, 2021, Thailand’s Cabinet passed a resolution introducing immigration, tax, and land ownership incentives aimed at attracting foreign investors, wealthy pensioners, professionals who can work remotely from Thailand and highly skilled professionals. However, the Foreign Business Act prescribes a wide range of business that may not be conducted by foreigners without additional licences or exemptions. These include banking, insurance, and telecommunications which are reserved for Thai nationals, and as such foreign investment in businesses in these sectors has to amount to less than 50%.
Vietnam 🇻🇳In recent years Vietnam has signed a series of free trade agreements, including the UK-Vietnam Free Trade Agreement, and the Regional Comprehensive Economic Partnership that includes the Asia-Pacific nations of Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam itself. These agreements are seen as a means of making it easier to attract foreign investment by providing better market access for Vietnamese exports and encouraging investor friendly reforms.12

In 2019 Resolution 55 was passed to increase Vietnam’s attractiveness to foreign investment, aiming to attract $50 billion in new foreign investment by 2030. In 2020, laws were revised on investment and enterprise, in addition to passing the Public-Private Partnership Law, to further the goals of Resolution 55. Following this in February 2021 a 10-year economic strategy was devised and approved that proposed for a shifting foreign investment to high-tech industries and ensuring such investment meets higher standards relating to environmental protection, echoing a statement made by Prime Minister Pham Minh Chinh at COP26 where he pledged for Vietnam to reach net zero emissions by 2050.

Main Investors

Historically the main investors in the LMR have been China, Japan, Singapore, and South Korea. It is a drawer for these countries enticed by initiatives such as the Asian Development Bank’s Economic Corridor projects and China’s Belt and Road Initiative. Due to the region’s strategic location and abundant natural resources it finds itself caught between the power-relations of global superpowers such as China, Japan, South Korea and the United States.

Cambodia 🇰🇭Despite the negative effects of the COVID-19 pandemic China continued to invest in Cambodia, with this increasing significantly from 2021 with investment reaching $19.2 billion by the end of 2022. Beyond China the other significant investors in Cambodia include the USA, the Republic of Korea, the UK, and Malaysia. Between January and September of 2023, Cambodia drew in fixed-asset investments worth $3.76 billion, a 8.6% increase from the $3.46 billion recorded in the same period for 2022.
Laos 🇱🇦China, Thailand, France, Vietnam, and Japan are the largest sources of foreign investment, with China accounting for a significant share of all investment in Laos. With the introduction of SEZs in the Vientiane and Savannakhet regions attracting investors from Europe, North America, and Japan, China and Thai investors are developing plans for additional SEZ projects. The total foreign investment in Laos increased from $5.7 billion in 2016 to $10 billion in 2019, though the U.S Department of State notes that reliable figures are difficult to attain and verify.
Myanmar 🇲🇲Singapore, China, and Thailand, as of 2020, were the main investors in Myanmar with Singapore receiving the highest number of approved investments. Since 2021 the main investors have been Singapore and China with lower amounts of investment originating from countries such as Taiwan, India, South Korea, Samoa, the UK, and the USA. The majority of recent investment, as recorded in 2023, went into the electricity and energy sector.
Thailand 🇹🇭China was the leading foreign investor in Thailand in 2023, with Singapore in second place and the United States ranked third with 40 projects valued at $2.3 billion. Japan was in fourth place, followed by Taiwan.
Vietnam 🇻🇳In 2023, 111 countries and territories were recorded as investing in Vietnam, led by Singapore with over $6.9 billion, accounting for 18.6% of total foreign investment inflows, a rise of 5.4% year on year. Japan ranked second with nearly $6.57 billion, while Hong Kong (China) came third with 4.68 billion USD. As of February 2024, and according to Vietnam’s Foreign Trade Agency, Vietnam has 39,000 valid projects with capital surpassing $473.1 billion. Across the first two months of 2024 Singapore, Hong Kong, Japan, and mainland China were among the top sources of foreign investment out of 48 countries and territories with investments in Vietnam.13

Investment Industries and Sectors

Physical infrastructure projects dominate FDI across the LMR. Foreign investors invest in the development of large scale energy projects, including hydropower, coal and oil-powered power stations, and physical infrastructure such as railways and ports. Beyond this investment is directed towards manufacturing and agricultural processing.

Energy 🔋The energy sector in the Lower Mekong, and the Greater Mekong region, is dominated by Hydropower. For example, according to Lao government statistics, mining and hydropower accounts for 95.7 percent of foreign investment in 2019.
Hydropower 🏭The Mekong region’s economy and livelihoods are dominated by the Mekong River. The Mekong River, is also culturally and ecologically significant, accounts for 25 percent of the global freshwater catch whilst also providing livelihoods for tens of millions of people through fishing, agriculture and providing the means of transporting goods. The Mekong River’s source is in the Tibetan Plateau and runs through Southwest China, Myanmar, Laos, Thailand, Cambodia, and southern Vietnam. Whilst hydropower projects had been initiated along the Mekong River since the 1960s, the start of the early 2000s saw a rapid increase in hydropower projects, currently around 100 dams along the Mekong River, with many more planned for the coming years.

Hydropower, pushed as a green or clean energy source as part of the shift away from fossil fuel driven energy production, has also been subject to a number of criticisms. Not only are its green credentials questioned, it has also been responsible for the damage to local communities, due to forced relocation and damage to the local ecosystem and fishing stock, in turn affecting livelihoods.
  • Lower Sesan 2 Dam
One of these projects, found in the Mekong River basin on the Se San River, in the Stung Treng Province of northeastern Cambodia is the Lower Sesan 2 Dam. In November 2012, the Cambodian government approved the Lower Sesan 2 Dam as a joint venture between Cambodian, Chinese and Vietnamese investment. Construction on the dam began in early 2013 with the construction led by the Hydropower Lower Sesan 2 Co., Ltd, which is owned by Cambodia's Royal Group and China's Hydrolancang International Energy Co., Ltd (90%) and Vietnam's Electricity of Vietnam (10%). The project was financed by the Royal Group (30%) and an undisclosed Chinese bank loan (70%), believed to be China Development Bank. The dam was officially opened on December 18, 2018 and is expected to produce 400 megawatts of electricity when at full capacity.
  • Myitsone Dam
There are currently 41 operating hydropower dams in Myanmar, with 89 planned. The Irrawaddy River, an important commercial waterway, is also subject to a number of planned hydropower dams. In 2007 the then Myanmar government signed an agreement with China Power Investment for the construction of seven hydropower dams along the river. One of these, the Myitsone has been subjected to multiple delays. The Myitsone Dam was planned to have a generation capacity of 6,000MW with the intended destination of the produced electricity primarily for exporting to Yunnan, China, with completion of the project scheduled for 2019. The project developers for this project, a group of Chinese investors, were Yunnan International Power Investment Co., Ltd. with the main contractors being China Gezhouba Group, China Power Investment Corporation Materials and Equipment Co., Ltd., and Number 4 and 11 Bureaus of Sinohydro. The $3.6 billion dam, ranked as one of the biggest hydropower projects in the region, was suspended by former President Thein Sein in 2011. Rumours of the project’s revival arose in 2016 and 2019 and again since 2021, but to this date the project remains suspended.
Coal-fueled Power Stations ⛽Due to the number of coal mines found across the region, the number of coal-fueled power stations is also relatively high, with the highest number of power stations found in Vietnam, which is home to 25 operating power stations.14 Vietnam also had, between 2011 and 2021, the fastest growth in coal consumption within the Association of Southeast Asian Nation (ASEAN) region. Due to the myriad concerns around the mining and use of coal as a fuel source, Vietnam has agreed to phase out coal power by the 2040s.15
  • Hangsa Power Station
The Hongsa Power Station is a coal fired power station in the Xayaboury Province of Laos. The Hangsa Power Station incorporates an open face mine and a 1878MW coal fired power station. The power station was developed by Hongsa Power Company. Hongsa Power Company is a consortium comprising the Thai company RATCH Group Public Company Limited, Banpu Power (itself a subsidiary of the Thai coal-mining company Banpu), and Lao Holding State Enterprise. Ratch and Banpu each have a 40% stake in the project and Lao Holding a 20% stake.
Special Economic Zones 🤑One way that countries attempt to promote foreign investment is through the formation of Special Economic Zones (SEZ). An SEZ is an area in a country that is designed to generate positive economic growth. An SEZ is normally subject to different and more favourable economic regulations compared to other regions in the same country, including tax incentives and the opportunity to pay lower tariffs. SEZs serve as a mechanism for attracting foreign direct investment, accelerating industrialization and creating jobs.The implementation of SEZs are known to cause conflicts between local people and authorities.16 Criticism of SEZs often focus on the perceived negative socio-economic impacts. With these particularly impacting negatively on women. Land dispossession and environmental harms to water supplies, air quality and pollutants from the industries housed in the SEZs also contribute to the harms and difficulties faced by local communities.
  • Eastern Economic Corridor
The Eastern Economic Corridor SEZ (also known as the Eastern Special Development Zone), located in eastern Thailand across three provinces, was established on the 17th January 2017 with a budget of 1.5 trillion baht (US$43 billion) over its first five years. This was followed by a further 1.35 trillion baht ($44 billion) plan to develop the Eastern Economic Corridor into a regional financial hub and a world-class smart city by 2037 in December 2022.

A new high-speed rail line is planned to serve the Eastern Economic Corridor with the planned Don Mueang–Suvarnabhumi–U-Tapao high-speed railway designed to connect Don Mueang International Airport, Suvarnabhumi Airport and U-Tapao International Airport. This line is planned to be opened in 2029 and will be operated by the Asia Era One Company Limited, a vehicle for a consortium of companies - Charoen Pokphand Group Company, Limited and partners Ch. Karnchang PLC., Bangkok Expressway and Metro PLC., Italian-Thai Development PLC. and China Railway Construction Corporation Limited who beat Bangkok Expressway and Metro to the contract.

Other Sectors of Interest

Maritime

Beyond the landlocked nation of Loas, the LMCs not only have access to a wide network of rivers and tributaries, but also a vast coastline presenting opportunities for investment in ports. China, as part of its BRI initiative, has invested heavily in the development of ports. Investments in ports such as Kyaukpyu deep-water port in Myanmar, forms a portion of a wider project to connect China with the Indian Ocean by means of rail.11

Hai Phong International Container Terminal

Port infrastructure is a major attraction for foreign investment, especially investment from major shipping lines and joint-venture port companies.Vietnam has a total of 320 ports, including seaports and river ports, of which 163 are international ports. Hai Phong, Da Nang, and HCMC are the three major ports of Vietnam, located in the North, the Central, and the South, respectively.12

On 13 May 2018, Hai Phong International Container Terminal (HICT), a joint venture between Saigon Newport Corporation (holding 51% of shares), Japan’s MITSUI O.S.K Lines (holding 17.5% of shares) Taiwan’s WanHai Lines (holding 16.5% of shares) and Japan’s Itochu Group (holding 15% of capital) held the grand opening ceremony. Hai Phone International Container Terminal is the largest deep-water container terminal in Northern Vietnam providing direct services to America and Europe for Vietnamese exports and imports. The opening of the terminal also marked the official opening of the Lach Huyen Port, a Public Private Partnership between the governments of Japan and Vietnam.

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