ODI surge: trends, destinations, and sectors

Taiwan's outward direct investment (ODI) has surged post the COVID-19 pandemic. In 2023, the total approved ODI reached a record high of USD 26.6bn, marking a remarkable 77% surge compared to USD 15bn in 2022. Further progress was observed in the first five months of this year, with approved ODI climbing to USD 14.6bn, a notable 49% increase from USD 9.8bn in 2023.

Investment destinations have witnessed a significant shift. The US, Europe, and ASEAN have surpassed China, emerging as Taiwan's top three ODI destinations in 2023. The US led with USD 9.7bn, followed by Europe with USD 5.4bn and the ASEAN-6 countries with USD 5.1bn. Conversely, China recorded only USD 3bn in investment in 2023. As a percentage of Taiwan's total approved ODI, the G3's share rose to 58% in 2023 compared to 6% in 2011, while the ASEAN-6's share also climbed to 19% from 6% during the same period. In contrast, China's share plummeted sharply to 11% from 80%.

Within ASEAN, Singapore is the primary destination. ODI into Singapore amounted to USD 2.4bn in 2023, followed by Vietnam (USD 1bn) and Thailand (USD 0.9bn). Taiwan also ranked as the 6th largest FDI source for Singapore in 2023, after the US, Netherlands, China, Japan, and Hong Kong. In Thailand and Vietnam, Taiwan held the 5th largest FDI source position in 2023 (measured by FDI approved and registered new capital, respectively).

Manufacturing remains the key area of investment. Approved ODI in the manufacturing sector reached USD 17.8bn in 2023, significantly outpacing the USD 8.5bn in the services sector. A closer examination reveals that manufacturing investment was predominantly concentrated in the electronics sector, totaling USD 15.1bn in 2023. Electronic parts and components, in particular, attracted USD 14bn investment during the same period.

Among the notable investment cases, TSMC expanded its investments in its US foundry in Arizona by USD 8bn and allocated EUR 3.5bn to establish a joint venture with Bosch, Infineon, and NXP in Germany in 2023. Meanwhile, Foxconn expanded its investment in Foxconn Singapore Pte Ltd by USD 1.6bn in February this year and by USD 0.9bn in May, indirectly investing in India and Vietnam for manufacturing consumer electronics such as mobile phones, multimedia smart devices, and printed circuit boards. Additionally, Foxconn invested TWD 15bn in Foxconn EV Singapore Holdings Pte. Ltd in February, aiming to allocate funds to EV development in the longer term. Most recently, in June, Vanguard announced plans to establish a joint venture with NXP to construct a USD 7.8bn chip wafer plant in Singapore, focusing on 130-40nm chips catering to demand from the automotive, industrial, and consumer electronics markets.

Total ODI is poised to reach USD 30bn this year and grow to USD 35-40bn by 2030. This forecast takes into account the evolving global supply chain strategies, which increasingly embrace nearshoring and friendshoring. The disruptions caused by the COVID pandemic, including parts shortages and port bottlenecks, have compelled companies to shorten supply chains and prioritize risk management over cost-cutting. Furthermore, escalating geopolitical tensions and tariff risks have prompted companies to diversify their supply chains to friendly countries to mitigate associated risks.

The electronics sector is expected to remain the focal point of investment. In the semiconductor supply chain, approximately two-thirds of global chip foundry occurs in Taiwan, while half of the Outsourced Semiconductor Assembly and Test (OSAT) also takes place on the island. Within the broader electronics supply chain, about half of global information and communication technology goods exports originate from China and Hong Kong. This indicates ample scope for diversification of the electronics supply chain through strategies like Taiwan+1 and China+1.

ASEAN will continue to be a crucial investment destination. Vietnam and Thailand are expected to remain key destinations for diversifying the electronics supply chain, supported by their established and growing ecosystems in the consumer electronics sector and favorable government policies. Singapore and Malaysia have the potential to draw increased Taiwanese investment in the semiconductor sector, leveraging their respective strengths in chip foundry and OSAT segments.

Implications for the BOP

The impact of rising ODI on the balance of payments (BOP) is expected to be limited. In 2011-2023, ODI accounted for an average of 20% of overall capital outflows within the financial account. Even with a projected increase to USD35-40bn by 2030, its proportion of overall capital outflows is expected to stay below 40%. Portfolio investment consistently dominates as the primary source of capital outflows, with outward portfolio investment primarily driven by debt securities, sensitive to domestic and global interest rate dynamics.

Meanwhile, the rise in ODI is expected to augment corporate dividends, profits, and other incomes, positively impacting the current account. Taiwanese companies, expanding their presence overseas, continue to maintain their headquarters and listings in Taiwan. ODI incomes, relative to ODI stocks, have exhibited a consistent upward trajectory over the past decade, rising from 4% in 2011 to 6% in 2023. Assuming this ratio stabilizes at 5%, ODI incomes are estimated to reach a sizeable USD 25-30bn by 2030.

Moreover, the rise in ODI is expected to bolster intermediate goods exports and contribute to a trade surplus. The US and ASEAN have become increasingly significant contributors to Taiwan's trade surplus, partly driven by the growth in Taiwan’s ODI to these markets. In 2023, Taiwan's trade surplus with the US and ASEAN-6 countries expanded to USD 36bn and USD 35bn, respectively, totaling USD 71bn, nearly matching that of China and Hong Kong combined (USD 81bn). While supply chain localization in ODI destination countries may eventually reduce reliance on intermediate goods imports from Taiwan, the technology gap with Taiwan, particularly in the rapidly evolving electronics sector, is expected to persist for the foreseeable future. Therefore, continued growth in Taiwan’s intermediate goods exports is expected throughout the forecast period of 2024-2030, alongside the rise in ODI.


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