Foreign direct investment is not just a measure of economic confidence; it is one of the most powerful tools the Asia-Pacific region has to finance sustainable development, build resilient infrastructure and create quality jobs. 

The region witnessed US$ 348 billion worth of Greenfield projects announced in 2025, a 16 per cent decrease compared to 2024, when US$ 413 billion had been recorded. This decline did not occur in isolation. Tariffs, protectionism and discriminatory measures have always carried investment implications, but their recent proliferation has heightened uncertainty around cross-border production and market access, contributing to a slowdown in new Greenfield FDI project announcements into the region. 

Since 2023, discriminatory trade policy interventions have proliferated, with 443 new records that year – topped again in 2025 with 462 new discriminatory measures. This contrasts starkly with the 231 policies of the same nature recorded in 2022 and only 121 in 2020 – the latter of which generally reflects the level of the preceding ten years since 2010. As trade conditions have become more volatile, so too has the investment environment. Since January 2025, 230 new investment policies were issued globally. This represents 26 per cent of all investment policies put in place since 2020. 

Yet, with volatility expected to persist and characterize the ‘new normal’, understanding what keeps driving FDI and how investors react in the current environment is of utmost importance to channel projects and leverage FDI for sustainable development.

To better understand how these dynamics are shaping corporate decision-making, ESCAP conducted primary research with companies invested in the region. For most corporate investors in the region, 2025 represented a sustained test of strategic resolve. Conversations with investors revealed three quarters saw geopolitical tensions as the biggest concern, particularly materializing through trade protectionism, tariff volatility and competition for resources, in itself the second most cited group of concerns. Political instability and supply chain disruptions were also brought up by most investors.

Regional commitment of investors has proven more durable than headline investment values and volumes might suggest. Nearly 65 per cent of investors indicated no intention to reconsider or reverse their Asia-Pacific investments, while the remainder was still actively evaluating options. The most prevalent factor driving their commitment to the region was supportive government policies and incentives, suggesting that national and regional authorities have been effective in counterbalancing external pressures. The remaining pull factors included competitive labor costs, proximity to regional and global supply chains, infrastructure and logistics connectivity as well as strategic locations.

Rather than exit, most companies have responded with targeted operational adjustments to manage near-term vulnerabilities. When asked about mitigating tariff-related and transhipment risks, investors indicated they were prioritizing supplier network diversification and strengthening relationships with logistics providers. Operational adjustments also included increases in internal resource allocation to heightened compliance and due diligence costs and efforts to reduce non-tariff barriers. While only half of investors consulted expressed confidence that their Asia-Pacific investments would achieve their intended objectives over the next six months that number rose to 86 per cent when looking three years ahead, suggesting this current period of volatility is to be navigated rather than a fundamental degradation in FDI or regional attractiveness. 

A greater degree of flexibility has emerged both among companies and the governments that host their investment. This promising development reflects positively on the region’s resilience and attractiveness as an investment destination. 

Engaging proactively with investment promotion agencies (IPAs) has proved valuable for many firms. Mandated with supporting inward FDI, IPAs provide intelligence, facilitation and incentive guidance that can help investors navigate an increasingly complex operating environment. For example, the Japan External Trade Organization (JETRO) supported a Singapore-based agritech company’s expansion to Japan. Beyond the standard toolkit, JETRO arranged meetings with local governments, facilitated business matching, and provided information on subsidies, regulations and supported talent recruitment – support that contributed to the investment decision but also increases probabilities of reinvestment.

In parallel, new opportunities are emerging in markets that have traditionally been overlooked but are now assuming more prominent roles in regional and global value chains.

These investor responses carry direct implications for governments.

Proactive and tailored support services have become important differentiators to attract and retain international investors. Clear strategic positioning on priority sectors and type of FDI allows governments to allocate resources more effectively and support investors from initial interest to project realization. In a context of heightened compliance costs and supply chain reconfiguration, targeted aftercare and problem-solving support can also reinforce investor confidence.

Adaptability, agility and proactiveness on both sides will shape outcomes. Governments that respond quickly to shifting investor needs, while maintaining policy clarity and predictability, are more likely to capture mobile investment in a volatile global environment. 

Ultimately, what is at stake goes beyond investment volumes. The Asia-Pacific region faces a financing gap estimated at US$1.5 trillion annually to meet the Sustainable Development Goals. Well-targeted FDI remains one of the most significant sources of private capital available to narrow that gap. Ensuring that investment flows are sustained, strategically directed and aligned with development priorities is therefore not optional, it is central to the region’s long-term economic resilience.