Mike Pfister looks at investment promotion and facilitation in Southeast Asia and draws lessons for the update of the OECD Policy Framework for Investment currently underway. This presentation was made at the Southeast Asia Regional Forum in Bali, Indonesia, on 24-26 March 2014. Find out more at http://www.oecd.org/daf/inv/investment-policy/seasia.htm - http://www.oecd.org/daf/inv/mne/pfi.htm - http://www.oecd.org/globalrelations/seaforum.htm

1. UPDATING THE POLICY
FRAMEWORK FOR INVESTMENT:
INVESTMENT PROMOTION & FACILITATION
IN SOUTHEAST ASIA
Mike Pfister
Investment Policy Review Unit, OECD
Global Task Force Meeting
Bali, 24 March 2014

2. • Investment promotion & facilitation in a PFI
rationale
• Experience from SEA, OECD IPRs and
seminars in SEA and elements from the
OECD Southeast Asia Investment Policy
Perspectives
• Updating and strengthening chapter 2 of
the PFI – questions & discussion
Outline

3. • Private investment: can bring capital, jobs, technology,
knowledge, new market outlets, additional domestic
resources, help diversification, increase trade…
development impact of investment
• Chapter 1 focuses on the hard framework conditions for
investment
• Investment promotion & facilitation critical complement
to attract investment: link between the policies and
business activity
• Also means: promotion depends on policies = PFI
rationale – holistic approach
Approach and rationale: why investment
promotion & facilitation in the PFI?

4. • Investment promotion and facilitation measures, including incentives, can be effective
instruments to attract investment provided they aim to correct for market failures and
are developed in a way that can leverage the strong points of a country’s investment
environment. The quality of investment promotion depends by and large on the quality of the
investment related policies in place.
• Investment promotion and facilitation can take various forms. Many governments have
established specialised investment promotion agencies (IPAs), either as independent bodies or
under the tutelage of a Ministry.
• Effective investment promotion also goes beyond attracting new investors. An important
element is after-care once investors have set up shop. This is particularly important to retain
existing investment, and to motivate established investors to expand their investments.
• In terms of investment facilitation, the government should ensure that investors find it easy and
convenient to get all the relevant information linked to their operations, from pre- to post-
establishment. The institutional structure should be lean, thus avoiding bureaucratic layers.
• Investment promotion and facilitation also needs to be carefully co-ordinated nationally, as
different ministries and institutions may do some promotional activities on their own.
• The domestic eco-system is critical for investment: suppliers, support institutions (including
financial services, access to quality training, R&D, BDS) – cluster perspective
• The regional dimension is critical – where is the province, country or region positioned in the
value chain?

5. • Strategy, importance of investment in national
and regional development objectives, and the
role of investment promotion & facilitation
• Investment promotion measures and
mechanisms
• Facilitation measures
• Strengthening the ecosystem for investment and
fostering the positive spill-overs
• Institutional set-up and measures
• Regional dimension
PFI Chapter 2: Investment Promotion &
Facilitation
Specific
measures

6. INVESTMENT STRATEGY

7. 2.1 Does investment and the benefits it can bring to the economy
feature in national development objectives? What role does investment
promotion and facilitation have in this regard?
• Link to National Development Plans, Industrial Masterplans,
PRSPs...
• Identification of the right type of investment – the type that is needed
for economic development
– While a level playing–field is necessary for all investors, specific investment can be
targeted: technology intensive, labour intensive, smaller investments, specific sectors
– Importance to match with national priorities (privatisation, link to GVCs, regional
development…)
• Malaysia: was one of the first emerging economies to welcome foreign
investment in export-oriented manufacturing sectors beginning in the
late 1980s. Export-oriented clusters were developed, in particular in
E&E.
• Philippines: liberalisation in 1990s resulted in increase in FDI, BOT
Act
Strategy: importance of investment
promotion

8. INVESTMENT PROMOTION MEASURES

9. • How are investors targeted?
• Value-propositions? Have effective are they? How are
they reviewed/revised?
• How is investment promotion undertaken – city level,
provincial, country level? Any regional approaches in
ASEAN?
• Special Economic Zones
• How is promotion co-ordinated?
Philippines: 17 IPAs, but recent efforts to harmonise
through BOI
Viet Nam: FIA, Northern, Central and South
• Incentives
Investment Promotion measures

10. Investment Promotion measures: the
role of incentives
Countries Surveyed
Would have invested even if
Incentives were not provided
Rwanda (2011) 98%
Uganda (2011) 93%
Guinea (2012) 92%
Tanzania (2011) 91%
Vietnam (2004) 85%
Thailand (1999) 81%
Mozambique (2009) 78%
Burundi (2011) 77%
Serbia (2009) 71%
Jordan (2009) 70%
Kenya (2012) 61%
Tunisia (2012) 58%
Source: FIAS

11. In addition they are costly…
Source: OECD Tax & Development Programme

12. • Common: income tax holidays (ITH), preferential tax rates, import
duty and VAT exemptions, tax credits and other taxable income
deductions.
• Regulation: in most cases part of national investment laws (eg:
Myanmar FIL)
• but differences in implementation:
Cambodia’s incentives granted in SEZs aligned with the national
legislation, where as in the Philippines, SEZ incentives governed by
the 1995 SEZ Act.
• Differences in the so-called trigger period:
Thailand and Lao PDR, the tax holiday begin after the project has
begun, but Viet Nam and Cambodia later.
• Difficult to examine incentives at ASEAN level
SEA dimension of fiscal incentives

13. • ASEAN countries share a common interest in establishing a level
playing field among themselves.
• Regional co-operation and agreements can help fight excessive
incentives, protecting tax bases of the ASEAN member countries,
and provide a comprehensive ASEAN-wide mechanism to address
tax competition
• The ASEAN Economic Community (AEC) & strengthening the notion
of an ASEAN investment destination supports fighting race-to-the
bottom of AMS
• How? Framework to assist policy makers in tackling associated
challenges: understanding the extent of divergences of tax
incentives policies and practices across AMS; platform for dialogue
on tax incentives-related policies; mechanisms to improve
knowledge-sharing between AMS
ASEAN avenues

14. 1. Public statement of all tax incentives and their objective
2. Provide tax incentives through tax laws
3. Consolidate all incentives under the authority of one
body where possible
4. Ensure tax incentives ratified through law making body
or parliament
5. Administer incentives in transparent manner
6. Calculate forgone revenue and make it publicly
available, collect data systematically, monitor effects
7. Enhance regional co-operation
PFI: principles for incentives
Source: OECD Checklist for incentives and OECD Tax & Development Programme

15. INVESTMENT FACILITATION MEASURES

16. Investment facilitation
• At times more important than expensive promotion!
Myanmar: more important to have good facilitation and streamlined
regulation than promotion at this stage
• Private sector needs effective interface in government (link to policy)
• Private sector needs to be able to keep up with reforms and so does
government!
Current PFI questions 2.4 and 2.5 fall short of the depth required:
• Streamlining of business regulation: what measures have reduced
the cost of doing business? What are the mechanisms?
Malaysia: PEMUDAH Task Forces and MPC
• One-stop-shops and single-point authority
• Effective after-care (post-establishment) to retain investment
• Policy advocacy – what are the mechanisms? Do they work?

17. INSTITUTIONAL SET-UP

18. Institutional structure of investment
promotion

19. • Many agencies are actually undertaking investment promotion
Philippines: 17 agencies
Myanmar: Ministry of Hotels and Tourism
• National and subnational agencies
Malaysia: city level IPAs (investPenang, investKL, various corridors)
Viet Nam: 3 Provincial FIAs
• How is co-ordination of various investment promotion efforts co-
ordinated?
• How is the agency funded and is the performance of the agency
measured/benchmarked? Importance of statistics.
• What about outward investment promotion and support?
Some ASEAN countries are growing sources of investment
Thailand, Malaysia, Singapore, Philippines, Viet Nam
In practice…

20. IMPACT AND STRENGTHENING THE
INVESTMENT ECOSYSTEM
Linkages, Global Value Chains, Clusters

21. • What are the government’s efforts to promote clusters?
– Vocational training, BDS, access to finance, dedicated
infrastructure:
Malaysia: Triple helix approach seen in Penang (PSDC, local
government, investor community, science council), airport
• How do SEZs benefit the overall economy (investment
policy coherence)
– links with domestic economy,
– support for linkages, increase local value addition and links to
GVC (any statistics?)
– Responsible Business Conduct
CSR unit in Clark Development Corporation, Philippines
Improving the eco-system for
investment

22. Lead
Company
1st tier
supplier A
3rd tier
supplier 1a
2nd tier
supplier 1
1st tier
supplier B
2nd tier
supplier 2
3rd tier
supplier 2a
1st tier
supplier C
Linkages and GVC perspective
Technology, know-
how, management and
product standards
Domestic
market,
Export,
GVC
TECH&KNOWLEDGE
TRANSFER
Role of
policy:
SME policy,
financing,
vocational
training

23. Value chain governance has
implications for supplier development
Source: Adapted from Gereffi (2011)

24. GVC: Value creation?
Source: http://data.wdr.de

25. • Again, little in current PFI (2.7)
• Framework could be fine-tuned:
– Is the potential for linkages taken into consideration in
investment promotion measures?
– What SME/supplier development programmes are
geared to promote linkages (hence GVC integration,
technology and knowledge transfer)?
– How are foreign investors involved in local skills
development?
– Are IPAs involved in linkages creation (eg: match-
making, making supplier data-base available to
investors)
– Is local value creation measured in SEZs? Stats!
For the PFI?

26. REGIONAL DIMENSION

27. • Investors think regionally (larger markets, integrating production
networks) – ASEAN well placed with AEC
Only 5.4% of respondents to a Baker McKinsey survey run the
ASEAN Region from a base outside ASEAN!!
• SEA is heterogeneous: important to map your country in the
regional (ASEAN) value chain (R&D, electronics, tourism, textile,
natural resources…)
• Discuss regional investment promotion efforts at ASEAN level: to
address intra and extra-regional investment
ASEAN Investment Forum
• Brand and “sell” the ASEAN investment destination: ASEAN
Secretariat could play a role.
Regional dimension

28. • What investment promotion measures have proven most
effective?
• Biggest challenge to promote investment?
• How do you undertake policy advocacy?
• How do you gather feedback from investors – aftercare?
• How do you view the importance of the your supply base
for your investment climate competitiveness?
• Does your IPA have a linkages programme?
• Do you map yourself in the ASEAN value chain? How?
• Any regional investment promotion initiatives? Any
suggestions?
Let’s discuss

29. Policy Framework for Investment (and User’s Toolkit)
www.oecd.org/investment/pfi.htm
www.oecd.org/investment/toolkit/
FDI Index
www.oecd.org/investment/fdiindex.htm
Investment Policy Reviews
www.oecd.org/investment/countryreviews.htm
ASEAN-OECD Investment Programme
www.oecd.org/investment/seasia.htm
ASEAN Investment website
www.investasean.asean.org
For further information

30. NEW DIMENSIONS OF THE PFI

31. Investment
policy
Investment
promotion and
facilitation
Trade
Competition
Tax
Corporate
governance
Policies for
promoting
responsible
business conduct
Human
resource
development
Infrastructure and
financial sector
development
Public
governance
• Green investment
• Gender considerations
• Role of development
assistance
• R&D, innovation
• Statistics
• GVC
• Infrastructure (separate
chapter, PPPs)
• SME dimension (incl.
microfinance, linkages,
skills development)
• Technical annexes
(sectoral: agriculture,
clean energy)