Investment Policy Reformin ASEAN

2nd ASEAN-OECD Investment Policy Conference

10-11 December 2014, Jakarta

Dr. Stephen ThomsenHead, Investment Policy Reviews, OECD

• Trends in FDI in ASEAN: a bright spot in a gloomy

global landscape

• The growing importance of the regional market for

international investors

• The impact of FDI restrictions on relative

performance in attracting investment within ASEAN

• The role of services in total ASEAN exports and how

this relates to FDI restrictions

Outline

Global FDI is still significantly below

pre-crisis levels

0

500

1000

1500

2000

2500

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

OECD EU World

Source: OECD International Direct Investment database. 2013 is preliminary.

p

Global FDI outflows (USD billion)

FDI in ASEAN is at record levels

0

20

40

60

80

100

120

140

0%

5%

10%

15%

20%

25%

ASEAN FDI inflows (right axis) ASEAN share of developing country FDI stock(left axis)

Percentage USD billion

ASEAN FDI inflows

Source: UNCTAD

FDI in ASEAN may even be greater than

what AMS report

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

ASEAN statistics OECD home country statistics

USD million

FDI in ASEAN from OECD countries (home vs host statistics)

MNE employment figures show even

stronger growth

0

100

200

300

400

500

600

700

800

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

(thousand)

*Indonesia, Malaysia, Philippines, Singapore, Thailand

Employment of US MNEs in ASEAN*

US investors are turning towards the

regional market

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1989 1994 1999 2004 2008 2011

Local Regional To US

Share of total sales

Pattern of sales of US affiliates in ASEAN

Source: US Department of Commerce

• Good growth prospects:

– 5.4% projected over next 5 years on average

• ASEAN Economic Community blueprint

– Both intra- and extra-ASEAN FDI

• Liberalisation of FDI regimes

– WTO, FTAs, ACIA

– Unilateral removal of restrictions

What can explain the recent performance

of ASEAN in terms of FDI?

• FDI at record levels for most AMS, but

performance varies strongly across ASEAN,

with Singapore dominating FDI inflows

• Intra-ASEAN investment is still only a small

share of the total

• Increasing the development impact of FDI

• The treatment of foreign investors also varies

considerably across AMS, as with Doing

Business

Strong FDI performance…

but challenges remain

OECD FDI Regulatory Restrictiveness Index

• Measures only statutory restrictions on FDI

(i.e. where national treatment is not applied)

• Does not include the degree of implementation,

institutional quality or state ownership, EPZs

• Covers equity restrictions, screening, restrictions

on key personnel and operational restrictions

• Scores currently available for almost 60 countries,

covering 22 sectors.

Benchmarking FDI restrictiveness

across countries and over time

FDI liberalisation in Indonesia, 1985-2009*

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0

10

20

30

40

50

60

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Cumulative FDI inflows since 1980 (USD billion; left axis)

OECD FDI Restrictiveness Index score (0=open; 1=closed;right axis)

*The historical series is based on a simplified index and hence the score for 2009 does not correspond

to the overall Index score.

Investment policy reform in Korea and

its impact on FDI inflows

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0

2

4

6

8

10

12

14

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

FDI stock as share of GDP (left axis, per cent)

FDI Index (right axis; 0=open, 1=closed)

Source: Nicolas, Thomsen and Bang (2013)

0

20

40

60

80

100

120

140

160

180

0 0.1 0.2 0.3 0.4 0.5

20

12

In

wa

rd

FD

I S

toc

ks

(%

of

GD

P)

2013 FDI RR Index (Closed = 1; Open = 0)

Sources: OECD Statistics and IMF estimates. Excludes Iceland, Belgium, Iceland, Jordan and Luxembourg.

Fewer FDI restrictions mean more FDI

More restrictive

Mo

re F

DI

0

50

100

150

200

250

300

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50

The Philippines Myanmar Indonesia Thailand Lao PDR Viet Nam Malaysia Cambodia Singapore

2013 OECD FDI Regulatory Restrictiveness Index 2012 FDI Stocks (current, % of GDP)

OECD FDI Regulatory Restrictiveness Index ,2013(open=0;clsoed=1) 2012 FDI Stocks (% of GDP)

(Preliminary scores)

FDI Index scores vs FDI Stocks

(% of GDP) ASEAN9 countries

ASEAN economies are generally more

restrictive across sectors than OECD

0

0.1

0.2

0.3

0.4

0.5

0.6

OECD ASEAN9

OECD FDI Regulatory Restrictiveness Index (open=0; closed=1)

Embodied services are an important

share of exports

0

5

10

15

20

25

30

35

40%

Construction Wholesale and retail trade, hotels and restaurants

Transport and storage, post and telecommunications Financial intermediation

Business services Other services

Source: OECD-WTO Trade in Value Added database

FDI restrictions affect the share of

services value added in exports

OECD FDI Regulatory Restrictiveness Index (0=open; 1=closed)

Services value added as a share of exports

AMS are becoming more open to FDI over time,

often significantly so…

…but policies still vary significantly within ASEAN

Governments have the sovereign right to choose

their own level of openness…

…but FDI restrictions can have a significant impact

not only on FDI inflows but also on overall national

competitiveness

Conclusion

Policy Framework for Investment (and User’s Toolkit)

www.oecd.org/investment/pfi.htm

www.oecd.org/investment/toolkit/

www.oecd.org/daf/inv/investment-policy/pfi-update.htm

FDI Index

www.oecd.org/investment/fdiindex.htm

Investment Policy Reviews

www.oecd.org/investment/countryreviews.htm

ASEAN-OECD Investment Programme

www.oecd.org/daf/inv/mne/seasia.htm

ASEAN Investment website

www.investasean.asean.org

For further information