A BETTER INVESTMENT CLIMATE

1. A BETTER INVESTMENT CLIMATE by Dr. Chee Kim Loy Assoc Professor, UBD.

2. GOOD INVESTMENT CLIMATE:THE ROLE OF GOVERNMENT Market-Friendly Development Approach ( Ref: World Development Report, 2005)

3. INVESTMENT CLIMATE “The location-specific factors that shape the opportunities and incentives for firms to invest productively, create jobs and expand.”

4. GOVERNMENT-BUSINESSPARTNERSHIP IN DEVELOPMENT Business Development Actors Actions Impacts Rural Micro-entrepreneurs Productive Investment Economic Growth Local manufacturing firms Job Creation Create Poverty Reduction Business Expansion Multi-national enterprises Investment in people and Empowerment Favourable Investment Climate G Government’s Roles

5. THE CONTEXT IN THE DECISION TO INVEST A Package of Criteria For Investment Property rights Regulations Taxes Finance Infrastructure Corruption Etc.. Short and long term factors Business Actors Investment Opportunities Decision to Invest Government Policies/ Behaviours Profitability and Social outcomes Government Roles: Security Credibility

6. GOVERNMENT POLICIES AND INVESTMENT CLIMATE GOVERNMENT POLICIES Cost of doing business Barriers to competition & entry Risks Uncertain response by customers/competitors Stable and secure environment Securing property rights Policy uncertainty Macroeconomics uncertainty Arbitrary regulations Deny opportunities and raise costs Lack of innovation and productivity Barriers to entry Taxes Public goods Infrastructure Market failures

7. A GOOD INVESTMENT CLIMATE • The government should balance the following tensions • Change in laws and policies • Reduce gaps in formal policies and practices • Private profits vs societal benefits • Less regulation (firms) vs more regulation (public)

8. Investment Climate Indicators (WB) Indonesia Philipines Mallaysia Policy Major Constraints Interpretation of regulation Corruption Major Constraints Bribery Courts Major Constraints Confidence Crimes Major Constraints Report Loss Labour Skills Regulations

9. Investment Climate Indicators Cambodia Laos Malaysia Singapore Vietnam Starting a Business Days 94 198 30 8 63 Procedures 11 9 9 7 12 Enforcing a contract Days 585 443 300 69 404 Procedures 58 53 31 23 37 Registering Property Days 56 135 143 9 78 Procedures 7 9 4 3 5 Transparency of Govt Policy 2.8 5 6.2 4.3

10. FOUR CHALLENGES OF INVESTMENT CLIMATE POLICY • Restraining rent seeking behaviours by firms, officials and other groups • Establishing credibility by firms on government policy • Fostering public trust and legitimacy (demonstrated public support) • Ensuring policy responses to fit local conditions

11. REFORM PROCESS IN INVESTMENT CLIMATE POLICY • Setting priorities • Managing individual reforms • Maintaining momentum • Strengthening capabilities

12. THE BASICS OF A GOOD INVESTMENT CLIMATE • Stability and Security • Regulations and Taxations • Finance and Infrastructure • Workers and Labour Markets

13. BEYOND THE BASICS • Selective interventions – approach with care (State Inc.!!) • Sequencing of reforms • Special policy privileges to targeted groups • International rules and standards- many tradeoffs • Bilateral and multilateral investment treaties • Enhancing credibility, harmonising rules and standards, and addressing international spillovers

14. THE ROLE OF INTERNATIONAL COMMUNITY • Removing distortions in developed countries • Provide more, and more effective assistance • Development assistance for investment climate improvement • Support provided directly to firms and transactions • Tackling the substantial knowledge agenda