A BETTER INVESTMENT CLIMATE by Dr Chee Kim

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

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

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

GOVERNMENT-BUSINESS PARTNERSHIP IN DEVELOPMENT Business Development Actors Rural Micro-entrepreneurs Productive Investment Local manufacturing firms Job Creation C r e Business a Expansion t e Multi-national enterprises G Actions Favourable Investment Climate Impacts Economic Growth Poverty Reduction Investment in people and Empowerment Government’s Roles

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

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

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)

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

Investment Climate Indicators Cambodia Laos Malaysia Singapore Vietnam Starting a Business Days 94 Procedures 11 198 9 30 9 8 7 63 12 Enforcing a contract Days 585 Procedures 58 443 53 300 31 69 23 404 37 Registering Property Days 56 Procedures 7 135 9 143 4 9 3 78 5 6. 2 4. 3 Transparency of Govt Policy 2. 8 5

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

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

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

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

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