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.”

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

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

GOVERNMENT POLICIES Cost of doing business Risks Barriers to competition & entry Taxes Public goods Infrastructure Market failures 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 GOVERNMENT POLICIES AND INVESTMENT CLIMATE

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) IndonesiaPhilipinesMallaysia 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 LaosMalaysia Singapore Vietnam Starting a Business Days Procedures Enforcing a contract Days Procedures Registering Property Days Procedures Transparency of Govt Policy

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