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Regions and Countries Regional Cooperation Regional Cooperation Initiatives Greater Mekong Subregion Publications Proceedings of Ministerial, Forum, and Working Group Meetings Second Meeting of the Subregional Ivestment Working Group (SIWG-2)
Second Meeting of the Subregional Investment Working Group (SIWG-2)IntroductionThe first meeting of the Subregional Investment Working Group (SIWG) of the GMS countries was held in December 1995. It was organized by the Asian Development Bank (ADB) in collaboration with the Foreign Investment Advisory Service (FIAS), and hosted by Thailand's Board of Investment (BOI). The objective of the Meeting was to establish the Subregional Investment Working Group (SIWG) to provide a long-term vehicle for cooperation in identifying and addressing investment-related issues. The Meeting accepted three broad themes as the organizing framework for the Subregional Investment Working Group - investment promotion, investment facilitation and regulatory framework. Within this framework, the Meeting also noted the need to strengthen the domestic investment environment and the importance of the private sector. Since the December 1995 Meeting, economic conditions in the region have worsened with the onset of the financial crisis in 1997. This crisis has changed the basic assumptions for attracting investments into the GMS countries. The GMS member countries will now require closer co-ordination and a strong effort to reverse the capital flight that has occurred during the crisis. It will also require the creation and effective promotion of an investor friendly environment to exploit the natural synergies that exist in the subregion, especially for investments along its proposed economic corridors. The GMS member countries, while recognizing the unique characteristics and needs of each country, will now need to have an effective joint strategy to attract investments to the subregion in a difficult regional economic environment. An increased focus on, and understanding of, the role of the private sector will also be necessary in stimulating inward investments to the GMS. In undertaking the above, it is important to ensure complementarity with other forums, in particular, ASEAN/AFTA. Five of the GMS member countries are members of ASEAN and many ASEAN-related initiatives have already been agreed amongst them. Hence, it is important for the GMS programmes to be aligned to some of these wider ASEAN initiatives. This report sets out a proposed work program for the SIWG based on the meeting in 1995, subsequent discussions at the preparatory workshop held in March 1999, and through consultations among all the GMS member countries and the Asian Development Bank over the last few months. The principal terms of reference of the SIWG, spelt out in its first meeting in 1995, include the following:
Each of these three terms of reference is now developed into an operational work program. In implementing this program the SIWG will take into account the different characteristics, conditions and capabilities in each of the member countries. Investment PromotionA key element of interest to all the GMS member countries is the need for a concerted effort in investment promotion. Each country has tried, in its own fashion, to foster greater foreign investment through unilateral efforts with varying degrees of success. The GMS countries have also jointly undertaken general promotional missions within the framework of the ADB-facilitated GMS Programme, e.g. to Japan, Korea and Europe. These efforts must now be consolidated and developed to be consistent with the changing regional investment environment, so that higher visibility can be achieved in the funding markets. Several concerns need to be addressed in creating an effective common platform from which strategies for investment promotion can be designed and implemented. The essential purpose is to employ low cost but high impact approaches for investment promotion. The key issue in the context of cooperative investment promotion is to clearly identify the products which are to be promoted, the target markets in which the products are to be promoted, and the strategy for marketing the identified products in specific markets. The products to be promoted include both the GMS subregion, as well as specific investment opportunities within the subregion, including the planned economic corridors. In this context it is noted with the progressive removal of tariff and non-tariff barriers, the six countries of the subregion are emerging as a vast common market for any investment in any one of the six GMS countries. The potential investors to be targeted for attracting investment could be from among the GMS countries themselves, from other Asian countries, as well as from Europe and America. The investors could be both corporations investing in FDI, as well as financial investors. The marketing strategy will have to match business opportunities with the source, and develop detailed marketing plans, which use cost effective marketing channels, e.g., seminars at ADB Annual Meetings, GMS Ministerial Meetings and trade/industry fairs in individual countries, websites, information bulletins and brochures, videos, and the like. In this context the GMS countries could also take advantage of venues such as the GMS business workshops at the BOI Fair 2000 to be held in Thailand in February next year. An important element for all the GMS member countries is the need for institutional capacity building in investment promotion. In this context, an area in which the SIWG will focus its attention is the identification, selection and implementation of appropriate training and other technical assistance programs to strengthen promotional capacity. The types of training required will include database and web site management, design of promotional literature, dissemination strategies, trade fair and workshop logistics, language and people-handling skills, among others. Investment FacilitationAnother major goal of the SIWG is investment facilitation. This includes the rationalization of the institutional arrangement for investment regulation in each country, improved cooperation amongst the concerned agencies in each country and amongst countries, and networking. There is a distinct need to have better interaction between the private and public sectors in this process, and also a transparent decision-making system that ensures a level playing field. These are important ingredients for ensuring credibility in the facilitation process. A basic element for supporting investment facilitation is improvement in the investment-related information produced by each of the GMS member countries. Among other things, this would include: · Investment data collection, consistency and dissemination · Investment classification and creation of an investment database · Timely and updated exchange of investment information · Dissemination of investment regulations, incentives, approval policies and procedures · Information on location specific or spatial distribution of investments within the subregion A second, pivotal, concern is the need to fast-track GMS-related investment proposals and projects, consistent with the existing legal framework of each participating country. This will require improved institutional structures and procedures, e.g., · Effective operation of "One-stop shops" for investment promotion and facilitation in each country. · Simplification of investment procedures · Special dispensation and faster approval procedures for GMS-related investment projects, including 'economic corridor' projects. · Linking GMS investment services and approvals, i.e. from pre-investment services to in-process facilitation Investment facilitation will also require substantial institutional capacity building at various levels, similar to that which will be required for investment promotion. The capacity building effort should include: · Training, including technical skills, for implementing an investor friendly environment · Adapting 'best practice' elements for 'one-stop shop' processes and procedures · Sharing of experience in investment facilitation among GMS countries · Organizational strengthening including rationalization of authority levels and decision structures for investment facilitation Improvement of the Regulatory FrameworkSubregional investment promotion and facilitation can only succeed if the regulatory framework is appropriate. Moreover, many of the projects that may eventually be promoted within the GMS will have significant transborder elements, including distribution along economic corridors. For this reason, there has to be consistency of related approval and regulatory procedures. One potentially important, if complex, area of cooperation relates to the existing set of incentives used by the GMS countries to attract foreign investors. Although each country has its own unique needs and conditions, it is important to recognize the potential gains from cooperation in providing a consistent subregional investment environment to investors who are more demanding in scrutinizing both locations and projects in the present regional economic environment. More generally, it is important to recognize the limited role of incentives in attracting investment. Analysis of investor attitudes and behavior has consistently shown that investors are attracted not by incentives alone but also by factors such as political stability, transparency of regulations and procedures, access to markets, competitive land and labor costs, and good infrastructure. Incentive competition among GMS countries may also result in significant revenue loss for each country, without any net gain in investment flows. It is, therefore, in the interests of the GMS member countries to review and compare the regulatory framework and incentive structure that exists in each member country. Cooperative efforts at improvement of the regulatory framework would entail the following:
In considering the various investment incentives and guarantees that are being implemented by the GMS member countries, it will also be necessary to understand the many schemes and procedures that are being introduced or implemented though the ASEAN Investment Area Agreement (AIA) since five of the GMS countries are members of ASEAN. The AIA sets out a framework for promoting and facilitating investments within ASEAN. It also has a schedule of priority sectors for the different countries. The GMS countries should be cognizant of these sectors, and the AIA framework of cooperation, so that there is less duplication of efforts wherever possible, and also identify areas of interest that can be implemented at a faster pace. Proposed Workprogram for the SIWGSIWG, in its deliberations, has identified six key tasks and proposed the following priority for implementing them :- Table 1. Prioritized List of Projects 1. Building institutional capacity for investment promotion and facilitation in the GMS 2. Improving the information architecture for investment facilitation 3. Support for the GMS Business Forum 4. Strengthening the regulatory and incentive structure in the GMS countries 5. Design and implementation of an investment cooperation mechanism in the GMS 6. Design and implementation of fast-track approval procedures The work program will initially focus on the overall institutional capacity building tasks in both investment promotion and facilitation. Within this context there will be technical skills training; adaptation of best practice elements; organizational strengthening; design, development and dissemination of promotional literature, electronic information dissemination and web page maintenance. Overriding all these specialized skills creation will be the need for language capabilities. The main tasks in connection with this broad theme will include:-
Another important activity would be improvement in the collection, processing and dissemination of investment-related information for investment facilitation. This involves standardization of investment data collection, formats of data, consistency and timeliness of data flow. It will also involve analysis of important parameters related to investment facilitation such as location of different industries, sector requirements, investment policies and procedures in the GMS countries, and the like. In this effort SIWG will draw upon other ongoing initiatives in this field. The main tasks in this area will include the following:-
An important issue related to the work program is the design and implementation of an appropriate structure for engaging and sustaining the involvement of the private sector. This may require support in strategic planning for the chambers of commerce, staff development, technology acquisition and an institutional base amongst the various chambers for information sharing, networking and interfacing with public sector agencies and foreign investors. At a higher level, it will be necessary to link the chambers of commerce, financial institutions and other business services within the GMS Business Forum so that salient interests can be addressed jointly between the private and public sectors. This will allow the formation, over time, of an important channel for communications between governments and the private sector within the GMS. The joint Chamber must also be provided with the means and wherewithal to maintain, update and disseminate crucial information on the GMS, its projects, and the marketing strategy for investments. This will include the following important tasks:-
Just as important as the previous task is the review of the regulatory framework and incentive structure. This then has to be compared with the AIA workplan and coordinated with ASEAN so that duplication of efforts can be reduced, and gaps overcome. The key tasks in this area include:- Addressing the above functional concerns should facilitate the establishment of a mechanism for sustained cooperation in investment promotion. The various tasks within this broad category include:-
Finally, SIWG will promote the design and implementation of fast-track approval procedures for GMS-related investments. Among the various tasks involved in this area will be the task of linking with different 'one-stop shops', economic corridor dispensations and linkages between GMS services and approvals. A set of project concepts, based on the SIWG Work Program outlined above, is included in the Appendix. The SIWG will continue to seek investments from various sources during the implementation of different tasks in the Work Program. This will ensure that investment promotion and facilitation efforts continue to build on these tasks even as they are being designed and implemented. ConclusionThe agenda and work program that have been proposed in this report require a firm commitment from member countries and a willingness to seek mutually acceptable solutions wherever possible. Another important facet of attracting investments is the interaction and close relationship with trade facilitation. Facilitating investments within the GMS and economic corridors will also entail the facilitation of trade, including intra-firm trade to some extent. At the same time, trade facilitation in the subregion will give a strong stimulus to investment in the subregion. There is also the concern that trade liberalization may have a conflicting impact on investment promotion. Thus, in designing appropriate investment incentives and procedures, the inter-relationship with trade flows across borders will also be considered. The agenda and work plan that have been proposed in this report are not complex but require dedicated effort for fruition. The need for SIWG is to focus on a few low cost, high impact projects that can be implemented quickly. The demonstration effects of the early success of some of these activities can lead to the adoption of a wider range of activities as the program proceeds. The SIWG requested the Asian Development Bank to support technical assistance for implementing its work program, and also invited other agencies to support different components of the program. The Asian Development Bank offered financial support for the project on capacity building. UNIDO indicated that they would also support this effort. It was also agreed that Thailand would act as the focal point for the project on improving the information architecture. Along with the People's Republic of China, Thailand will take the initiative in designing an action plan. The SIWG reiterated the earlier Ministerial mandate to ADB to activate the GMS Business Forum, along with ESCAP as the cooperating agency. It was also agreed that among the GMS countries Lao PDR would be the initial focal point for this activity. The People's Republic of China indicated that it would take an active part in all the three priority projects discussed earlier and that it would set aside some financial resources for this purpose.
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