The three-day ADBI-OECD Roundtable on “Asia's Policy Framework for Investment: Investing in a Stronger, Cleaner, and Fairer Asian Economy” was held at the Asian Development Bank Institute, from 6 to 8 April 2010. Strong domestic and foreign investment has been a key element in developing Asia's impressive record in economic development and poverty reduction. The main objective of this roundtable was to discuss how, looking ahead, investment can play a leading role in "rebalancing growth" toward greater reliance on domestic and regional demand, and in making growth “greener” and more inclusive.
The first session dealt with trends and the outlook for investment in Asia. Foreign direct investment (FDI) in the People's Republic of China (PRC) has been an important driver of its export-oriented growth. The PRC is now reorienting its FDI policies to emphasize quality more than quantity, the services sector rather than labor-intensive exports, and technology transfer. This will contribute to rebalancing growth. Japan's New Growth Strategy includes an objective of increasing inward investment. Hong Kong, China is Asia's second largest recipient of FDI as well as being the region's second largest outward investor. Its close integration with the PRC will likely increase along with investments in infrastructure like the Hong Kong, China-Zhuhai-Macao Bridge and the Guangzhou-Shenzhen-Hong Kong, China rail link. More generally, developing Asia should continue to attract great investor interest, as following the global financial crisis its position as global growth center will be relatively strengthened. It would be desirable however to facilitate greater investment of Asia's own financial resources within the region.
The OECD's Policy Framework for Investment (PFI) was the focus of the second session. Its objective is to help countries identify obstacles to investment in a coherent manner, formulate sound policies and governance structures to address these obstacles, and enable effective implementation and monitoring of policy reforms. The PFI has been used by many countries including Cambodia, India, Indonesia, PRC and Viet Nam. It has become a powerful framework for guiding the Government of Indonesia in improving the investment climate by better certainty and clarity of investment regulation, easier investment approval and facilities, and greater ease of doing business. The PFI assessment of Viet Nam helped it improve its legal and regulatory environment, better coordinate the work of central and provincial authorities, and make more efficient use of investment incentives.
The third session addressed the role of investment in recovery from the crisis. The greatest potential threat to recovery from the global financial crisis is protectionism. Even though protectionism has been largely contained thanks to the cooperation and collaboration of major governments, we must remain cautious. The financial and economic crisis has now turned into a jobs crisis. And if the jobs market does not improve, domestic pressures for protectionist policies will rise. The best way to deal with this threat is through effective cooperation and collaboration among governments and between governments and stakeholders such as business and labor. It was also argued that while shifting to domestic demand growth was important, it should be “solvent demand” based on wage growth and social security, not based on debt and financial credit expansion. The crisis has demonstrated the need for more responsible business conduct and better corporate governance. Multilateral organizations could also help the poorer countries recover from the crisis by facilitating investment such as by building infrastructure.
Investment for inclusive growth, that is, creating economic opportunities and ensuring equal access to them, was the theme of the fourth session. The Indonesian government has worked actively to improve the investment climate, including through combating corruption and improving homeland security. Pakistan is seeking to boost investment in infrastructure, manufacturing and agri-business by a reform agenda covering tariffs, financial markets, taxation and public institutions. To fulfill Mongolia's growth potential, the government is seeking to attract FDI into the country's vast mineral deposits through a transparent and stable legal environment for investors. Singapore's strategy has gone through several phases: export-oriented industrialization; industrial restructuring, capacity building and economic diversification; and working towards a knowledge economy. Going forward it is seeking to strengthen its role as a “Global-Asia” hub to connect global and regional businesses, especially for infrastructure and green growth.
The fifth session discussed issues related to investment for green growth in Asia. There is now a global recognition of the need to act quickly and effectively towards a low carbon economy. As many businesses faces challenges in this regard, the OECD is analyzing business practices in support of a low carbon future in the areas of emissions accounting, emissions reduction and engagement with stakeholders. Enterprises like Mitsubishi Heavy Industries Ltd are employing sustainable energy infrastructure like solar thermal gas turbines, wind turbines, geothermal power plants, clean coal, CO2 recovery, nuclear power, diesel/gas engine power plant, hybrid ecological energy systems, lithium ion batteries and sea water desalination technology. The Japanese steel industry has achieved concrete progress towards the adoption of a global sectoral approach. Keidanren's Action Plan on the Environment is a self-regulatory program with the target of reducing CO2 emissions from industrial and energy converting industries for the average of the period 2008-2012 below their 1990 level.
The PRC is engaging the private sector in support of a low carbon economy by encouraging investment in renewable energy, energy efficiency and conservation, as well as voluntary actions to reduce greenhouse gas emissions. The Japan Bank for International Cooperation is contributing by scaling up low carbon investment through public-private financial partnerships. Korea, which relies on imports for 97 per cent of its energy needs, is promoting green investment as part of its low carbon green growth initiative. Hyundai-Kia has a well developed green car strategy which started with the core technology development, and then hybrid mass production, and it is now expanding its green car line-up. The Carbon Disclosure Project, a not-for-profit organization, provides the global standard for measurement and reporting of climate change information. It aims to identify corporate best practices on promoting energy efficiency and renewable energy, including tracking energy usage and strategies for reduction in PRC, Brazil, India and South Africa, and then distil that practice into concrete usable data in a form that supports public policy makers and regulators.
The sixth session treated investment in infrastructure for a seamless Asia. The ADBI publication “Infrastructure for a Seamless Asia” argues that Asia needs to invest about US$750 billion per year on average in infrastructure (both national and regional) during the period 2010-2020 in order to exploit Asia's enormous untapped economic potential. The Japan International Cooperation Agency is working to build a seamless Asia through several projects like the Asian Highway, a dedicated freight corridor project in India, and several corridors in the Greater Mekong Subregion. The OECD has elaborated a Checklist for Public Action for private sector participation in water infrastructure covering: (i) the nature and modalities of private sector participation; (ii) the enabling institutional environment; (iii) developing goals, strategies and capacities at all levels of government; (iv) making public-private co-operation work in the public interest; and (iv) encouraging responsible business conduct.
Participants concluded that investment can indeed play a leading role in "rebalancing growth" toward greater reliance on domestic and regional demand, and in making growth “greener” and more inclusive. But it is critical for investment policy frameworks to abide by the following principles: policy coherence, non-discrimination, transparency, accountability and regular evaluation.