sustainable fdi in asia challenges and opportunities international conference on sustainable...
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Sustainable FDI in AsiaChallenges and Opportunities
International Conference on Sustainable Investment in ASEAN
Bangkok, 7 March 2002
Maryanne Grieg-Gran International Institute for Environment and
Development
Recent FDI Trends 2001
• Inflows to Asia down 13% from $144bn to $125bn
• FDI to China and India increased
• FDI to Taiwan and Thailand stable
• Decline in FDI to Hong Kong, Korea, Philippines and Malaysia
• Divestment in Indonesia continues
Source: UNCTAD World Investment Report 2001
FDI Inflows ASEAN (US$mn)
-10000
-5000
0
5000
10000
15000
Indo
nesia
Mala
ysia
Philipp
ines
Thail
and
Singap
ore
1996
1997
1998
1999
2000
Source: UNCTAD World Investment Report 2001
Distribution of FDI Flows 2000
Hong Kong/China
Republic of Korea
Singapore
Malaysia
Taiw an
Thailand
Other Asian countries
Source:UNCTAD World Investment Report 2001
FDI Inflows as % of GDP 1999
-20%
0%
20%
40%
60%
80%
HongK
ong
China
Mala
ysia
Philipp
ines
Thail
and
Indo
nesia In
dia
Cambo
dia
Source: A Bende-Nabende and J.R. Slater 1999
Origin of FDI to Thailand 1996/7
Europe
US
Japan
AsianNIES
Other
Source:UNCTAD World Investment Report 2001
FDI Stocks in Asia by Sector
0%10%20%
30%40%50%60%
70%80%
Primary Secondary Tertiary
1988
1999
Top Sectors for FDI in Asia
• Indonesia (1995-1999)– chemicals, electricity/gas/water, paper
• China (2000)– Fastest growing sectors electronics/telecommunication
equipment and chemicals
• Thailand (2000) – chemicals and paper, agricultural products, electric and
electronic products
ECAs in Asia
• ECGD (UK) 2000/01– 25% of total exposure of EUR 41 bn is in China,
Indonesia,Hong Kong, and Malaysia
– EUR 500 mn of overseas investment insurance in Asia (Indonesia and Philippines
• Hermes (Germany) – >EUR 5 bn in 2000 export guarantee cover to Asia
– EUR 14 bn in investment insurance worldwide -China one of 5 major focus countries
European DFIs Commitments in Asia
• DEG (Germany)– EUR 903mn in Asia/Oceania by end of 2000– Indonesia, India, Philippines
• CDC (UK)– US$348 mn in South Asia and Asia Pacific
• FMO (Netherlands)– ca. US$400mn at end of 1998– Philippines, Indonesia, Pakistan
Potential Benefits of FDI
• Economic – Growth, technology transfer, foreign exchange, tax
revenue, access to expertise and markets, spillovers, stability
• Social– Employment, poverty reduction, capacity building
• Environmental– Clean technology, efficient resource use, strict
environmental standards
Potential Disbenefits of FDI
• Economic– High reliance on imports, minimal linkages, crowding
out of local enterprises, competition on incentives, rent-seeking and corruption leading to inefficiency
• Social– Use of expatriate staff, accentuation of inequality,
impacts on local community, poor working conditions
• Environmental– Race to the bottom on standards, off-loading of old
dirty technology
What is Sustainable Investment?
Investment that:
• Generates a competitive financial return for investors
AND
• Contributes to national and local economy
• Brings social benefits and reduces poverty
• Is environmentally sound
Key Factors for Sustainable FDI
• Host country policies
• Market pressures and opportunities
• Company philosophy and visibility
• Investor/finance pressure and opportunities
• Home country policies
• International initiatives
The Opportunities: The Business Case for Sustainable Investment
• Cost advantages– Eg clean technology is more efficient; good working
conditions means higher productivity
• Market advantages– Eg: Means of product differentiation; price premiums,
tapping new markets in the “survival economy”
• Reputation advantages– Social licence to operate
Challenges for Sustainable Investment
• Fending off competition from “free riders”– Requires policy coordination
• Financing public goods – Innovative approaches needed
• Dealing with long gestation periods
• Going beyond “safe projects”
Challenges in Assessing Sustainability of FDI
• Establishing standards – International versus local standards:assumption that
compliance with local legislation not sufficient or practical
– One-size fits all approach not appropriate– Need for wide stakeholder consultation
• Obtaining Information to assess FDI– >440,000 foreign affiliates in S, E and S Asia– EU has 33,249 parent companies with foreign affiliates– Reliance on information supplied by the company
Challenges for Assessing Sustainability (2)
• Assessing supply chains – monitoring codes of conduct eg apparel codes
• Assessing the indirect impact of FDI– eg impact of FDI in the finance sector
• Addressing long-term and uncertain impacts– eg in mining
Information Tools
• Certification (eg FSC, SA8000)– Proliferation of schemes causes confusion
– May not be appropriate for smaller producers
• Environmental management systems – ISO 14000 increasing takeup in Asia but lacks
credibility as not performance-related.
• Environmental and Social audits – problems of interpretation where no widely accepted
standards eg workplace standards
Conclusions
• FDI has an important role to play in sustainable development in Asia
• Sustainable FDI can involve win-wins – but this is not always automatic
• Action is needed from various stakeholders in FDI to overcome the barriers– To create an investment climate which incentivises
sustainable FDI
– To address definition of sustainability standards