Sustainable FDI in Asia Challenges and Opportunities International Conference on Sustainable Investm

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Sustainable FDI in AsiaChallenges and
OpportunitiesInternational Conference on
Sustainable Investment in ASEANBangkok, 7 March
2002

• Maryanne Grieg-Gran
• International Institute for Environment and
  Development

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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

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FDI Inflows ASEAN (USmn)
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Distribution of FDI Flows 2000
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FDI Inflows as of GDP 1999
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Origin of FDI Inflows to China 2000
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Origin of FDI to Thailand 1996/7
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FDI Stocks in Asia by Sector
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Top Sectors for FDI in Asia

• Indonesia (1995-1999)
• chemicals, electricity/gas/water, paper
• China (2000)
• Fastest growing sectors electronics/telecommunica
  tion equipment and chemicals
• Thailand (2000)
• chemicals and paper, agricultural products,
  electric and electronic products

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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)
• gtEUR 5 bn in 2000 export guarantee cover to Asia
• EUR 14 bn in investment insurance worldwide
  -China one of 5 major focus countries

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European DFIs Commitments in Asia

• DEG (Germany)
• EUR 903mn in Asia/Oceania by end of 2000
• Indonesia, India, Philippines
• CDC (UK)
• US348 mn in South Asia and Asia Pacific
• FMO (Netherlands)
• ca. US400mn at end of 1998
• Philippines, Indonesia, Pakistan

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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

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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

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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

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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

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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

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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

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Challenges in Assessing Sustainability of FDI

• Establishing standards
• International versus local standardsassumption
  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
• gt440,000 foreign affiliates in S, E and S Asia
• EU has 33,249 parent companies with foreign
  affiliates
• Reliance on information supplied by the company

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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

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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

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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