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Maryanne Grieg-Gran International Institute for Environment and Development

Sustainable FDI in Asia Challenges 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

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Maryanne Grieg-Gran International Institute for Environment and Development

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  1. Sustainable FDI in AsiaChallenges and OpportunitiesInternational Conference on Sustainable Investment in ASEANBangkok, 7 March 2002 Maryanne Grieg-Gran International Institute for Environment and Development

  2. 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

  3. FDI Inflows ASEAN (US$mn) Source: UNCTAD World Investment Report 2001

  4. Distribution of FDI Flows 2000 Source: UNCTAD World Investment Report 2001

  5. FDI Inflows as % of GDP 1999 Source:UNCTAD World Investment Report 2001

  6. Origin of FDI Inflows to China 2000 China Investment Report 2000

  7. Origin of FDI to Thailand 1996/7 Source: A Bende-Nabende and J.R. Slater 1999

  8. FDI Stocks in Asia by Sector Source:UNCTAD World Investment Report 2001

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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”

  18. 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

  19. 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

  20. 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

  21. 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

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