Asia Pacific Investment Climate Index by

VRIENS & PARTNERS

2014

VRIENS & PARTNERS PTE LTD

Asia Pacific Investment Climate Index | 2014 About the Asia Pacific Investment Climate Index Summary 2014 Results

2 3 7

1.

Singapore

2.

New Zealand

3.

Hong Kong

4.

Australia

5.

Brunei

6.

Taiwan

7.

Japan

8.

South Korea

9.

Malaysia

10.

Thailand

11.

China

12.

Philippines

13.

Vietnam

14.

Cambodia

15.

Indonesia

16.

Sri Lanka

17.

India

18.

Laos

19.

Myanmar

20.

Bangladesh

8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Results of the 6 Pillars I.

Rule of Law

II.

Openness to International Trade & Business

III.

Political Stability

IV.

Taxation

V.

Corruption

VI.

Fiscal & Monetary Administration

Acknowledgements Annex A: Methodology Annex B: External Sources

29 30 31 32 33 34 35 36 37

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Country Reports

1

Asia Pacific Investment Climate Index | 2014 The Asia Pacific Investment Climate Index is the only publication that examines the relationship between political and economic governance and foreign direct investment across the region. The Index evaluates and ranks 20 Asia Pacific countries according to six criteria: Rule of Law, Openness to International Trade & Business, Taxation, Corruption, Political Stability, and Fiscal & Monetary Administration. The rankings of the Asia Pacific Investment Climate Index are calculated according to assessments from Vriens & Partners extensive on-the-ground network of experts, surveys of executives from leading multinational firms, and data from well-known third-party reports. V&P surveyed over 200 corporate leaders and policy experts and conducted dozens of face to face interviews with business executives. As investor interest in the Asia Pacific soars, the Asia Pacific Investment Climate Index serves as a reference to help readers understand and evaluate the region’s political and economic dynamics. Aside from aiding international investors in their decision making, the data from this index can help policymakers identify areas for improvement to increase the competiveness of their countries and attract higher quality foreign investment to catalyse development and transform their economies.

Rule of Law

Rule of Law for international business is based upon measures of judicial independence from public and private influence, the protection of property rights, the effectiveness of contract enforcement, and the capacity of the legal system to settle business disputes.

II.

Openness to International Trade & Business

Openness to International Trade & Business relates to government attitudes towards international businesses entering and operating in domestic markets. Consideration is given to the treatment of international investors (including dual regulatory regimes, incentives etc.), the treatment of international acquisitions, capital controls, and the openness of the economy to foreign goods and services.

III.

Political Stability

Political Stability relates to the chances of drastic changes in government and policy occurring, as well as the possibility of violence and/or terrorism, in terms of how they might impact business and the nature of investment. Consideration is given to a government’s policy of security for the investment climate, stability of government, and the likelihood of a rapid reversal of progress made.

IV.

Taxation

Taxation assesses the tax environment in terms of the administrative transparency and efficiency in tax collection, along with local taxation rates – particularly the corporate tax rate.

Corruption

Corruption assesses perceptions of the abuse of entrusted power for personal gain in the public and private sectors, including both petty and grand forms of corruption. This pillar also takes into account government measures taken to address corruption.

Fiscal & Monetary Administration

Fiscal & Monetary Administration assesses the management of state finances and monetary regulation that encourage economic growth and stability. It provides an assessment of both inflation and price controls which distort market activity, as well as a measurement of the stability of the macroeconomic environment by assessing government budget balance, national savings rate, and the country credit rating.

I.

V.

VI.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

The 6 Pillars

2

Summary

Overall, the relative consistency in the rankings from 2013 to 2014 reveals that high profile political events have not significantly altered the climate for foreign investment in the short term. Gains in openness to international trade & business, fiscal & monetary administration, and rule of law have largely offset losses in political stability in some markets. These gains in openness are largely driven by greater economic integration through participation in bilateral and multilateral trade and investment agreements. Three notable trade agreements are creating momentum around regional integration and broad improvements in openness to international trade & business: ASEAN Economic Community (AEC), Trans Pacific Partnership (TPP), and Regional Comprehensive Economic Partnership (RCEP). The AEC aims to transform ASEAN into a single market and production base with free movement of goods, services, investment, skilled labor, and freer flow of capital. TPP aims to be a high quality preferential trade agreement with few exemptions and extensive regulatory alignment in areas such as labour law, environmental protection and intellectual property rights. The RCEP, on the other hand, accepts that countries will reduce trade barriers at different rates—especially among less developed members— and also makes limited demands for regulatory harmonisation. Top 5 The top five countries in the rankings are signatories of both RCEP and TPP. Singapore (1st) tops this year’s rankings and scores consistently high across all six pillars. Hong Kong (3rd) continues to score strong on openness to international trade & business, and trade is rapidly expanding with ASEAN. Yet, further economic liberalization in China may challenge Hong Kong’s regional dominance as manufacturers and businesses bypass Hong Kong and head directly to the mainland.

Rounding out the top five rankings, Brunei (5th) is actively liberalizing the regulatory and tax regime to facilitate diversified growth beyond oil and gas. Recent policies seek to transition to a more knowledge-based economy. Southeast Asia The largely unchanging scores of the Southeast Asian countries demonstrate that regardless of domestic unrest and political instability, particularly in Thailand, Cambodia, and Myanmar, the countries are increasingly open to foreign investment, with the exception of Indonesia. Despite political instability in Thailand (10th) and Cambodia (14th), both countries’ investment climates remain relatively stable as political actors across the spectrum recognize the role of foreign investment in driving economic growth. While Thailand’s taxation has notably improved with the recent lowering of corporate taxes, the political crisis has distracted leaders from focusing on EU-FTA and TPP negotiations and prevented further improvements in the investment climate. As this year’s Chair of ASEAN, Myanmar (19th) continues to improve openness to international trade & business and rule of law. Myanmar has liberalized several sectors since the passage of the 2012 Foreign Investment Law, and the recent passage of the Central Bank Law opens the financial sector for development. Ahead of the 2015 presidential election, the government is anxious to show real economic and social progress. While there will be momentum toward reforms that continue to favour foreign investors, there will also be a growing focus on domestic preparations for the upcoming poll. Against the backdrop of China’s growing assertiveness over disputed territory in the South China Sea, the Philippines (12th) and Vietnam (13th) are increasingly open to foreign investment from outside the region. The Philippines continues to attract record levels of

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

In this year’s Asia Pacific Investment Climate Index, Indonesia tumbled to fifteenth due to the enactment of several protectionist regulations. In contrast, improvements in rule of law, openness to international trade & business, and political stability boosted Vietnam to thirteenth. Singapore retained the top spot while New Zealand unseated Hong Kong for second place. As a group, the Southeast Asian economies are attracting record levels of FDI as the region increasingly opens to foreign investment ahead of the implementation of the ASEAN Economic Community (AEC) by 2015.

While New Zealand (2nd) and Australia (4th) offer efficient regulatory environments and clear rule of law, they diverge on fiscal & monetary administration. This year, New Zealand surpassed Hong Kong in the rankings, largely due to impressive gains in fiscal & monetary administration, underpinned by rising global dairy prices, growing demand from China, and record manufacturing volumes. In contrast, Australia’s fiscal & monetary administration score continued to decline amid a slowdown in the Chinaled mining boom. The overvalued currency is straining manufacturers, which blame the exchange rate for poor results, job cuts, and offshoring.

3

th

Indonesia (15 ) descended in this year’s rankings. Despite Indonesia’s self-perceived natural role as the leader of ASEAN, the country’s increasingly protectionist policies threaten to delay implementation of the ASEAN Economic Community. In the past months, the government has implemented a series of protectionist regulations intended to develop local production and value-added industry. Laos’ (18th) sustained high economic growth rates and increased foreign investment over the past decade have enabled it to achieve significant progress in becoming something of a market economy. But the government’s recent acknowledgements that it is facing an economic crisis-in-the-making, coupled with its consistent lack of respect for rule of law, has ensured Laos’ low ranking in this year’s index. In Southeast Asia, behind the border issues, such as domestic political instability and entrenched interests, need to be resolved to drive greater integration. Yet, rising foreign direct investment into the region will likely remain a structural trend, given favourable demographics, competitive wages and geopolitical competition between the superpowers, which remain the major investors. Northeast Asia The more mature economies of Northeast Asia are working to remain competitive as the Southeast Asian economies become increasingly attractive production bases. Taiwan (6th) maintained its position through consistent performance across all six pillars. In order to remain competitive as other Asian nations agree to free trade deals with key partners in the US and Europe, Taiwan is developing a network of economic zones in a bid to lure foreign investment and firms from the mainland. Japan’s (7th) score improved as Prime Minister Shinzo Abe continues to pursue an aggressive economic reform agenda, which includes monetary easing,

stimulus spending, and structural reform. The weakening of the yen has helped drive inflation, benefitting exporters but increasing the cost of imports. South Korea’s (8th) score remains steady, and leaders recognize the need to reignite growth industries and develop SMEs. President Park is aiming to curb the dominance of South Korea’s conglomerates by promoting the development of the creative economy through a series of incentives. Furthermore, investors hope that a recently signed trade agreement with the EU and US will help drive competition. China’s (11th) score improved as President Xi Jinping announced an overhaul of economic and social policies and pursues an aggressive anti-corruption campaign. In light of China’s appreciating currency and Southeast Asia’s availability of cheap labor and infrastructure improvements, Xi announced plans to allow competitive, market-based pricing in sectors including water, energy, transport, and telecommunications. South Asia Overall, in the South Asian economies, the investment environment for foreign nationals is failing to keep pace with the progress of regional neighbors. In Sri Lanka (16th), foreign investors find themselves increasingly vulnerable to government interference as more belligerent and protectionist nationalism characterizes President Rajapaksa’s second term. As the government refuses to establish an independent body to check the executive’s power, attempts to restore the independence of the judiciary and police, curb militarization, and ensure accountability for alleged war crimes are weak and ineffective. India’s (17th) foreign investment climate remains on a downward trajectory. Economic mismanagement and weak leadership have produced debts, high inflation and joblessness. Frustration with bureaucracy, corruption, and the opaque regulatory environment caused a series of high-profile withdrawals of foreign investment last year. The upcoming elections have likely heightened the scrutiny of foreign investors as the embattled Congress party strikes an increasingly populist tone to appeal to voters. Bangladesh (20th) remains in last place for the second consecutive year. Bangladesh’s economic growth is limited by low levels of human capital, poor infrastructure, corruption, and cumbersome regulation. Following flawed elections in January, political uncertainty and volatility cloud the outlook for foreign investors.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

FDI, which has doubled since 2011. As the host of the World Economic Forum Asia in May, the Philippines will have an opportunity to showcase its progress, attract further investment, and push for more economic inclusion across Asia Pacific. Vietnam (13th) rose in the rankings in light of renewed industry and diplomatic pressure on Vietnam to properly enforce WTO Commitments across several sectors, and to extract new commitments under TPP and EU FTA agreements currently under negotiation. Malaysia (9th) appears similarly committed to TPP negotiations, despite strong domestic criticism. EU-FTA negotiations are also expected to be resurrected this year.

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Asia Pacific Investment Climate Index | 2014

VI. Fiscal & Monetary Administration

Overall Score

2 3 1 4 10 5 7 8 6 9 13 11 15 12 16 14 19 20 17 18

2 1 5 4 3 7 6 8 11 18 10 13 9 14 17 16 15 12 19 20

1 3 2 10 4 7 11 6 5 8 14 16 15 9 12 19 20 17 18 13

2 1 4 3 7 6 5 8 9 10 11 12 15 18 16 14 13 19 17 20

1 6 3 4 2 7 10 5 9 12 8 11 16 15 13 19 18 14 17 20

89.8 87.1 86.9 80.4 73.5 73.1 72.9 69.5 66.9 57.4 54.6 51.6 47.7 47.3 46.7 44.9 43.7 41.9 39.7 35.7

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

V. Corruption

2 1 4 3 9 6 5 8 7 10 11 12 15 17 16 14 13 19 18 20

IV Taxation

Singapore New Zealand Hong Kong Australia Brunei Taiwan Japan South Korea Malaysia Thailand China Philippines Vietnam Cambodia Indonesia Sri Lanka India Laos Myanmar Bangladesh

III. Political Stability

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Economy

II. Openness to International Trade & Business

Rank

I. Rule of Law

Overall Ranking

5

Asia Pacific Investment Climate Index | 2014

Economy

2011

2012

2013

2014

Singapore New Zealand Hong Kong Australia Brunei Taiwan Japan South Korea Malaysia Thailand China Philippines Vietnam Cambodia Indonesia Sri Lanka India Laos Myanmar Bangladesh

2 3 1 4 n/a 6 5 8 7 9 10 15 14 17 12 13 11 n/a n/a 18

1 3 2 4 n/a 5 6 7 8 10 9 15 12 16 11 14 13 17 19 18

1 3 2 4 5 6 7 8 9 10 11 12 15 14 13 16 17 18 19 20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Cross Yearly Comparison

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1. Singapore – 89.8 Individual Pillar Scores / (Rank) I. Rule of Law

89.9 (2nd)

II. Openness to International Trade & Business

90.5 (2nd)

III. Political Stability

88.8 (2nd)

IV. Taxation

89.0 (1st)

V. Corruption

91.1 (2nd)

VI. Fiscal & Monetary Administration

88.9 (1st) 0

Development Indicators

50

FDI,

100

net

inflows

$60

Population GDP growth (annual %)

5.31 million 1.3 %

2011

$56.6 Billion

$50 $40

GDP per capita

$51,709 $30

current US$

GDP per capita, PPP

$60,800

current international $

FDI

$56.6 billion

net inflows

$20 $10 $0

Singapore tops this year’s rankings for the third consecutive year. Scoring consistently high across all six pillars, Singapore continues to offer a stable political and legal environment and prudent macroeconomic policies that help attract foreign investment.

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investigations involving public servants. The government has also tightened rules on public servants’ visits to casinos.

Singapore’s trade regime remains open and competitive, with few tariffs imposed on imports. Competitive tax rates, a transparent regulatory environment, and an efficient judicial framework further attract foreign investment. The Singapore government continues to aggressively pursue foreign investment, focusing on securing major investments in high value-added manufacturing and service activities. Singapore is also wellpositioned as a base for MNCs keen to tap into the region’s rapidly growing markets.

Singapore’s political environment remains very stable. Political unrest is infrequent and unlikely and politicians across the spectrum are largely probusiness. Singapore’s next General Elections are due by the second quarter of 2016. Since the last election— in which the PAP received its lowest share of votes since independence and conceded an unprecedented six seats to the opposition— the ruling party has adapted its political engagement strategy to become more consultative. The PAP is creating a greater semblance of political participation in response to rising political and social activism and increasing challenges to domestic policies.

Singapore consistently ranks as one of the least corrupt countries in the world. Singapore has robust anti-corruption laws that are actively enforced and cover acts of corruption both within Singapore and those committed by Singaporeans overseas. Recent years have seen the government take swift, firm and public actions to clamp down on a number of high-profile corruption

Emerging from the last elections, the PAP found its liberal immigration policies – meant to attract foreign investment and labour to offset Singapore’s low birthrate – under intense criticism. In response the government has tightened immigration controls in recent years, raising financial barriers to entry for foreign labour, and introducing measures to tackle discriminatory hiring policies.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Source: World Bank World Development Indicators, 2012 UNCTADStat World Investment Report 2013

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2. New Zealand – 87.1 Individual Pillar Scores / (Rank) 91.9 (1st)

I. Rule of Law II. Openness to International Trade & Business

84.5 (3rd)

III. Political Stability

90.3 (1st) 79.6 (3rd)

IV. Taxation

93.0 (1st)

V. Corruption VI. Fiscal & Monetary Administration

78.6 (6th) 0

Development Indicators

50

100

FDI, net inflows $6

Population GDP growth (annual %)

4.43 million 3.0 %

2011

GDP per capita

$37,749 $2

current US$

GDP per capita, PPP

$2.911 Billion

$32,219

current international $

FDI

$4

$2.911 billion

$0

net inflows -$2

2002

2004

2006

2008

2010

2012

New Zealand surpassed Hong Kong in this year’s index due to gains in its fiscal & monetary administration score. New Zealand’s stable macroeconomic environment and effective institutional framework underpin a vibrant economy that attracts international business. Foreign companies benefit from robust legal protections. An independent judicial system supports anti-corruption efforts and promotes transparent and consistent rule of law.

tightening of the labor market poses challenges for companies to meet demand.

New Zealand’s fiscal & monetary administration score improved as the economy gains momentum following recession and the global financial crisis. Rising global dairy prices, growing demand from China, and record manufacturing volumes bolster New Zealand’s economic growth. Strong commodity prices and surging dairy exports to China are expected to help New Zealand return to a budget surplus this year. New Zealand’s growing reliance on exports of milk, butter, and cheese, however, increase its vulnerability to external shocks, particularly in China, and a drop in dairy prices.

While New Zealand retains the top score for political stability, the country will hold general elections in September in a vote that is likely to focus on the National Party’s centre-right economic record. National currently leads a coalition that guarantees it a majority on all financial and confidence issues.

While accelerating economic growth is boosting earnings and driving investor confidence, capacity constraints concern some businesses. The

Surging housing costs are adding to inflation as the rebuilding of Christchurch fuels a construction boom that has also pushed up wages. With inflation pressures mounting, the Reserve Bank of New Zealand raised interest rates from a record low, fuelling gains in the local dollar.

Overall, New Zealand maintains a strong commitment to open-market policies, and the regulatory environment remains one of the most efficient in the region. Foreign investors have no minimum capital requirements, flexible labor regulations, and easy access to financing instruments.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Source: World Bank World Development Indicators, 2012 UNCTADStat World Investment Report 2013

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3. Hong Kong – 86.9 Individual Pillar Scores/ (Rank) I. Rule of Law

86.8 (4th)

II. Openness to International Trade & Business

93.0 (1st)

III. Political Stability

80.7 (5th)

IV. Taxation

88.9 (2nd)

V. Corruption

84.0 (4th)

VI. Fiscal & Monetary Administration

84.6 (3rd) 0

Development Indicators

50

100

FDI, net inflows $120

7.15 million 1.5%

2012

GDP per capita

$36,795 $51,102

current international $

FDI

$80

$74.6 Billion

$60

current US$

GDP per capita, PPP

$100

$74.6 billion

net inflows Source: World Bank World Development Indicators, 2012 UNCTADStat World Investment Report 2013

Hong Kong fell to third in this year’s rankings due to New Zealand’s strengthening score. Hong Kong remains one of the most attractive investment destinations in the Asia Pacific region, although Beijing’s more pronounced influence resulted in lower scores on political stability and rule of law.

$40 $20 $0

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Hong Kong continues to score strong on openness to international trade & business. Trade is rapidly expanding with ASEAN, which has grown to become Hong Kong’s second largest trading partner. Negotiations are underway on a free trade agreement between the two parties.

Hong Kong’s slightly lower score for political stability is partially a reflection of growing friction between Hong Kong and the mainland. Occupy Central, a pro-democracy group, has promised to launch a civil disobedience campaign if Beijing backtracks on its promise of direct, free and fair elections of the chief executive in the next election. Pro-business groups have condemned Occupy Central as a chaotic movement that threatens to disrupt market stability.

Yet, further economic liberalization in China may challenge Hong Kong’s regional dominance as an international financial hub. Hong Kong’s function as China’s connection to the outside world is diminishing, particularly with the recent opening of the Shanghai Free Trade Zone. Furthermore, the robust development of China’s southern port cities have encouraged many businesses to increasingly bypass Hong Kong and send cargo directly through the mainland’s manufacturing areas.

China appears to be leveraging its political and economic influence to subdue Hong Kong’s traditionally vibrant media. In March, thousands of residents protested in response to recent attacks on journalists— including an assault on the former chief editor of a major Hong Kong newspaper— that threaten to encroach on Hong Kong’s freedom of speech and other civil liberties.

Public officials have acknowledged the need for new sources of revenue, including potentially widening the tax base, to confront a looming structural deficit problem. Any efforts to raise revenue are bound to be difficult and controversial as Hong Kong aims to retain its competiveness and attractiveness to foreign investors.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Population GDP growth (annual %)

9

4. Australia – 80.4 Individual Pillar Scores / (Rank) I. Rule of Law

88.9 (3rd)

II. Openness to International Trade & Business

82.3 (4th)

III. Political Stability

84.1 (4th)

IV. Taxation

59.5 (10th)

V. Corruption

89.0 (3rd)

VI. Fiscal & Monetary Administration

83.4 (4th) 0

Development Indicators

50

FDI,

100

net

inflows

$80

Population GDP growth (annual %)

22.68 million 3.4 %

2012

$60 $40

GDP per capita

$67,555

current US$

GDP per capita, PPP

$44,597

current international $

FDI

$56.96 billion

56.96 Billion

$20 $0 -$20

net inflows -$40

Australia maintained its fourth place ranking, with slight improvements in political stability offsetting relative weakness in fiscal & monetary administration and taxation. Overall, Australia’s abundance of primary resources, sound regulatory framework, and clear rule of law continue to draw international investment. Political stability improved after an end to the Labour Party’s tumultuous six years in power. In September, the conservative Liberal-National coalition led by Prime Minister Tony Abbott replaced Kevin Rudd of the Labor Party, whose divisive infighting had detracted from measures to address Australia’s slowing economy. Since assuming office, Abbott has pursued a pro-business agenda, including an intention to repeal the previous administration’s controversial emissions trading plan. Australia’s fiscal & monetary administration score continued to decline amid a slowdown in the Chinaled mining boom. The overvalued currency is straining manufacturers, which blame the exchange rate for poor results, job cuts, and offshoring. Automakers, including Ford Motor, are planning to leave Australia after dozens of years of operations due to growing labor costs and competition.

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The country’s taxation score decreased as Australia vastly increased the amount of information that multinationals are required to disclose with their tax returns. In February, the Treasury announced that it would give more consideration to tax schemes prior to granting foreign investment approvals. Treasury has demonstrated a willingness to risk political and industry criticism to reject takeover proposals with tax arrangements that eliminate significant revenue for Australia, such as a USD$3.4 billion bid for Gaincorp by Archer Daniels Midland in November. Although Australia aims to capitalize on growth in the Asia Pacific, politics is straining regional relations. Allegations of Australia spying on Indonesian officials and Abbott’s policy of returning asylum seekers to Indonesia have escalated tensions with the largest ASEAN economy. Rising property prices, in part due to an influx Chinese investment, has further exacerbated xenophobia. As investments in the resources and energy sectors are likely to decline over the medium term, however, Australia will be forced to pursue more sources of capital to sustain growth.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Source: World Bank World Development Indicators, 2012 UNCTADStat World Investment Report 2013

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5. Brunei – 73.5 Individual Pillar Scores / (Rank) I. Rule of Law

62.5 (9th)

II. Openness to International Trade & Business

64.9 (10th)

III. Political Stability

87.9 (3rd)

IV. Taxation

79.3 (4th)

V. Corruption

70.9 (7th)

VI. Fiscal & Monetary Administration

87.8 (2nd) 0

Development Indicators

50

FDI,

100

net

inflows

$2

Population GDP growth (annual %)

0.41 million 2.2 %

$850 Million

2012

GDP per capita

$41,126 $1

current US$

GDP per capita, PPP

$52,482

current international $

FDI

$850 million

net inflows $0

Brunei retains its fifth place ranking in the Index. Under the centuries-old line of monarchical succession, Brunei boasts one of the world’s most stable political climates, which enables strong and consistent macroeconomic growth. Brunei’s strong fiscal environment is bolstered by substantial oil wealth and a currency that is pegged to the Singapore dollar. Per capita income remains one of the highest in the region. Despite scoring tenth in openness to international trade & business, Brunei is actively liberalizing the regulatory and tax regime to facilitate diversified growth beyond oil and gas. Recent policies seek to transition to a more knowledge-based economy, as well as diversify the economy through investments in downstream petrochemicals, tourism, Islamic businesses, and information and communication technology services. Investments in infrastructure, including an expanded international airport, upgraded power transmission lines, Pulau Muara Besar deep water port and industrial zone, and high speed broadband network, are intended to promote investment. The government recently established the Brunei Research Center with the intent to encourage both public and private

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research and development in areas such as energy, environment, food security, healthcare and health services, as well as ICT, to ensure the nation’s long term competitiveness. The country recently reduced the corporate tax rate to 20 percent, and as a member of the Trans Pacific Partnership, Brunei is expected to introduce further reforms to help develop capital markets and streamline procedures for starting businesses. Brunei’s oil wealth funds a bloated public sector, which employs nearly 70 percent of Brunei’s workforce. While the government is mindful of the need for SME growth, reliance on public sector employment limits incentives and opportunities for entrepreneurship and business development in new industries. Rule of law declined slightly in light of Sultan Hassanal Bolkiah announcement last October that Brunei would phase in sharia law punishments such as flogging, severing limbs and death by stoning beginning April 1 2014. The move has sparked a growing outcry on social media, the only outlet for public criticism of authorities in the country.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Source: World Bank World Development Indicators, 2012 UNCTADStat World Investment Report 2013

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6. Taiwan – 73.1 Individual Pillar Scores / (Rank) I. Rule of Law

72.7 (6th)

II. Openness to International Trade & Business

74.6 (5th)

III. Political Stability

75.2 (7th)

IV. Taxation

69.7 (7th)

V. Corruption

71.2 (6th)

VI. Fiscal & Monetary Administration

76.7 (7th) 0

Development Indicators

50

100

FDI, net inflows $10

23.4 million 2.95%

2013

GDP per capita

$21,141 $40,392

current international $

FDI

$3.2 Billion

$6 $4 $2

current US$

GDP per capita, PPP

$8

$ 3.2 billion

net inflows Source: IMF World Economic Outlook Database, 2013 UNCTADStat World Investment Report 2013

Taiwan maintained its position this year through consistent performance across all six pillars. Crossstrait relations with China continue to improve under President Ma Ying Jeou. In February, the head of Taiwan’s Mainland Affairs Council and his mainland Chinese counterpart held the highest level cross-strait talks in six decades. The warming of relations has facilitated stronger economic ties, which have boosted trade and tourism. Competition from China, however, has lured away many of Taiwan’s traditional industries, such as shipbuilding and petrochemicals. At the same time, Taiwanese groups such as HTC and Acer have been overtaken by foreign rivals, such as South Korea’s Samsung and China’s Lenovo. A bigger potential challenge for Taiwan’s longerterm prospects is the need to remain competitive against other Asian nations as they agree to extensive free trade deals with key partners in the US and Europe. In order to remain competitive, Taiwan is aiming to reinvent itself in the style of Hong Kong and Singapore’s free trade ports. Taiwan is developing a network of economic zones in a bid to lure foreign investment and entice firms on the

$0 -$2 -$4

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mainland. Taiwan is constructing a chain of eight zones along the industrialized coastline to attract investors from a range of sectors, in particular agriculture reprocessing, biotech, education, green energy, and logistics. Taiwan’s efforts are attracting a record number of Japanese investors, who are turning to Taiwan to expand as Japan’s economy recovers and tensions with China escalate. Political infighting inhibits Taiwan’s further liberalization and inclusion in bilateral or regional trade agreements. President Ma’s low popularity has hampered his ability to liberalize some of Taiwan’s protected sectors and negotiate a crossstrait goods and services deal with China. Furthermore, an undercurrent of student activism may disrupt Taiwan’s future stability. Due to Beijing’s continued efforts to isolate Taiwan internationally, Taiwan has been largely excluded from regional bilateral free trade agreements and multilateral trade groups. Without the political will to implement more ambitious liberalization, Taiwan will lose pace with its neighbours, particularly Japan, China, and South Korea.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Population GDP growth (annual %)

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7. Japan – 72.9 Individual Pillar Scores / (Rank) I. Rule of Law

82.6 (5th)

II. Openness to International Trade & Business

66.1 (7th)

III. Political Stability

78.8 (6th)

IV. Taxation

56.7 (11th)

V. Corruption

83.9 (5th)

VI. Fiscal & Monetary Administration

69.3 (10th) 0

Development Indicators Population GDP growth (annual %)

50

100

FDI, net inflows 127.56 million 1.9 %

$40 $30

2012

GDP per capita

$46,720

$20

$35,177

$10

1.73 Billion

current US$

GDP per capita, PPP current international $

FDI

$1.73 billion

$0

net inflows

Japan’s score improved in this year’s rankings, with rises in openness to international trade & business, political stability, and fiscal & monetary administration. Fiscal & monetary administration improved as the economy grew at its fastest rate in decades. Prime Minister Shinzo Abe has pursued an aggressive economic reform agenda, which includes monetary easing, stimulus spending, and structural reform. Monetary policies and fiscal spending have reduced deflation as Abe aims to meet his two percent inflation target. The weakening of the yen has helped drive inflation, benefitting exporters but increasing the cost of imports. Openness to international trade & business rose slightly. In order to consolidate recent economic gains, Abe is now implementing structural reform, or targeted deregulation, to raise Japan’s long-term potential growth rate. Abe has indicated his intention to open up tightly regulated industries. Yet, bureaucratic inefficiencies continue to hinder foreign investment. The process of obtaining licenses, construction permits, and

-$10

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approval for land transactions needs to be streamlined. Furthermore, Japan’s high rice tariffs are a difficult negotiating point for the Trans Pacific Partnership and limit the country’s openness. Amid heightened political tensions with China, Japan’s political stability score improved. Following half a decade of leadership transitions, Abe brings welcome stability, but also more aggressive nationalism. Abe reversed decades of military cuts to help offset China’s rapid military build-up. The new five year defense plan calls for the acquisition of drones and amphibious assault vehicles to strengthen the nation’s military as it faces the prospect of a prolonged rivalry with China over islands in the East China Sea. Amid escalating tensions with China, Japan is boosting bilateral ties with neighboring countries. Japan’s 12 billion swap arrangement with Indonesia recently increased to nearly 23 billion, and Japan is negotiating similar swaps with Malaysia and Thailand.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Source: World Bank World Development Indicators, 2012 UNCTADStat World Investment Report 2013

13

8. South Korea – 69.5 Individual Pillar Scores / (Rank) I. Rule of Law

66.5 (8th)

II. Openness to International Trade & Business

65.9 (8th)

III. Political Stability

68.9 (8th)

IV. Taxation

70.4 (6th)

V. Corruption

70.1 (8th)

VI. Fiscal & Monetary Administration

80.9 (5th) 0

Development Indicators

50

100

FDI, net inflows $12

50.00 million 2.0 %

2012

GDP per capita

$22,590

current US$

GDP per capita, PPP

$9.9 Billion

$8 $6

$30,800

current international $

FDI

$10

$9.9 billion

net inflows Source: World Bank World Development Indicators, 2011 UNCTADStat World Investment Report 2013

South Korea scored well on fiscal and monetary administration but performed relatively weakly on rule of law, political stability and corruption. South Korea continues to rank high on financial and monetary administration as strong exports drive growth. The country’s large current account surplus continues to attract foreign investors, but in the nearer term, growing household debt, depressed housing and construction sectors, and impending corporate restructuring threaten economic stability. Openness to international trade and business remains steady. South Korea’s leaders recognize the need to reduce dependence on the handful of conglomerates, or chaebols, that dominate the economy. Chaebols overshadow the far weaker SMEs that are necessary to inject the economy with much needed vitality. Under pressure to build new growth industries, President Park Geun-hye is promoting the development of the creative economy. Park has implemented measures and policies to foster technological innovation and entrepreneurship,

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including tax incentives that encourage equity investment in new tech businesses, the establishment of the Konex stock exchange for new high-growth businesses, and the creation of a USD $470 million “Future Creation Fund” to provide state financial support. Yet, weakness in the service sector inhibits growth and job creation. Investors hope that a recently signed trade agreement with the EU and US will help drive competition. In February, Park announced a tax cut for service industries and increases in government spending for education, medicine, finance, and tourism. Legal services are also gradually opening to foreign players. South Korea’s rapidly aging population, rising demand for welfare expenditure, and rigidity in the labor market present structural challenges to sustained growth. South Korea will need to increase productivity to offset these unfavorable demographic trends. The government will need to pursue reform and deregulation to embrace foreign investment that is necessary to reignite South Korea’s growth engine.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Population GDP growth (annual %)

14

9. Malaysia – 66.9 Individual Pillar Scores / (Rank) I. Rule of Law

70.4 (7th)

II. Openness to International Trade & Business

72.2 (6th)

III. Political Stability

55.0 (11th)

IV. Taxation

73.0 (5th)

V. Corruption

55.8 (9th)

VI. Fiscal & Monetary Administration

70.8 (9th) 0

Development Indicators

50

100

FDI, net inflows $14 29.24 million 5.6 %

2012

GDP per capita

$8

$16,918

$6

current international $

FDI

$10

$10,432

current US$

GDP per capita, PPP

$12

$10 billion

net inflows Source: World Bank World Development Indicators, 2012 UNCTADStat World Investment Report 2013

Malaysia again scored above its neighbors in Southeast Asia, with the exception of Singapore. Malaysia attracted record levels of FDI last year and scores strongly on openness to international trade & business and taxation. The government is committed to TPP negotiations, despite strong domestic criticism. EU-FTA negotiations are also expected to be resurrected this year. Domestically, however, the government is reviewing its policy on foreign workers and increases in the minimum wage came into effect in January 2014. Malaysia largely adheres to the rule of law in civil disputes as well as criminal cases, although cases can be politicized if they challenge the ruling government’s hold on power. In March 2014, for example, opposition leader Anwar Ibrahim was sentenced to five years imprisonment for sodomy, in a case that was widely suggested to involve executive interference in the administration of justice. Anwar’s absence significantly weakens the opposition’s ability to pressure the government to reform.

$10 Billion

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2006

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2010

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Corrupt practices, particularly related to mismanagement in public procurement processes, are widespread. The legislative body fails to exercise its power to check the executive. The Malaysian Anti-Corruption Commission (MACC) seems reluctant to take action against the ruling party, although it has actively investigated corrupt practices at the lower levels of government. After the election, Prime Minister Najib appointed former Transparency International Malaysia Chairman Paul Low to address corruption issues. The move, however, is largely considered a public relations exercise as Low’s ministerial position lacks legal powers. Although spending cuts helped reduced the fiscal deficit in 2013, there remains a lack of transparency in the government’s disclosure of debts. In September 2013, the new Fiscal Policy Committee increased fuel prices for the first time since 2010, and an electricity tariff was increased by an average of 15 percent. These are among the early steps in subsidy rationalization. The process, however, has been frustratingly slow, and the government has been reluctant to demonstrate fiscal discipline when dealing with politically connected large corporations.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Population GDP growth (annual %)

15

10. Thailand – 57.4 Individual Pillar Scores / (Rank) I. Rule of Law

57.0 (10th)

II. Openness to International Trade & Business

65.0 (9th)

III. Political Stability

41.2 (18th)

IV. Taxation

63.6 (8th)

V. Corruption

48.5 (10th)

VI. Fiscal & Monetary Administration

66.9 (12th) 0

Development Indicators

50

100

FDI, net inflows $12

66.78 million 6.5 %

2012

GDP per capita

$5,479 $9,660

current international $

FDI

$8 $6

current US$

GDP per capita, PPP

$8.6 Billion

$10

$8.6 billion

net inflows Source: World Bank World Development Indicators, 2012 UNCTADStat World Investment Report 2013

Thailand retains its position in the top half of the rankings. Thailand’s relative attractiveness for foreign investment exceeds many of its Southeast Asian neighbors, but deteriorating political stability threatens to derail the investment climate. Thailand has frozen into political deadlock since antigovernment protests erupted at the end of 2013. Thai politics have becoming increasingly polarized as the opposition street movement, the so-called People’s Democratic Reform Committee calls for the resignation of Prime Minister Yingluck Shinawatra and the removal of all vestiges of the “Thaksin regime” from public life. Yet, violence has been limited, and foreign investment remains secure as both sides of the conflict are broadly pro-business. Rule of law and the legal system have remained relatively stable throughout the political crisis, despite the politicization of state institutions, including the courts and National Anti-Corruption Commission (NACC). For foreign investors, law enforcement remains inconsistent and corruption is endemic and extends beyond public sector procurement contracts to daily private sector operations. Thailand remains in the top half of the rankings for openness to international trade & business. The Bank

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of Thailand is liberalizing banking licenses; in 2013, Bank of Tokyo-Mitsubishi UFC acquired Bank of Ayudhya in a deal that has the potential to open the Thai banking sector. Despite Thailand’s relative openness, the crisis constrains the government, and the current administration’s inability to dispense funds has curtailed the development of much-hyped infrastructure projects. Taxation has notably improved with the recent lowering of corporate taxes. Yet, the efficiency of tax collection is limited and tax avoidance among small and medium enterprises is commonplace. Fiscal and monetary administration has also weathered the crisis. The Bank of Thailand and Ministry of Finance have helped to stabilize the currency. Regardless of pro-business policies, the political deadlock and uncertainty hinder new, long-term investment. The current caretaker government is no longer seriously focused on TPP and EU-FTA negotiations. Thailand’s openness to foreign investment may soon trail its regional neighbors if negotiations remain stalled. With no clear political resolution on the horizon, Thailand risks losing out on foreign investment.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Population GDP growth (annual %)

16

11. China – 54.6 Individual Pillar Scores / (Rank) I. Rule of Law

56.9 (11th)

II. Openness to International Trade & Business

53.2 (13th)

III. Political Stability

55.1 (10th)

IV. Taxation

50.0 (14th)

V. Corruption

43.4 (11th)

VI. Fiscal & Monetary Administration

75.4 (8th) 0

Development Indicators

50

100

FDI, net inflows $150

Population GDP growth (annual %)

1.350 billion 7.8 %

2012

$121 Billion

$100

GDP per capita

$6,091

current US$

GDP per capita, PPP

$9,083

current international $

$121 billion

net inflows Source: World Bank World Development Indicators, 2012 UNCTADStat World Investment Report 2013

Improvements in openness to international trade & business, political stability, and corruption increased China’s score in this year’s index. Following a peaceful leadership transition, President Xi Jinping has pursued aggressive economic and governance reforms, combined with harsher repression and tighter control over public discourse, to bolster stability and maintain the party’s control. China’s score on openness to international trade & business increased as President Xi Jinping announced an overhaul of economic and social policies to fuel growth. Xi plans to phase out state-controlled prices and allow competitive, market-based pricing in sectors including water, energy, transport, and telecommunications. Yet, state owned enterprises continue to dominate key sectors and receive preferential treatment, and there appear to be no plans for large scale privatization. China’s corruption score improved as Xi aims to unwind a culture of bribery and graft that undermines economic efficiency. Since assuming the presidency, Xi has implemented one of the most aggressive anti-corruption campaigns in

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China’s modern history to build legitimacy and confidence and drive economic growth. The anti-graft campaign has entangled thousands of party officials, in addition to foreign companies, particularly in the health care and food sectors. As Xi aims to consolidate and project China’s strength, China has assumed a more assertive posture on the world stage. Tension over disputed territories in the East and South China Seas with Japan, Philippines, Vietnam, and others, has impacted bilateral investment and has the very real potential to provoke a direct military confrontation. Domestically, Beijing has responded aggressively to unrest involving Uighur Muslims and imposed harsh crackdowns on civil society, political dissent and free speech. Higher wages and appreciating currency may hinder China’s ability to draw investment, particularly given the availability of cheap labor and infrastructure improvements in Southeast Asia. Xi’s ambitious reform package promises to generally improve the investment climate for foreign investors, but it remains to be seen if China can implement these policies and retain its attractiveness relative to its regional neighbors.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

FDI

$50

17

12. Philippines Individual Pillar Scores / (Rank) I. Rule of Law

49.8 (12th)

II. Openness to International Trade & Business

60.0 (11th)

III. Political Stability

47.1 (13th)

IV. Taxation

48.3 (16th)

V. Corruption

39.8 (12th)

VI. Fiscal & Monetary Administration

67.2 (11th) 0

Development Indicators

50

100

FDI, net inflows $4

Population GDP growth (annual %)

96.70 million 6.8 %

2012

GDP per capita

$2

$4,338

current international $

FDI

$3

$2,587

current US$

GDP per capita, PPP

$2.797 Billion

$2.797 billion

$1

net inflows $0

2002

2004

2006

2008

2010

2012

The Philippines continues to steadily improve under President Benigno Aquino’s administration. Aquino’s good governance and anti-corruption campaign has attracted record levels of foreign direct investment, which has doubled since 2011. The Philippines has maintained impressive GDP growth, despite the devastation wreaked by super typhoon Haiyan/Yolanda, the Bohol earthquake and violent conflict with Muslim separatists in the southwest.

The justice system continues to grind ahead, albeit at a frustratingly slow rate for many investors. Despite the high profile arrest of the former president and impeachment of a Supreme Court justice, the successful prosecution of public officials for corruption and human rights violations remain few and far between. Furthermore, the courts’ repeated failure to honour contractual obligations presents a risk to foreign investors.

The Philippines’ score on openness to international trade & business remains in the mid-tier of the rankings. The manufacturing sector continues to experience robust growth, due to the Philippines’ large labour pool and very low minimum wage increases. While agrobusiness and mining remain the weakest sectors in terms of growth, the end of the 25 year agrarian reform policy could provide a boost to corporate farming. New investment in mining has stagnated. The president has signed off on a mining tax that, if implemented, would undermine the competiveness of investment in Philippines’ mining sector.

The Philippines has achieved relative political stability under Aquino. In the past year, the president completed the second phase of negotiations with the Moro Islamic Liberation Front in the southern Philippines. The resolution of conflict will open up investment opportunities, particularly in the agricultural and tourism sectors. Despite relative domestic political stability, bilateral tensions with China have escalated over territorial disputes in the South China Sea.

The government is moving ahead on its commitment to double infrastructure spending to 5 percent of GDP by 2016. Despite the investment, adequate power supply in the medium term may be insufficient to meet rising demand from higher economic growth.

While investors have flocked to the Philippines in recent years, the absence of Aquino’s apparent successor ahead of the May 2016 elections raises questions about the sustainability of current reforms. As the host of the World Economic Forum Asia in May, the Philippines will have an opportunity to showcase its progress, attract further investment, and push for more economic inclusion across Asia Pacific.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Source: World Bank World Development Indicators, 2012 UNCTADStat World Investment Report 2013

18

13. Vietnam – 47.4 Individual Pillar Scores / (Rank) I. Rule of Law

46.0 (15th)

II. Openness to International Trade & Business

50.0 (15th)

III. Political Stability

55.8 (9th)

IV. Taxation

49.3 (15th)

V. Corruption

34.5 (15th)

VI. Fiscal & Monetary Administration

50.7 (16th) 0

Development Indicators

50

FDI,

100

net

inflows

$10

Population GDP growth (annual %)

88.77 million 5.2 %

2012

GDP per capita

$5

current US$

GDP per capita, PPP

$8.37 Billion

$1,755 $3,787

current international $

FDI

$8.37 billion

net inflows Source: World Bank World Development Indicators, 2012 UNCTADStat World Investment Report 2013

$0

2002

2004

2006

2008

2010

2012

V

While the Communist Party of Vietnam (CPV) remains as firmly entrenched as ever, Vietnam’s political stability score nevertheless recorded improvement, reflecting the resolution of power struggles at the top of Vietnam’s party hierarchies. Prime Minister Nguyen Tan Dung has emerged victorious from a political feud with CPV rival President Truong Tan Sang to re-assert his hold on the government. Diplomats and executives say his resurgence has restored a sense of stability to the power hierarchy, with little expectation of change until the 2016 Party Congress. Vietnam’s score on rule of law also enjoyed a notable uptick – likely a consequence of Vietnam’s slow evolution of checks and balances on government power through an increasingly activist National Assembly, Vietnam’s 500-member parliament. Traditionally functioning as a “rubber stamp” legislature, the NA is assuming an increasingly assertive role in overseeing and shaping state plans, policies, and budgets. Companies say rule of law improvements are also being driven by renewed industry and diplomatic pressure on Vietnam to properly enforce WTO Commitments across several sectors, and to extract new commitments under new

Trans Pacific Partnership (TPP) and European Union FTA agreements currently under negotiation. Vietnam’s score on openness to international trade & business improved slightly – also noted by companies as a probable reflection of Vietnam’s negotiations on the TPP and EU FTA deals. Political mobilization in support of SOE reform also appears to be slowly gathering momentum, with Vietnamese officials pointing to an increasing number of SOEs “equitisations” under way, and new requirements for SOEs in various sectors to submit restructuring plans as evidence that reform is happening. Corruption continues to be a dominant challenge for foreign investors. Many say that corruption has worsened since the financial crisis and the downturn of “easy money” opportunities in speculative sectors of the economy. Companies and diplomatic missions consistently bemoan the scope of the challenge: Corruption is seen as endemic, expected, and accepted at every level of the system. Bureaucratic complexity and inconsistency also continue to be a significant deterrent to business cited by foreign investors. While protectionist policies and actions were less cited as a challenge for business in this year’s survey, improper or unnecessary enforcement actions and intrusions by state regulators were noted as being on the rise.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Vietnam climbed from fifteenth to thirteenth in this year’s rankings, with companies assessing notable improvements in Vietnam’s scores on rule of law, openness to international trade & business, and political stability.

19

14. Cambodia – 47.3 Individual Pillar Scores / (Rank) I. Rule of Law

40.2 (17th)

II. Openness to International Trade & Business

55.5 (12th)

III. Political Stability

44.3 (14th)

IV. Taxation

60.8 (9th)

V. Corruption

29.7 (18th)

VI. Fiscal & Monetary Administration

53.3 (15th) 0

Development Indicators

50

100

FDI, net inflows $2.0

Population GDP growth (annual %)

14.86 million 7.3 %

2012

GDP per capita

$1.0

$2,453

current international $

FDI

$1.5

$944

current US$

GDP per capita, PPP

$1.56 Billion

$1.56 billion

$0.5

net inflows

Cambodia’s score declined as a result of rising domestic unrest. Overall, however, the investment climate remains relatively stable as political actors across the spectrum recognize the role of foreign investment in driving economic development.

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2006

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failure of the existing government to meet the youth population’s expectations. Although the younger generation appears increasingly inclined to vote for the opposition Cambodia National Rescue Party, the opposition lacks a coherent platform and vision to capitalize on the current momentum.

Domestic protests and political infighting have undermined Cambodia’s political stability score. Prime Minister Hun Sen’s narrow victory in the July elections resulted in an unexpected blow to the longstanding prime minister’s credibility. Infighting within the Cambodia People’s Party (CPP) further undermines his authority. In order to appease domestic demands, Hun Sen has appointed new ministers with reputations for clean governance, including the Minister of Finance. While the recent protests are indicative of dissent within the ruling party, Hun Sen’s entrenched patronage network dampens the likelihood of a coup.

Foreign investment, however, is unlikely to be affected by the unrest. Despite a government crackdown on garment workers protesting for better wages and working conditions, Cambodia remains an attractive destination for foreign investment in the garment industry. Big garment brands, including H&M and Nike have worked with the government to institute better standards to mitigate any reputational risks from the protests. Investors are increasingly viewing Cambodia as a cheaper alternative to China. Employment in the Phnom Penh Special Economic Zone doubled to 2013.

Several underlying trends have fuelled the recent unrest, including the proliferation of social media that encourages political engagement and empowerment, high youth unemployment and a

Cambodia’s legal regime for investment is one of the most liberal in Asia Pacific, although the country remains hampered by infrastructure constraints and the high cost of power.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Source: World Bank World Development Indicators, 2012 UNCTADStat World Investment Report 2013

20

15. Indonesia – 46.7 Individual Pillar Scores / (Rank) I. Rule of Law

42.5 (16th)

II. Openness to International Trade & Business

48.4 (16th)

III. Political Stability

42.6 (17th)

IV. Taxation

52.2 (12th)

V. Corruption

34.4 (16th)

VI. Fiscal & Monetary Administration

66.9 (13th) 0

Development Indicators

50

100

FDI, net inflows $25

Population GDP growth (annual %)

246.86 million 6.2 %

2012

$20

19.85 Billion

$15

GDP per capita

$3,556 $10

current US$

GDP per capita, PPP

$4,875

current international $

FDI

$19.85 billion

net inflows

$5 $0 -$5

Indonesia continued to descend in this year’s rankings. Protectionist policies and fiscal instability pushed Indonesia to fifteenth, following last year’s decline from eleventh to thirteenth. Despite Indonesia’s self-perceived natural role as the leader of ASEAN, the country’s increasingly protectionist policies threaten to delay implementation of the ASEAN Economic Community by 2015. In the past months, the government has implemented a series of protectionist regulations intended to develop local production and value-added industry. In pursuit of food security and self-sufficiency in production, the food law establishes limits on the import and export of food while the horticulture law imposes a 30 percent foreign equity restriction on investments in horticulture. The mining law’s ban on the export of raw material went into effect at the beginning of the year, although the government has demonstrated some flexibility on implementation. Prominent cronies and tycoon families with widespread business interests are well known for influencing politics and regulations to benefit their own interests. The UK mining company Churchill is currently entangled in a legal battle with Nusantara Energy, a company owned by Gerindra’s presidential nominee Prabowo Subianto, over rights to mine in resource rich East Kalimantan.

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Rule of law is undermined by endemic corruption. The Corruption Eradication Commission’s efforts to combat corruption have failed to stem the tide of increasing graft across the political system. In the past year, the respected Constitutional Court was ensnared in a bribery scandal that resulted in the removal of the Chief Justice and the former Sports and Youth Minister was charged with receiving graft. Furthermore, the Attorney General’s Office is pursuing trumped up corruption charges against Chevron executives that suggests that state prosecutors are manipulating the legal system. Indonesia’s political stability score improved slightly ahead of this year’s legislative and presidential elections. Elections are expected to be transparent and peaceful; the candidate field is still open as the widely popular governor of Jakarta Joko Widodo remains to be nominated. As governor, Widodo has initiated several reforms to improve the quality of the civil service and eliminate patronage. Despite setbacks in its openness score, Indonesia continues to attract high levels of foreign investment. An expanding middle class and robust domestic consumption fuels sustainable growth, especially in second and third tier markets.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Source: World Bank World Development Indicators, 2012 UNCTADStat World Investment Report 2013

21

16. Sri Lanka – 44.9 Individual Pillar Scores / (Rank) I. Rule of Law

47.5 (14th)

II. Openness to International Trade & Business

51.7 (14th)

III. Political Stability

44.1 (16th)

IV. Taxation

43.5 (19th)

V. Corruption

36.5 (14th)

VI. Fiscal & Monetary Administration

42.5 (19th) 0

Development Indicators

50

100

FDI, net inflows $1.0

Population GDP growth (annual %)

20.32 million 6.4 %

2012

GDP per capita

$0.5

current US$

GDP per capita, PPP

$776 Million

$2,923 $6,146

current international $

FDI

$776 million

net inflows

Sri Lanka’s arbitrary nature of governance and weak rule of law continue to concern investors. Sri Lanka’s low ranking is largely a reflection of the erosion of the rule of law as President Rajapaksa continues to consolidate power, following his landslide victory in 2010. Institutionalized impunity has only increased after last year’s impeachment of the Chief Justice of the Supreme Court. The attorney general, police, and military remain under the direct control of the president and are vulnerable to political pressure. The administration appears to support high-levels of complicity between the police, criminals and politicians. As the government refuses to establish an independent body to check the executive’s power, attempts to restore the independence of the judiciary and police, curb militarization, and ensure accountability for alleged war crimes are weak and ineffective. Furthermore, President Rajapaksa has executed a sustained assault on freedom of expression and the media.

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Foreign investors find themselves increasingly vulnerable to government interference as more belligerent and protectionist nationalism characterizes President Rajapaksa’s second term. Chinese, however, continue to pour investment into the strategically located country. Upgraded infrastructure, largely due to Chinese investment, has improved connectivity and facilitates economic integration between the war torn north and the rest of the country. Political tensions have escalated amid growing disillusionment with the government, the rising cost of living, and the absence of the expected post-war economic peace dividend. With growing domestic unrest and protests, the government is reluctant to allow devolution of power and continues to maintain de facto military rule in the north. In order to bolster Sinhalese support and distract from domestic governance challenges, the government has supported and, in some cases, fuelled a violent anti-Muslim campaign.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Source: World Bank World Development Indicators, 2012 UNCTADStat World Investment Report 2013

22

17. India – 43.7 Individual Pillar Scores / (Rank) I. Rule of Law

49.3 (13th)

II. Openness to International Trade & Business

41.0 (19th)

III. Political Stability

44.3 (15th)

IV. Taxation

43.3 (20th)

V. Corruption

36.5(13th)

VI. Fiscal & Monetary Administration

47.3 (18th) 0

Development Indicators

50

100

FDI, net inflows $50

Population GDP growth (annual %)

1.23 billion 3.2%

$40

$1,489

$30

$3,813

$20

$25.543 billion

$10

2012

GDP per capita current US$

GDP per capita, PPP

$25.543 Billion

current international $

FDI net inflows

India’s foreign investment climate remains on a downward trajectory due to declines in openness to international trade & business, political stability, and fiscal & monetary administration. After a decade in power, the ruling Congress Party has failed to implement plans for sustainable growth. Economic mismanagement and weak leadership have produced debts, high inflation and joblessness. Ahead of the General Election due in May, investors and voters appear hopeful that the opposition Bharatiya Janata Party will cut inflation and corruption, help the poor, and create jobs to restart India’s faltering economy. India’s fiscal and monetary administration score continues to decline. In 2013, growth slowed to its lowest pace in a decade. The government’s attempts to reverse the rupee’s slide have discouraged foreign investors. Despite the federal government’s public commitment to liberalize defense, energy, and single-brand retail, state-led reversals of these policies have complicated the climate for foreign investors. In January, the state governments in Delhi and Rajasthan rescinded their decision to optin to a new federal policy allowing FDI in the multibrand retail sector. Investors are concerned that policies dependent on the views of the current state

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government create the potential for policy reversals following elections in May. Frustration with bureaucracy, corruption, and the opaque regulatory environment caused a series of high-profile withdrawals of foreign investment last year. Wal-mart cancelled the opening of new stores due to lack of clarity over multibrand retail regulations while steel companies Posco and ArcelorMittal withdrew investments because of difficulties in obtaining permits and acquiring land and uncertainty over supplies of raw materials. India’s taxation score remains low as a result of an increasingly unpredictable, aggressive, and politicized tax climate for foreign investors. Vodafone, IBM, and Nokia are among the foreign companies that have engaged in high profile disputes with tax authorities. The upcoming elections have likely heightened the scrutiny of foreign investors as the embattled Congress party strikes an increasingly populist tone to appeal to voters. In the long term, India’s population and growth potential remain attractive to foreign investors. Yet, the lack of policy clarity and decisive leadership may inhibit foreign investments that are a prerequisite for sustainable growth.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Source: World Bank World Development Indicators, 2012 UNCTADStat World Investment Report 2013

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18. Lao PDR – 41.9 Individual Pillar Scores / (Rank) I. Rule of Law

37.2 (19th)

II. Openness to International Trade & Business

39.7 (20th)

III. Political Stability

48.7 (12th)

IV. Taxation

46.1 (17th)

V. Corruption

29.2 (19th)

VI. Fiscal & Monetary Administration

58.1 (14th) 0

Development Indicators

50

100

FDI, net inflows $0.4

Population GDP growth (annual %)

6.64 million 8.2%

$294 Million

$0.3

2012

GDP per capita

$1,417

current US$

GDP per capita, PPP

$2,879

current international $

$0.1

$294 million

net inflows Source: World Bank World Development Indicators, 2012 UNCTADStat World Investment Report 2013

Sustained high economic growth rates and increased foreign investment over the past decade have allowed communist Laos to achieve significant progress in becoming something of a market economy. But the government’s recent acknowledgements that it is facing an economic crisis-in-the-making, coupled with its consistent lack of respect for rule of law, has ensured Laos’ low ranking in this year’s index. Laos’ ranking is bolstered by its strong score on political stability. The country is following a political development model similar to China’s, with power being concentrated among the party elite, and political dialogue and dissent widely stifled. Corruption is endemic at all levels of government and remains the fundamental barrier to investment. Despite the development of several anti-corruption laws, enforcement is weak and inconsistent, and no high-profile cases have ever been brought to trial. Laos’ limited rule of law further constricts investment. Contracts are not routinely honoured, and foreign investors face the risk of expropriation by extra-legal means. Last year, the government attempted to seize the assets of Macau-based Sanum Investments in disputes over

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2010

2012

USD23 million in taxes and fees, while also forcing the French agricultural firm Agroforex Co. to relocate its factory midway through a contract. Laos’ booming economy continues to be largely driven by rich natural resources, particularly in the hydropower and mining sectors. The country’s notoriously limited logistics network is due to receive an upgrade, with both the Chinese and Malaysians currently laying the groundwork for the construction of high speed rail lines. But the government has gone into crisis mode, pledging to tighten its budget amidst rising inflation and labour costs (the rail projects themselves have elicited murmurs of disapproval from the World Bank and Asian Development Bank, who contend that Laos simply cannot afford them at a time when civil servants have not been paid their salaries). The government’s ability to bridge the disconnect between the economic realities and its lofty visions of progress and prosperity over the coming months will have significant bearing on the future of foreign investment in Laos.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

FDI

$0.2

24

19. Myanmar – 39.7 – (some data unavailable) Individual Pillar Scores / (Rank) I. Rule of Law

39.0 18th

II. Openness to International Trade & Business

45.8 17th

III. Political Stability

31.2 19th

IV. Taxation

43.7 18th

V. Corruption

30.0 17th

VI. Fiscal & Monetary Administration

47.4 17th 0

Development Indicators

50

100

FDI, net inflows $3

Population GDP growth (annual %)

$2.2 Billion

52.79 million 6.4

2013

$2

GDP per capita

$884.3

current US$

GDP per capita, PPP

$1,490

current international $

FDI

$1

$2.2 billion

net inflows

Myanmar’s score continued to rise as foreign investors increasingly capitalize on the country’s improving openness to international trade & business and more established rule of law. Growing support to Myanmar from international financial institutions, including the World Bank and Asian Development Bank, indicate confidence in Myanmar’s reform progress. Myanmar has liberalized several sectors previously dominated by the state, including telecommunications. The 2012 Foreign Investment Law provides the framework to bolster foreign investment. Coca-Cola, GE, Heineken and Visa were among the first western companies to make significant investments to drive Myanmar’s economic growth. The development of the Thilawa industrial zone, in partnership with the Japanese, is intended to create an export hub for manufacturers of high value goods. Furthermore, the passage of the Central Bank Law opens the financial sector for development. Investors welcomed the Law, which establishes the independence of the Central Bank and is expected to keep inflation in check, regulate local banks, and oversee capital market development with support of IMF and the IFIs. The country’s growth, however, remains hampered by capacity constraints. Myanmar lacks the infrastructure to support significant manufacturing operations, but

$0

2002

2004

2006

2008

2010

2012

international institutions and bilateral partners have pledged billions of dollars in loans to upgrade power networks and water supplies and logistics infrastructure. Myanmar’s improving corruption score is reflective of the administration’s good governance campaign, albeit the crackdown against abuses in the bureaucracy and the military is limited and seemingly arbitrary, rather than systematic. The administration established an Anti-Bribery Commission in February 2014, following the enactment of the Anti-Corruption Law. Political stability remains low, and some prospective investors are hesitant to commit due to concerns over unrest. While the peace process is making progress, the continuation of inter-communal violence, especially against the Rohingya Muslim population in Rakhine State, poses a risk of local and international spillover. Ahead of the 2015 election, the government is tackling constitutional reform to address the allocation of federal power vis-à-vis the states, the role of the military, and the eligibility of presidential candidates and especially Aung San Suu Kyi, among other issues. In the approach to the election, the government is anxious to show real economic and social progress, but while there will be momentum toward reforms that continue to favour foreign investors, there will also be a growing focus on preparations for the upcoming poll.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Source: IMF World Economic Outlook Database, 2013 UNCTAD Stat World Investment Report 2013

25

20. Bangladesh – 35.7 Individual Pillar Scores / (Rank) I. Rule of Law

30.0 (20th)

II. Openness to International Trade & Business

42.2 (18th)

III. Political Stability

27.8 (20th) 50.4 (13th)

IV. Taxation V. Corruption

21.8 (20th)

VI. Fiscal & Monetary Administration

40.8 (20th) 0

Development Indicators

50

100

FDI, net inflows $1.5

Population GDP growth (annual %)

$990 Million

154.69million 6.2 %

2012

$1.0

GDP per capita

$752

current US$

GDP per capita, PPP

$1,851

current international $

FDI

$0.5

$990 million

net inflows

Bangladesh remains in last place for the second consecutive year, ranking near the bottom for every pillar except taxation. Bangladesh’s economic growth is limited by low levels of human capital, poor infrastructure, corruption, and cumbersome regulation. Following flawed elections in January, political uncertainty and volatility cloud the outlook for foreign investors. Despite Bangladesh’s economic and social gains over the past decade, political volatility undermines the country’s attractiveness for foreign investment. Political violence escalated severely in 2013 as clashes between the ruling Awami League and opposition BNP resulted in one of the bloodiest years since Bangladesh’s independence. A war-crimes trial, in which leading opposition figures were sentenced to death for atrocities committed during the 1971 war, has exacerbated tensions. Elections in January 2014 enabled the Awami League to retain its grasp on power, but intimidation, violence, and the BNP’s boycott undermine the legitimacy of the results. Prime Minister Sheikh Hasina’s inability to quell the violence is likely to further hamper foreign investment through 2014.

$0.0

2002

2004

2006

2008

2010

2012

Labour issues have fuelled unrest and are a persistent source of discontent. The failure to raise wages to keep pace with inflation has fuelled a series of paralyzing strikes that disrupted production at many garment factories. The increasing turbulence— combined with the impact of the collapse of the Rana Plaza building that killed over 1,000 factory workers— has deterred investors from investing in Bangladesh. Several Japanese and Korean companies reportedly decided to pursue alternative sites for garment manufacturing. The country lags in promoting effective rule of law, the judicial system remains vulnerable to political interference, and corruption plagues the domestic operating environment. By some estimates, bribes and other off-the-record payments paid by firms related to public procurement, tax and customs collection, and other regulatory authorities may reduce annual GDP by 3 percent. In order to stabilize the tenuous political situation and attract investment, Hasina needs to pursue good governance and an inclusive economic growth model that alleviates poverty. Unless the new government seriously addresses these issues, political instability and violence and weak rule of law will continue to deter investment.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Source: World Bank World Development Indicators, 2012 UNCTADStat World Investment Report 2013

26

6 PILLARS OF THE ASIA PACIFIC INVESTMENT CLIMATE INDEX Rule of Law Openness to International Trade & Business Political Stability Taxation Corruption Fiscal & Monetary Administration

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

1. 2. 3. 4. 5. 6.

27

I.

RULE OF LAW Rule of Law for international business is based upon measures of judicial independence from public and private influence, the protection of property rights, the effectiveness of contract enforcement, and the capacity of the legal system to settle business disputes. Economy

Score

New Zealand

91.9

2

Singapore

89.9

3

Australia

88.2

4

Hong Kong

86.8

5

Japan

82.6

6

Taiwan

72.7

7

Malaysia

70.4

8

South Korea

66.5

9

Brunei

62.5

10

Thailand

57.0

11

China

56.9

12

Philippines

49.8

13

India

49.3

14

Sri Lanka

47.5

15

Vietnam

46.0

16

Indonesia

42.5

17

Cambodia

40.2

18

Myanmar

39.0

19

Laos

37.2

20

Bangladesh

30.0

Components of the Rule of Law Pillar

1/3

V&P Expert Assessment  V&P’s Senior Counselors assessed rule of law for international business based upon their in-depth knowledge and experience.

1/3

Survey of Regional Executives  Reflects the experience of international business leaders based in the region

1/3

WEF Global Competitiveness Report 2013-2014  Judicial Independence  Property Rights  Efficiency of Legal Framework in Settling Disputes  Efficiency of Legal Framework in Challenging Regulations WB Doing Business 2014  Enforcing Contracts

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Rank 1

28

II.

OPENNESS TO INTERNATIONAL TRADE & BUSINESS

Rank 1

Economy

Score

Hong Kong

93.0

2

Singapore

90.5

3

New Zealand

86.4

4

Australia

81.5

5

Taiwan

74.6

6

Malaysia

72.2

7

Japan

66.1

8

South Korea

65.9

9

Thailand

65.0

10

Brunei

64.9

11

Philippines

60.0

12

Cambodia

55.5

13

China

53.2

14

Sri Lanka

51.7

15

Vietnam

50.0

16

Indonesia

48.4

17

Myanmar

45.8

18

Bangladesh

42.2

19

India

41.0

20

Laos

39.7

Components of the Openness to International Trade & Business Pillar

1/3

V&P Expert Assessment  V&P’s Senior Counselors assessed openness to international trade & business based upon their in-depth knowledge and experience.

1/3

Survey of Regional Executives  Reflects the experience of international business leaders based in the region

1/3

HF Index of Economic Freedom 2014  Investment Freedom  Trade Freedom WEF Global Competitiveness Report 2013-2014  Prevalence of Trade Barriers  Trade Tariffs  Burden of Customs Procedures  Business Impact of Rules on FDI WB Doing Business 2014  Trading Across Borders

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Openness to International Trade & Business assesses government attitudes towards international businesses entering and operating in domestic markets. Consideration is given to the treatment of international investors (including dual regulatory regimes, incentives etc.), the treatment of international acquisitions, capital controls, and the openness of the economy to foreign goods and services.

29

III.

POLITICAL STABILITY

Rank 1

Economy

Score

New Zealand

90.3

2

Singapore

88.8

3

Brunei

87.9

4

Australia

84.6

5

Hong Kong

80.7

6

Japan

78.8

7

Taiwan

75.2

8

South Korea

68.9

9

Vietnam

55.8

10

China

55.1

11

Malaysia

55.0

12

Laos

48.7

13

Philippines

47.1

14

Cambodia

44.3

15

India

44.3

16

Sri Lanka

44.1

17

Indonesia

42.6

18

Thailand

41.2

19

Myanmar

31.2

20

Bangladesh

27.8

Components of the Political Stability

1/3

V&P Expert Assessment  V&P’s Senior Counselors assessed political stability based upon their in-depth knowledge and experience.

1/3

Survey of Regional Executives  Reflects the experience of international business leaders based in the region

1/3

WB Worldwide Governance Indicator 2013  Political Stability and Absence of Violence/Terrorism WEF Global Competitiveness Report 2013 - 2014  Business Costs of Crime and Violence

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Political Stability assesses the chances of drastic changes in government and policy occurring, as well as the possibility of violence and/or terrorism, in terms of how they might impact business and the nature of investment. Consideration is given to a government’s policy of security for the investment climate, stability of government, and the likelihood of a rapid reversal of progress made.

30

IV.

TAXATION

Rank

Economy

Score

1

Singapore

89.0

2

Hong Kong

88.9

3

New Zealand

79.4

4

Brunei

79.3

5

Malaysia

73.0

6

South Korea

70.4

7

Taiwan

69.7

8

Thailand

63.6

9

Cambodia

60.8

10

Australia

58.1

11

Japan

56.7

12

Indonesia

52.2

13

Bangladesh

50.4

14

China

50.0

15

Vietnam

49.3

16

Philippines

48.3

17

Laos

46.1

18

Myanmar

43.7

19

Sri Lanka

43.5

20

India

43.3

Components of the Taxation Pillar

1/3

V&P Expert Assessment  V&P’s Senior Counselors assessed taxation based upon their in-depth knowledge and experience.

1/3

Survey of Regional Executives  Reflects the experience of international business leaders based in the region WB Doing Business 2014  Paying Taxes

1/3

WEF Global Competitiveness Report 2013-2014  Extent & Effect of Taxation  Total Tax Rate, % of Profits HF Index of Economic Freedom 2014  Fiscal Freedom

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Taxation assesses the tax environment in terms of the administrative transparency and efficiency in tax collection, along with local taxation rates – particularly the corporate tax rate.

31

V.

CORRUPTION

Rank

Economy

Score

1

New Zealand

93.0

2

Singapore

91.1

3

Australia

88.7

4

Hong Kong

84.0

5

Japan

83.9

6

Taiwan

71.2

7

Brunei

70.9

8

South Korea

70.1

9

Malaysia

55.8

10

Thailand

48.5

11

China

43.4

12

Philippines

39.8

13

India

36.5

14

Sri Lanka

36.5

15

Vietnam

34.5

16

Indonesia

34.4

17

Myanmar

30.0

18

Cambodia

29.7

19

Laos

29.2

20

Bangladesh

21.8

Components of the Corruption Pillar

1/3

V&P Expert Assessment  V&P’s Senior Counselors assessed openness to international trade & business based upon their in-depth knowledge and experience.

1/3

Survey of Regional Executives  Reflects the experience of international business leaders based in the region Transparency International Corruption Perceptions Index 2013  Perceived corruption in the public sector

1/3

WB Worldwide Governance Indicator 2014  Control of Corruption WEF Global Competitiveness Report 2013-2014  Irregular payments and bribes  Diversion of public funds

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Corruption assesses perceptions of the abuse of entrusted power for personal gain in the public and private sectors, including both petty and grand forms of corruption. This pillar also takes into account government measures taken to address corruption.

32

VI.

FISCAL & MONETARY ADMINISTRATION

Rank

Economy

Score

1

Singapore

88.9

2

Brunei

87.8

3

Hong Kong

84.6

4

Australia

81.9

5

South Korea

80.9

6

New Zealand

79.5

7

Taiwan

76.7

8

China

75.4

9

Malaysia

70.8

10

Japan

69.3

11

Philippines

67.2

12

Thailand

66.9

13

Indonesia

65.8

14

Laos

58.1

15

Cambodia

53.3

16

Vietnam

50.7

17

Myanmar

47.4

18

India

47.3

19

Sri Lanka

42.5

20

Bangladesh

40.8

Components of the Fiscal & Monetary Administration Pillar

1/3

V&P Expert Assessment  V&P’s Senior Counselors assessed public sector quality & effectiveness based upon their in-depth knowledge and experience.

1/3

Survey of Regional Executives  Reflects the experience of international business leaders based in the region

1/3

WEF Global Competitiveness Report 2013-14  Macroeconomic Environment HF Index of Economic Freedom 2014  Monetary Freedom

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Fiscal & Monetary Administration assesses the management of state finances and monetary regulation that encourage economic growth and stability. It provides an assessment of both inflation and price controls which distort market activity, as well as a measurement of the stability of the macroeconomic environment by assessing government budget balance, national savings rate, and the country credit rating.

33

ACKNOWLEDGEMENTS Vriens & Partners acknowledges and thanks our valued partners in the region for their contributions to the 2014 Asia Pacific Investment Climate Index.

NEW ZEALAND

JAPAN

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

David Butcher & Associates

34

ANNEX A: METHODOLOGY The index is constructed by drawing upon a number of sources, including: 

Expert assessments by V&P Senior Counselors working across Asia Pacific,



Data gathered from a survey of investment and business leaders across the region. For this year’s results, V&P surveyed more than 200 corporate leaders and policy experts and conducted dozens of face to face interviews with business executives.



Factors from well-known sources including World Economic Forum’s Global Competitiveness Report, the World Bank’s Doing Business Index and Worldwide Governance Indicators, and the 1 Heritage Foundation’s Index of Economic Freedom.

Data from the World Economic Forum’s Global Competitiveness Report and the World Bank’s Doing Business Index was expressed as a worldwide ranking. These rankings were converted directly into a score on the scale of 0-100 using the following formula: Score = [100 - (country ranking/total number of countries ranked)*100] th

For example, the score of a country that ranked 50 out of 189 countries worldwide is calculated as follows:

1

Please see the Annex B (Page 38) for a full breakdown of content used from external sources. These sources did not participate in, nor sponsor, approve or endorse the Asia Pacific Investment Climate Index.

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

[100-(50/189)*100] = 73.5

35

ANNEX B: External Sources Information on the following pages is drawn directly from the sources. TRANSPARENCY INTERNATIONAL | CORRUPTION PERCEPTIONS INDEX Transparency International, a global civil society organisation leading the fight against corruption, brings people together in a powerful worldwide coalition to end the devastating impact of corruption on men, women and children around the world. TI’s mission is to create change towards a world free of corruption.

       

Data Provider: Transparency International Description of Data Provider: International organization Data Type: Expert Assessments, Business Opinion Surveys Number of Economies: 176 Frequency: Annual Public Access: Freely available Website: http://cpi.transparency.org/cpi2011/results/ Adapted from the Corruption Perceptions Index. Copyright 2012 Transparency International: the global coalition against corruption. Used with permission. For more information, visit http://www.transparency.org

Indicators Used From This Source Corruption Perceptions Index 2013 measures the perceived levels of public-sector corruption.

V&P INDEX PILLAR Corruption

INDICATORS USED / CONTRIBUTION Corruption Perceptions Index Score

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

The Corruption Perceptions Index 2013 measures the perceived levels of public-sector corruption in 176 countries around the world. The CPI is an aggregate indicator that combines different sources of information about corruption, making it possible to compare countries. The CPI draws on different assessments and business opinion surveys carried out by independent and reputable institutions. It captures information about the administrative and political aspects of corruption. Broadly speaking, the surveys and assessments used to compile the index include questions relating to bribery of public officials, kickbacks in public procurement, embezzlement of public funds, and questions that probe the strength and effectiveness of public sector anti-corruption efforts. All sources measure the overall extent of corruption (frequency and/or size of bribes) in the public and political sectors, and all sources provide a ranking of countries, i.e. include an assessment of multiple countries. Evaluation of the extent of corruption in countries/territories is done by two groups: country experts, both residents and non-residents, and business leaders.

36

THE WORLD BANK AND THE INTERNATIONAL FINANCE CORPORATION | DOING BUSINESS The Doing Business 2014 report is a publication of the World Bank and the International Finance Corporation investigating the regulations that enhance business activity and those that constrain it. Doing Business presents quantitative indicators on business regulation and the protection of property rights that can be compared across 185 economies—from Afghanistan to Zimbabwe—and over time. Regulations affecting 11 areas of the life of a business are covered: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency (formerly closing a business) and employing workers. The employing workers data are not included in this year’s ranking on the ease of doing business. Data in Doing Business 2012 are current as of June 1, 2011. The indicators are used to analyze economic outcomes and identify what reforms of business regulation have worked, where and why.        

Data Provider: The World Bank and the International Finance Corporation Description of Data Provider: Multilateral development bank Data Type: Expert Assessment Number of Economies: 189 Frequency: Annual Public Access: Freely available Website: www.doingbusiness.org Terms of Use: Found at http://go.worldbank.org/OJC02YMLA0

Indicators Used From This Source

Trading Across Borders measures the time and cost (excluding tariff s) associated with exporting and importing a standardized cargo of goods by ocean transport. The time and cost necessary to complete every official procedure for exporting and importing the goods—from the contractual agreement between the 2 parties to the delivery of goods—are recorded. All documents needed by the trader to export or import the goods across the border are also recorded. For exporting goods, procedures range from packing the goods into the container at the warehouse to their departure from the port of exit. For importing goods, procedures range from the vessel’s arrival at the port of entry to the cargo’s delivery at the warehouse. The time and cost for ocean transport are not included. Payment is made by letter of credit, and the time, cost and documents required for the issuance or advising of a letter of credit are taken into account. The ranking on the ease of trading across borders is the simple average of the percentile rankings on its component indicators Paying Taxes records the taxes and mandatory contributions that a medium-size company must pay in a given year as well as measures of the administrative burden of paying taxes and contributions. Taxes and contributions measured include the profit or corporate income tax, social contributions and labor taxes paid by the employer, property taxes, property transfer taxes, dividend tax, capital gains tax, financial transactions tax, waste collection taxes, vehicle and road taxes, and any other small taxes or fees. The ranking on the ease of paying taxes is the simple average of the percentile rankings on its component indicators, with a threshold being applied to one of the component indicators, the total tax rate.

V&P INDEX PILLAR Rule of Law Openness to International Trade & Business Taxation

INDICATORS USED / CONTRIBUTION Enforcing Contracts Trading Across Borders Paying Taxes

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Enforcing Contracts measures the efficiency of the judicial system in resolving a commercial dispute. The data are built by following the step-by-step evolution of a commercial sale dispute before local courts. The data are collected through study of the codes of civil procedure and other court regulations as well as surveys completed by local litigation lawyers and by judges. The ranking on the ease of enforcing contracts is the simple average of the percentile rankings on its component indicators.

37

THE WORLD BANK | WORLDWIDE GOVERNANCE INDICATORS The Worldwide Governance Indicators reports aggregate and individual governance indicators for 215 economies over the period 1996–2012, for six dimensions of governance: Voice and Accountability; Political Stability and Absence of Violence; Government Effectiveness; Regulatory Quality; Rule of Law; and Control of Corruption. The aggregate indicators combine the views of a large number of enterprise, citizen and expert survey respondents in industrial and developing countries. The individual data sources underlying the aggregate indicators are drawn from a diverse variety of survey institutes, think tanks, non-governmental organizations, and international organizations.        

Data Provider: International Bank for Reconstruction and Development, The World Bank Description of Data Provider: Multilateral development bank Data Type: Expert Assessment Number of Economies: 215 Frequency: Annual Public Access: Freely available Website: info.worldbank.org/governance/wgi/index.asp Terms of Use: Found at http://go.worldbank.org/OJC02YMLA0

Indicators Used From This Source Control of Corruption captures perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as "capture" of the state by elites and private interests. Political Stability and Absence of Violence/Terrorism captures perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including politicallymotivated violence and terrorism.

Corruption Political Stability

INDICATORS USED / CONTRIBUTION Control of Corruption Political Stability and Absence of Violence/Terrorism

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

V&P INDEX PILLAR

38

WORLD ECONOMIC FORUM | GLOBAL COMPETITIVENESS REPORT 2013-2014 The Global Competitiveness Report’s competitiveness ranking is based on the Global Competitiveness Index (GCI). The GCI is based on 12 pillars of competitiveness, providing a comprehensive picture of the competitiveness landscape in countries around the world at all stages of development. The pillars are: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation.        

Data Provider: World Economic Forum, Switzerland Description of Data Provider: International non-profit organization Data Type: Expert Assessment, Executive Opinion Survey Number of Economies: 148 Frequency: Annual Public Access: Freely available Website: http://www.weforum.org/gcn USED WITH PERMISSION

           

Property Rights rates the protection of property rights, including financial assets. Judicial Independence scores are based on the extent to which the judiciary is independent from influences of members of government, citizens, or firms. Prevalence of Trade Barriers scores are based on the extent to which tariff and non-tariff barriers limit the ability of imported goods to compete in the domestic market. Business Impact of Rules on FDI rates to what extent rules governing foreign direct investment (FDI) encourage or discourage FDI. Trade Tariffs scores are based on the trade-weighted average tariff rate. Burden of Customs Procedures rates the level of efficiency of customs procedures (related to the entry and exit of merchandise). Extent and Effect of Taxation rates the impact that the level of taxes has on incentives to work or invest. Total Tax Rate, % of Profits is a combination of profit tax (% of profits), labor tax and contribution (% of profits), and other taxes (% of profits) Business Costs of Crime and Violence rates the extent to which incidence of crime and violence imposes costs on businesses. Irregular Payments and Bribes rates how commonly firms make undocumented extra payments or bribes connected with imports and exports, public utilities, annual tax payments, awarding of public contracts and licenses and obtaining favorable judicial decisions. Diversion of Public Funds how commonly public funds are diverted to companies, individuals, or groups due to corruption. Macroeconomic Environment evaluates the stability of the macroeconomic environment.

V&P INDEX PILLAR Rule of Law

Openness to International Trade & Business

Political Stability

INDICATORS USED / CONTRIBUTION Judicial Independence Property Rights Business Impact of Rules on FDI Prevalence of Trade Barriers Trade Tariffs Burden of Customs Procedures Business Costs of Crime and Violence

Taxation

Extent and Effect of Taxation Total Tax Rate, % of Profits

Corruption

Irregular Payments and Bribes Diversion of Public Funds

Fiscal & Monetary Administration

Macroeconomic Environment

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Indicators Used From This Source

39

THE HERITAGE FOUNDATION AND THE WALL STREET JOURNAL | 2014 INDEX OF ECONOMIC FREEDOM The Heritage Foundation and The Wall Street Journal produce the 2014 Index of Economic Freedom. The Index tracks economic freedom around the world through 10 benchmarks: Business Freedom; Trade Freedom; Fiscal Freedom; Government Spending; Monetary Freedom; Investment Freedom; Financial Freedom; Property Rights; Freedom from Corruption and Labour Freedom.        

Data Providers: The Heritage Foundation and The Wall Street Journal Description of Data Providers: Think tank (Heritage Foundation) and business publication (The Wall Street Journal) Data Type: Expert Assessment Number of Economies: 186 Frequency: Annual Public Access: Freely available Website: www.heritage.org/Index Sourced from the Heritage Foundation’s Index of Economic Freedom. Copyright 2011 Index of Economic Freedom: the link between economic opportunity and prosperity. Used with permission. For more information, visit www.heritage.org

Indicators Used From This Source Investment Freedom Restrictions on foreign investment can limit both inflows and outflows of capital. In a free environment, capital will flow to its best use where it is most needed and the returns are greatest. State action to redirect the flow of capital is an imposition on both the freedom of the investor and the freedom of the people seeking capital. The more restrictions a country imposes on investment, the lower its level of entrepreneurial activity and economic growth.

Fiscal Freedom is a direct measure of the extent to which individuals and businesses are permitted by government to keep and control their income and wealth for their own benefit and use. It includes both the direct tax burden in terms of the top tax rates on individual and corporate incomes, and the overall amount of tax revenue as a percentage of GDP. Fiscal freedom is the freedom of individuals and businesses to keep and control their income and wealth for their own benefit and use. A government can impose fiscal burdens on economic activity by generating revenue for itself, primarily through taxation but also from debt that ultimately must be paid off through taxation. Monetary Freedom, reflected in a stable currency and market-determined prices, is to an economy what free speech is to democracy. Free people need a steady and reliable currency as a medium of exchange and store of value. Without monetary freedom, it is difficult to create long-term value.

V&P INDEX PILLAR Openness to International Trade & Business

Taxation Fiscal & Monetary Administration

INDICATORS USED / CONTRIBUTION Investment Freedom Trade Freedom Fiscal Freedom Monetary Freedom

VRIENS & PARTNERS | Asia Pacific Investment Climate Index—2014

Trade Freedom reflects the degree of openness of an economy to imports of goods and services from around the world and the ability of citizens to interact freely as buyers and sellers in the international marketplace.

40