Investment Policy: Helping Developing Countries Attract and

Retain Investment SPIRA Program of DFAT and WBG

Investment Policy : Three key ideas

Investment policy is not about choosing between foreign and domestic investment

It is about connecting them through global value chains. Trade and investment are two sides of the same coin.

Foreign investment is not a transaction; it is a relationship An investment policy strategy should not only pursue attraction, but also enable the establishment, retention and linkages with the domestic productive sector, thereby

maximizing benefits from investment.

Not all types of investment are the same Different types of investment have different effects on socio-economic

development and thus require different policies. Countries should align the type of investment with different policies.

Proliferation of IIAs

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What is the relevance of these IIAs for domestic investment policy?

• International rule-making and convergence is gradually shaping domestic policy in an increasing number of investment-related areas…. • Entry • Protection • Incentives • Labor & Environment

• Rule-oriented framework are key for businesses (predictability, long-term

planning)

• For developing countries: the agreements are also essential to protect their interests in a globalized world

• Topic attracts attention of civil society, private sector, and governments

Investment Policy: Getting the right policy mix

Vision and Strategy

Investment Attraction

Investment Entry Retaining Investment

Linkages & Spillovers

Short-term, Concrete, Reform activities

Entry

Protection Incentives

Objectively Measureable

Development Impacts

Regional Integration

National level

Sub-national level

Economy-wide

Sector focus

Building blocs to address the investment lifecycle: 4 Pillars of Best Practices

Investment Incentives

Investment Entry

Investor Protection

Investment Linkages

• Promote transparency and reduce cost of incentive schemes

• Increase effectiveness in achieving different investment policy objectives, with a focus on: ─ Incentives for renewable

energy, health and agribusiness

─ Export promotion ─ Fostering linkages /

spillovers ─ Technology transfer, R&D

and innovation

Streamline FDI entry procedures

Identify and reduce entry restrictions: ‒ Equity ceilings ‒ Prohibitions to invest ‒ Performance

requirements ‒ Top managerial and

specialized personnel

Help client countries “unlock” investment constraints through investment protection: ‒ Expropriation ‒ Transfer and

Convertibility of Currency (T&C)

Increase the capacity of host States to address investors grievances

Remove the policy barriers to the development of FDI linkages and spillovers, especially in ancillary services

Identify policies generating an anti-competitive bias against local suppliers

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Investment Policy: Global Presence

AUSTRALIA (DFAT)-WBG (T&C) collaboration: SPIRA

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Support Program on Investment Policy and Related Areas (SPIRA)

♦ Context: Australia’s new Aid for Trade Investments Strategy. The new strategy announced the launch a new Support Program on Investment Policy and Related Areas (SPIRA) with a focus on the Indo-Pacific region. The SPIRA program was signed in June 2015 between DFAT and WBG.

♦ When SPIRA was announced in September 2015, Julie Bishop, Australia’s Minister for Foreign Affairs stated: “Australia’s contribution to this partnership with the World Bank will foster sustainable economic growth and poverty reduction in the Indo-Pacific region through increased private sector investment.”

♦ The Program’s first activities were launched in October 2015. Very swift mobilization on both sides.

SPIRA : An innovative program

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♦ Duration: First program period is 2 years (FY 2016- FY17). Current period expires on June 1, 2017 but an extension is envisaged.

♦ Initial budget : AUS$3 million.

♦ Catalyst: Each project receives “seed funding”. Allows teams to scope, secure client ownership, consult stakeholders, and design and launch a project that support some short-term reforms. Teams have to raise additional funds to put in place a broader or longer-term reform program

♦ Program is open to other donors but should retain Indo-Pacific focus.

♦ Management: Rachel Swain (Assistant Director in the Multilateral Aid for Trade Section, DFAT) and Christine Qiang (Investment Climate Practice Manager, WBG’s Trade & Competitiveness GP)

Support Program on Investment Policy and Related Areas (SPIRA)

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Description: 3 components Global Agenda, Country-Level Projects, and a Regional Agenda.

1. Global Agenda a) Development of a new, global Investment Climate Publication

focused on investment competitiveness in developing countries

b) Two International Investment Fora bringing together world experts on trade and investment to discuss today’s international investment regime; and

c) Development of Investment Policy and Promotion (IPP) Toolkits

DFAT-WBG collaboration (SPIRA)

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2. Country-Level-Projects (Indo-Pacific)

♦ The Investment Climate Team (IC) of the World Bank Group (WBG) provides advisory support to client governments to improve their investment policy frameworks and to maximize the effectiveness of investment promotion efforts.

♦ Following a “call for proposals” sent to WBG teams across Indo-Pacific, and consultations of DFAT posts in the field, 8 country projects were selected:

• Africa : Somalia, Madagascar • South Asia: Nepal, Sri Lanka • EAP: Cambodia, Lao PDR, Timor-Leste, Pacific

Islands

DFAT-WBG collaboration (SPIRA)

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3. Regional Agenda (being defined with DFAT) Given the increasing importance of regional integration and International Investment Agreements (including mega-regionals such as TPP, RCEP), DFAT and WBG are discussing the addition of a regional-level component that could, for instance, look at a particular IIA or mega-regionals and then: - Compare how the member countries organize certain areas of their

investment regime (investment incentives, investor protection, dispute resolution).

- Potentially identify reforms and changes that member countries could consider to “bridge the gaps” and implement the agreement

- Support peer-to-peer learning and exchanges (policy coordination).

Highlights from first 6 months (Start: Oct. 2015)

Title of Presentation 13

Global Agenda 1. IC Publication ♦ A global investor survey instrument was developed and is now being tested

with possible data providers (to better understand investor motivations).

2. IPP Toolkits ♦ 4 toolkits (strategy, entry, incentives, protection) were successfully launched. ♦ 2 toolkits (promotion, linkages) are under development (target: Sept 2016).

3. Investment Policy Forum: A large event on “Maximizing the Benefits of International Trade & Investment Agreements” is planned for September 2016 (TBC). Key resources: DFAT, WBG, members of the Regional Investment Analytical Group (RIAG) - such as the APEC Study Centre in Melbourne-, representatives from client countries, regional bodies, ISDS institutions such as ICSID.

Country-Projects Highlights: South Asia

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Sri Lanka: ♦The team is preparing a Development Policy Loan (DPL), for approval in

2016.

The combined efforts of the local WBG office and the SPIRA team are yielding promising results: ♦The e-visa reform already took place.

♦ Also, the Government stated its firm commitment in the 2016 Budget Plan

(November 2015) to adopt the following reforms - and SPIRA will support: 1.The adoption of a new Investment Act. 2.The elimination of the upfront payment of the tax imposed on the

leasing of land to majority-owned foreign enterprises 3.The formal approval of a one-stop shop to reduce transaction costs

faced by investors

Country-Projects Highlights :South Asia

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Nepal: ♦ Government requested assistance to help clarify and streamline their government-to-business (G2B) services notably in the areas of entry process for new investors and profit repatriation, with greater transparency and predictability.

♦ As a first major result, the team completed the delivery of the digital signature project (Dec.2015). This will enable business registration agencies and banks to approve businesses applications online.

♦ A Cloud platform is being procured to link 5 GoN agencies to access business registration information simultaneously

Country-Projects Highlights: Africa

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Somalia: 1. The team provided training on Public Private Dialogue (PPD) to 18 reform

champions from government and private sector who are driving Doing Business (DB) regulatory reforms.

2. Training was followed by mentoring support and facilitation to 4 working groups on: Tax, Starting and Business, Construction Permits, and Trading across Borders.

Madagascar: 1. Delivery of the WBG report on the National Trade Facilitation Committee. 2. Review of the Investment Act. Now working towards implementation support

with client. 3. The team conducted PPD training and met with key government and private

sector stakeholders to support the implementation and design of the PPD platform.

Country-Projects Highlights: EAP

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Cambodia:

1. As part of an ongoing IFC AS project, the IC team had conducted extensive analysis on the incentive regime (inventory, cost-benefit, investor motivation survey).

2. SPIRA support is enabling the team to finalize and deliver this work to the Council for the Development of Cambodia (CDC). The team is also helping CDC deliver several capacity-building workshops to share best practices in Investment Policy in Phnom Penh and the provinces.

3. A second phase of the project is being developed for submission to WBG Management approval in June 2016. It could include work on Investment Law reform , SEZ, or Linkages (TBD)

Country-Projects Highlights: EAP

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♦ Lao PDR and Timor Leste:

1. Unlike other countries where we had ongoing advisory programs, in these countries two new projects had to be developed by the WBG teams through scoping missions and extensive discussions with government counterparts.

2. The project documents were approved in March. A mission to Timor-Leste is deployed in April.

3. Teams are now starting the technical work.

4. Results more likely in Fiscal 2017 than this fiscal year. Want to initiate in this FY..

Country-Projects Highlights: EAP

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Pacific Investment Climate Rapid Response (PICRR):

1. The IPP team attended the Office of Chief Trade Adviser (OCTA) event on

PACER Plus in Brisbane, with all Forum Island Countries (FIC) negotiating teams and Ministers.

2. A workshop was conducted on “How to maximize agreements like PACER Plus to attract, retain, and link investment in FICs”.

3. Successful exploratory meetings were held with potential clients from Fiji, Vanuatu, Solomon Islands and Kiribati.

Other activities of the IC Team in EAP

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Active involvement in many EAP countries not currently SPIRA Program countries. For instance:

♦ Myanmar: IFC-led Investment Climate Reform program (supported by DFAT and DFID) assists the government in the opening and modernization of the economy. IC team worked on the new investment law under preparation. Extensive consultations with Civil Society. Also participated in 2 high-level workshops in Nay Pyi Taw (capacity building to Myanmar authorities):

-“Regional Comprehensive Economic Partnership (RCEP) and Negative Lists”, Nov. 2015. Xavier Forneris and Anne-Katrin Pfister, of the SPIRA team were invited as speakers, along with Richard Braddock, a trade lawyer from Australia and Chuck Schneider of IFC Myanmar. -“Investor-State Dispute Settlement (ISDS)”, January 2016. Roberto Echandi, our Global Lead for IPP, was among the speakers along with Richard Braddock.

Other activities of the IC Team in EAP

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Thailand: ♦ IC team is conducting analysis for the Ministry of Finance on how Thailand could attract more investment through IC reforms. Also looking at the new incentive regime (adopted in 2015).

♦ During last mission (February 2016), we visited the Australian Embassy in Bangkok to inform it on SPIRA activities in the region and also to provide information on the WB mission to Thailand and seek their feedback on Thailand’s investment climate.

Officers met included Mr. Ben Giles (Commercial Counsellor and Trade Commissioner, Australian Trade Commission) and Ms. Emma Tiaree (Regional South East Asia Counsellor for Development Cooperation).

Some of our other Investment Policy Partners

OECD Cooperation aimed at leveraging OECD’s Investment Policy Review assessments as diagnostic guidance for TA: – Modalities for cooperation agreed in 2013. – Piloting countries include Myanmar, Cambodia and Tunisia.

Australian APEC Study Center Cooperation on capacity building on investment policy and implementation of trade and investment agreements Membership in the Regional Investment Analytical Group (RIAG), recently established to encourage the use and the value and integrity of quantitative indicators to assess investment policy frameworks and performance in the Asia-Pacific region.

Columbia Center on Sustainable Investment Cooperation on research and knowledge-building with Karl Sauvant, focusing on investment incentives: – Collaborated on a Background Paper and Report for the Eighth Annual Columbia

International Investment Conference “Investment Incentives – The Good, The Bad, and the Ugly: Assessing the Costs, Benefits and Options for Policy Reform”

Georgetown University / Peterson Institute for International Economics Cooperation on research and knowledge-building with a focus on diversification and linkages between foreign investors and the domestic economy: – Collaboration on a research project and seminar on “Trade and Investment: The

Interrelationship and its Impact on the Global Value Chains”, led by Prof. Theodore Moran, Marcus Wallenberg Chair in International Business and Finance and Nonresident Senior Fellow at the Peterson Institute

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Contact Points within WBG

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Investment Climate / Investment Policy Global Team:

♦ Christine Qiang, IC Practice Manager (Cqiang@worldbank.org)

♦ Roberto Echandi, Global Lead, Investment Policy and Promotion (Rechandi@ifc.org).

♦ Xavier Forneris, Senior Investment Policy Specialist, EAP and SPIRA

coordinator (xforneris@ifc.org)

♦ Gerlin May Catangui, Pacific Coordinator (Gcatangui@ifc.org)

♦ Anne-Katrin Pfister, Consultant (apfister@ifc.org)

Trade & Competitiveness (T&C) Regional Team:

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EAP: ♦ Regional Practice Manager: Mona Haddad (mhaddad@worldbank.org) ♦ Cambodia: Lan Van Nguyen (nlan@ifc.org) ♦ Lao PDR: Mombert Hoppe (mhoppe@worldbank.org) ♦ Pacific Islands: Charles Schneider (cschneider@ifc.org), Gerlin May Catangui, Vsevolod Payevksiy

(vpayevskiy@ifc.org) ♦ Timor-Leste: Jose Ricardo Silva (jsilva1@ifc.org)

South Asia: ♦ Regional PM: Esperanza Lasagabaster (elasagabaster@worldbank.org) ♦ Sri Lanka: Emanuel Salinas Munoz (esalinas@worldbank.org) ♦ Nepal: Celia Ortega (cortega@ifc.org)

Africa ♦ Regional Practice Manager: David Bridgman and Catherine Masinde (cmasinde@ifc.org) ♦ Madagascar and Somalia: Fred Zake (fzake@ifc.org)