Good Governance For International Business: Asia Pacific 2011

Good Governance for International Business
Asia Pacific 2011
VRIENS & PARTNERS

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Good Governance for International Business | 2011

A Note from our Managing Partner About the Good Governance for International Business Index 2011 Results Overview of 2011 Results Summary Country Reports
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. Singapore Hong Kong New Zealand Australia Taiwan Japan South Korea Malaysia China Thailand Indonesia Vietnam India Sri Lanka Philippines Cambodia Laos Bangladesh Myanmar
i. 1 2 3 4
7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Results of the 6 Pillars

I. II. III. IV. V. VI. Rule of Law Openness to International Trade & Business Political Stability Taxation Corruption Fiscal & Monetary Administration
27 28 29 30 31 32 33 34 35
Acknowledgements Annex A: Methodology Annex B: External Sources
Dear Reader, It is with great pleasure we release the second annual Good Governance for International Business Index in Asia Pacific. In 2011 Singapore has managed to edge out Hong Kong for top spot in the region. Scoring in first or second position across all six pillars of measurement, Singapores even performance is unique among the 19 countries reviewed. Good Governance for International Business is the only index that focuses on the business climate for international companies and direct investors across Asia Pacific by evaluating and ranking 19 countries according to six criteria: Rule of Law, Openness to International Trade & Business, Political Stability, Taxation, Corruption, and Fiscal & Monetary Administration. The inaugural index was launched in 2010 and we believe the analysis provided here can be a useful tool for both businesses looking to compare potential destinations for expansion and governments hoping to improve their competitiveness in attracting foreign investment. The data for the composition of the index is drawn from a survey of business executives around Asia Pacific, expert assessment by Vriens & Partners and third-party data from trusted sources including the World Bank and the World Economic Forum.
_______________________
Hans W. Vriens
Managing Partner Vriens & Partners
i.
Good Governance for International Business

Asia Pacific - 2011
As globalization progresses, more countries are competing for Foreign Direct Investment (FDI). Vriens & Partners Good Governance for International Business index examines the provision of good governance for international business and investment. 2011s Asia Pacific index evaluates and ranks 19 economies in the region on 6 pillars. Each of these pillars has a major impact on business and investment decisions, and together they reflect an important aspect of an economy that is beyond the standard quantitative measures of market size, proximity, raw GDP growth or wage rates that also drive those decisions. Aside from being an aid to international investors in their decision making, we hope that by reviewing relative performance across each of the 6 pillars, the index can also assist regional policymakers. The data from this index can help identify areas for improvement as policymakers look to increase the competitiveness of their country and attract further, higher quality foreign investment to catalyse development and transform their economy.
The 6 Pillars
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. 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. 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 governments policy of security for the investment climate, stability of government, and the likelihood of a rapid reversal of progress made. 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 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 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.
II.
Openness to International Trade & Business
III.
Political Stability
IV.
Taxation
V.
Corruption
VI.
Fiscal & Monetary Administration
This years index includes a number of changes, including the addition of a political stability pillar and the removal of the public sector quality and effectiveness pillar, which was absorbed into the openness to international trade & business pillar, the taxation pillar, and the corruption pillar. Furthermore, V&P expert assessments, business executive survey, and third-party data inputs have been given equal weight in calculating each pillar score. As a result, caution should be observed in making narrow comparisons with the 2010 index.
VRIENS & PARTNERS | Good Governance for International Business Asia Pacific 2011
Good Governance for International Business Asia Pacific 2011 Overall Ranking
VI. Fiscal & Monetary Administration II. Openness to International Trade & Business V. Corruption I. Rule of Law IV Taxation III. Political Stability
Rank
Economy
Overall Score 90.2 87.3 85.5 80.7 72.2 69.9 67.8 66.0 57.5 56.4 48.9 48.4 46.0 45.2 44.0 43.5 41.9 37.3 30.1
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
Singapore Hong Kong New Zealand Australia Taiwan Japan South Korea Malaysia China Thailand Indonesia Vietnam India Sri Lanka Philippines Cambodia Laos Bangladesh Myanmar
2 4 1 3 6 5 8 7 9 10 14 13 12 11 15 16 17 18 19
1 2 3 4 5 7 8 6 11 9 12 16 15 14 10 13 18 17 19
1 3 2 4 5 6 7 8 9 11 15 10 13 12 17 16 14 18 19
2 1 3 8 6 10 5 4 14 9 11 13 17 18 15 7 16 12 19
2 4 1 3 6 5 7 8 10 9 14 12 13 11 15 16 17 18 19
1 2 5 3 6 11 4 8 7 9 10 14 15 18 12 17 13 16 19
Overview of the Results

This years index was topped by Singapore, with Hong Kong ranking a close second. Well known for maintaining open economies, these two cities have focused on providing good governance for international business across all six pillars in order to attract investment and grow their economies. New Zealand and Australia join these two cities in the top ranks, with consistent scores across the six pillars, with the notable exception of taxation in the case of Australia. The second group, ranging from 60 to 79, includes Taiwan, Japan, South Korea and Malaysia. Taiwan tops the group with even performance across all 6 pillars, while trailing Japan comes up weak on taxation and fiscal and monetary administration. South Korea scores strongly on fiscal and monetary administration, and should its FTA with the United States be implemented in 2012 its relatively weak score on openness to international trade and business should further improve. Malaysia again joins this group of advanced economies with a strong score for taxation and a continued commitment to openness to international trade and business. China and Thailands scores place them in a category of their own. Chinas score on fiscal & monetary administration has weakened over the past year, as has its openness to international trade & business. Thailand scored weakly on political stability, and though Julys successfully held elections present an opportunity to improve on that score, the ongoing flood crisis presents a degree of uncertainty. The range of 40-49 includes Vietnam, Indonesia, India, Sri Lanka, Philippines, Cambodia and Laos. Each of these diverse countries faces its own unique set of challenges in providing good governance for international business. They maintain varying degrees of commitment to openness and face many domestic challenges in managing their economic transitions. Finally, Bangladesh and Myanmar score in the 30s. While Bangladesh scored relatively well on the taxation pillar, very weak scores across the remaining pillars are not encouraging. Myanmar scores worst across all pillars, but encouraging changes this year following elections in 2010 have provided optimism that Myanmar will be able to start to open up its economy to international trade and business in 2012.
(80-100)
(60-79)
(50-59)
(40-49)
(0-39)
Good Governance for International Business | 2011

Country Reports
Summary 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. Singapore Hong Kong New Zealand Australia Taiwan Japan South Korea Malaysia China Thailand Indonesia Vietnam India Sri Lanka Philippines Cambodia Laos Bangladesh Myanmar
Summary
Singapore has successfully established itself as a regional hub for multinational corporations, attracted not only by the countrys geographical position, but by the city-states strong performance across all the pillars of good governance for international business. While business in the competing regional hub of Hong Kong is oriented towards China, many multinational companies have chosen Singapore as the base to oversee operations across Asia Pacific. This has secured Singapores status as one of the major business and trade hubs of Asia. Hong Kongs approach to good governance for international business is decidedly different from that of Singapore. Rather than taking an activist approach to attracting investment, Hong Kongs government generally focuses on providing and maintaining rule of law, low corruption and clear and simple administrative procedures. Given Hong Kongs inevitable movement towards political and economic integration with mainland China, the question is whether these areas will remain strong or weaken and move into closer equilibrium with Chinas current performance in these areas. For the moment, business leaders surveyed here indicate that they do not perceive the elements of good governance for international business to be worsening in Hong Kong, but neither do they perceive them to be improving. New Zealand and Australia join these two cities in the top ranks, with consistent scores across all pillars, with the notable exception of taxation in the case of Australia. New Zealand remains a very open economy, a policy stance that has endured three changes of government. No dramatic changes in policy are expected following the re-election the centre-right National Party on November 26th, 2011, which returned John Key as Prime Minister for a second term. Australias abundance of primary resources, sound regulatory framework, clear rule of law and western business culture continue to draw international business and investment. However, the political instability inherent in the current minority government has distracted Canberra from the issues facing the economy, and efforts to ensure that Australia remains friendly to international business and investment have in some cases been overshadowed by politicking. Taiwans economic prospects have become increasingly dependent on mainland Chinas economy especially since the signing of the Economic Cooperation Framework Agreement (ECFA) in June of 2010 and the stability of the political situation is central to Taiwans continued success. The transparency of Japans policy-making processes has improved in recent years. First, there have been several attempts some more successful than others to introduce greater transparency to interactions between Japanese politicians and business. The net impact of these changes has been positive for foreign investors, as it has encouraged politicians to take less account of narrow local interests and think instead of public interest considerations. The emerging scandal at Olympus may yet lead to better and more transparent corporate governance as regulators consider their response to an episode that has shaken confidence. South Korea has made great strides in openness to international trade and business over the past year. The ratification of the Korea-US FTA in late November 2011 more than four years after it was originally signed (and subsequently renegotiated) is a positive step in good governance for international business. However, the move has exacerbated a rift in Korean politics and society, ostensibly between the business and political establishment and parts of the wider population - particularly those on the left of the political spectrum, but also with young people more broadly. Business leaders surveyed by V&P noted that in Malaysia openness to international trade and business is improving, but perceive political stability to have somewhat weakened. Upcoming General Elections, which may be held in early 2012, appear set to see the opposition regain states such as Perak, but it is not expected to win an outright majority in the federal parliament. Foreign direct investment has bounced back to pre-crisis levels, and will likely further improve if ongoing free trade talks with the EU, scheduled to end in 2012, prove successful. Opposition held state Penang has pulled in substantial foreign investment, indicating that political change has not scared off investors. The perception of Chinas openness to international trade & business has suffered considerably over the past year. A number of high profile fines on Unilever and Walmart in 2011, for unauthorized price increases and mislabelling respectively, have been widely interpreted as part of a wider move by the government to further tighten the regulation of foreign companies. Thailands real weakness, besides the absence of outstanding performance on any one pillar, is in
political stability. 2011 was a watershed year for Thailand, literally and figuratively, with the national elections in July propelling the Thaksin Shinawatraallied Pheu Thai Party to power followed shortly by some of the worst floods in 50 years inundating much of central Thailand and eventually Bangkok. In light of the floods, a major challenge for the government of Thailand in 2012 will be to restore investor confidence. Anti-government groups are likely to stage protests, especially if former Thai Rak Thai politicians are given cabinet portfolios in forthcoming cabinet reshuffles, but the strength of the governments electoral support, as well as a lack of credible parliamentary alternative should keep the government in office. Finally, uncertainty over the King's health and the royal succession implies a further degree of uncertainty. Although interest in Indonesia among both direct and portfolio investors is at its highest point since the Asian Financial Crisis of 1997-1998, this is more testament to current global economic turmoil than to any dramatic structural changes in Indonesias investment climate. Economic nationalism continues to pervade political and regulatory dialogues in Indonesia, and a disturbing manipulation of state institutions against foreign investors. Indeed, the increasingly overmatched Corruption Eradication Commission (KPK) is under siege from vested interests including politicians, judges, and law enforcement. In spite of these problems, Indonesias macroeconomic fundamentals remain strong, with manageable public spending, sensible foreign exchange policies, and the successful control of so-called hot money inflows and outflows that can undermine business certainty and promote financial contagion. The macroeconomic situation in Vietnam has continued to deteriorate since late 2010, characterized by the downward spiral of the Dong, a high inflation rate and a rising trade deficit. Occupied with the National Congress of the Communist Party of Vietnam and the consequent government reshuffle, Vietnam was slow to address these pressing macroeconomic problems. Once fiscal and monetary policies aimed at curbing inflation and strengthening the local currency were implemented, they were done so in such a rushed and uncoordinated manner that they brought few positive effects for the economy, instead creating more uncertainty for both local and international business and investors. With such demonstrated weakness in implementing policy, it is unlikely that Vietnam will overcome this economic downturn in the short term. India was shaken by a number of high profile corruption cases in 2011, which lead to a series of
demonstrations and protests activated Indias growing middle class previously considered to be politically disinterested and eventually led to an agreement to establish an independent anticorruption ombudsman. With the official cessation of a longstanding civil war more than 2 years ago, Sri Lanka has begun to enjoy the fruits of economic development that were otherwise constrained during the conflict. The country has set out on a path towards economic and political liberalization, and there exists a sense among business executives that Sri Lanka might be in the early stages of a sustained economic transformation. Business confidence in the Philippines has risen tremendously in the past year. The new Aquino government appears to have taken a hard stance against corruption, and if he is also able to address the issue of how to modernize infrastructure then two main investment concerns will have been addressed. The overall investment environment in Cambodia is positive and improving. The legal regime for investment is one of the most liberal in the region, with the only distinction between foreign and local investors being the ability to own land. Nonetheless, weaknesses across the pillars of good governance for international business have limited Cambodias potential to attract FDI. Business leaders indicate that Laos has made impressive gains in openness to international trade and business and fiscal monetary administration over the past year. Mining and hydropower have rapidly expanded, and have produced the lions share of the countrys impressive GDP growth. With the economy overly dependent on the resource sector, more reforms are needed to attract foreign investment in other sectors. Bangladesh scores remarkably well on the taxation pillar, as the current government has looked to reform the countrys out-dated tax code. With the provision of a more competitive tax regime often the easiest reform necessary to attract foreign investment, other fundamental inhibitors to investment remain across the remaining five pillars of good governance for international business. Finally, Myanmar has seen a series of surprising policy shifts this year following the elections of November 2010 reforms that contrast starkly with years of entrenched authoritarianism. These positive changes have resulted in tentative reengagement by Western governments, which could pave the way for an improving business and investment climate.
1. Singapore 90.2
Individual Pillar Scores / (Rank)
I. Rule of Law II. Openness to International Trade & Business III. Political Stability IV. Taxation V. Corruption VI. Fiscal & Monetary Administration
0 50 89.4 (2nd) 91.8 (1st) 89.1 (1st) 89.0 (2nd) 92.7 (2nd) 89.1 (1st) 100
Development Indicators
Population GDP growth (annual %)
2010
FDI, net inflows

$50
5.08 million 14.5% $43,867 $57,505
$40 $30 $20 $10 $0
$38.638 Billion
GDP per capita

current US$
GDP per capita, PPP

current international $
net inflows
Source: World Bank World Development Indicators, 2010
2000
2002
2004
2006
2008
2010
Singapore tops this years index, having placed 1 second in last years ranking . Scoring in first or second position across all six pillars, Singapores even performance is unique among the 19 countries reviewed. Singapore has successfully established itself as a regional hub for multinational corporations, attracted not only by the countrys geographical position, but also by its strong performance across the pillars of good governance for international business. While business in the competing regional hub of Hong Kong is oriented towards China, many MNCs have chosen Singapore as a base to oversee operations across Asia Pacific. This has secured Singapores status as one of the major business and trade hubs of Asia. Singapores political stability is owed in part to the continued strength of the Peoples Action Party (PAP). Despite the fact that the party suffered its worst results in an election since independence this past June, the party retained 81 of 87 seats in parliament. In the aftermath of the elections, the PAP has given strong indications that it intends to respond positively to both the
1
desire for greater political openness and the concern that the interests of Singaporean citizens come first. Business is already feeling the effects of more restrictive immigration and labour policies that have been enacted over the past year. In fact, more than half of the business executives surveyed noted lack of local human capital as one of the top problems doing business in Singapore. Both due to its size and the makeup of its economy, Singapore is particularly susceptible to the leanings of the global economy. As such, 2011s ups and downs in overall economic performance were certainly not unique. However, the government has struggled with a high rate of inflation, which this year spread dramatically from the housing market to daily consumables. Even with its strong performance in good governance for international business, Singapore continues to actively pursue policies to ensure its continued competitiveness. This is mainly seen in ongoing tax reform an array of incentives for foreign companies to move global or regional operations. In addition, an ever expanding web of free trade agreements encourages further growth. The latest - the EU-Singapore FTA - is still under negotiation, but should be finalized in 2012.
This is not only due to Singapores strong scoring, but also due to changes in how the index is constructed.
FDI
$38.64 billion
2. Hong Kong 87.3

Individual Pillar Scores/ (Rank)
0 50 86.2 (4th) 91.4 (2nd) 84.9 (3rd) 89.5 (1st) 84.3 (4th) 87.7 (2nd) 100
2010
FDI, net inflows

$80
7.07 million 6.97% $31,758 $46,157 $68.91 billion
$68.915 Billion
$60 $40 $20 $0
GDP per capita

current US$
GDP per capita, PPP

net inflows
2000
2002
2004
2006
2008
2010
While Hong Kong SAR (Special Administrative st nd Region) dropped from 1 to 2 on the index this year, it remains one of the top centres in the Asia Pacific region in good governance for [1] international business . The economys high rankings on taxation, openness to international business and trade and fiscal and monetary policy indicate that Hong Kong will remain an attractive hub for international business in the region. Hong Kongs approach to good governance for international business is decidedly different from that of Singapore. Rather than taking an activist approach to attracting investment, Hong Kongs government generally focuses on providing and maintaining rule of law, low corruption and clear and simple administrative procedures. Hong Kong SAR is geographically and politically positioned to benefit from mainland Chinas development and economic expansion, and in the past decade Hong Kong has assumed an important role in mainland Chinas development. While FDI into Hong Kong is second worldwide only to China, much of that FDI is routed through the SAR into mainland China. Hong Kong has also
[1]
maintained its place as an important centre for multinational headquarters, despite increased competition from Singapore, and more recently Shanghai. Hong Kongs somewhat weaker index scores on corruption, political stability and rule of law are nonetheless very high for the region. Given the inevitable movement towards political and economic integration with mainland China, the question is whether these areas will remain strong or weaken and move into closer equilibrium with Chinas current performance in these areas. For the moment, the business leaders surveyed indicate that overall they do not perceive the pillars of good governance for international business to be worsening in Hong Kong, but neither do they perceive them to be improving. For now inflation is a key concern in Hong Kong, particularly in the property market, and while the government has taken an active approach in order to minimize the effects, policy directed from Beijing to cool mainland inflation is equally important in managing the issue.
This is drop due not only to changes in performance but a change in how the index is constructed.
FDI
3. New Zealand 85.5

0 50 79.9 (5th) 100 91.9 (1st) 83.2 (3rd) 87.5 (2nd) 76.9 (3rd) 93.9 (1st)
2010
FDI, net inflows

$6
4.3 million 2.5% $29,352 $29,914 $602 million

$4 $2 $0 -$2
GDP per capita

current US$
GDP per capita, PPP

$602 Million
net inflows
2000
2002
2004
2006
2008
2010
New Zealand achieved the top score in rule of law and remains the least corrupt country in Asia Pacific. New Zealands strong rule of law is upheld by a professional judicial system, and the business environment is further buttressed by sound accounting practices and banking services. While the country achieved a relatively weak score on fiscal and monetary administration, the countrys banks - most of them Australian subsidiaries were not particularly affected by the 2008 crisis. New Zealand remains a very open economy, a policy stance that has endured three changes of government. No dramatic changes in policy are expected following the re-election of the centreth right National Party on November 26 , 2011, which returned John Key to a second term as Prime Minister. The National Party campaigned on the partial privatisation of several state enterprises which should present business opportunities for investors if successfully implemented. Apart from core government functions, the New Zealand government has distanced itself from playing a major role in investments. The government will continue to focus on growth in 2012 and 2013, driven in part by the reconstruction of
Christchurch following the earthquake in February. This event, coupled with compensation payments arising from the collapse of financial institution South Canterbury Finance, threw fiscal policy off course in 2011. However, strong monetary policy has endured, and the country has experienced much lower inflation in the past few years than in the whole of the 1970s-80s. Corporate taxation remains relatively competitive, especially when compared to neighbouring Australia. The government increased the GST (Goods and Services Tax) in 2010 in an effort to boost revenue. Although there has been stability in terms of the market policy of the last three governments, the past few years have seen the native Maori push for greater autonomy. As a member of the ruling coalition, the Maori Party gained a major concession on Marine and Coastal Area Act of 2011, with replaced the controversial Foreshore and Seabed Law. Overall, New Zealand currently seems to be on a stable path, with benefits to be had from its FTA with China, and the likelihood of more such agreements in future.
FDI
4. Australia 80.7
0 50 60 (8th) 87.8 (3rd) 83.8 (3rd) 100 88 (3rd) 80.6 (4th) 83.8 (4th)
2009
FDI, net inflows

$60
22.3 million 1.3% $42,130 $39,406
$40 $20 $0 -$20 -$40
$30.58 Billion
GDP per capita

current US$ (2009)
GDP per capita, PPP

current international $ (2009)
net inflows
2000
2002
2004
2006
2008
2010
Despite scoring weakly on taxation, Australias strong scores across the remaining five pillars of good governance for international business secure its place among the top economies in the Asia Pacific region. Australias abundance of primary resources, sound regulatory framework, clear rule of law and western business culture continue to draw international business and investment. However, the political instability inherent in the current minority government has distracted Canberra from the issues facing the economy. Efforts to ensure that Australia remains friendly to international business and investment have in some cases been overshadowed by politicking. Australias Federal Government has extended numerous legislative concessions to minority parties, some of which have presented a threat to new capital expenditure. New policies, such as a carbon tax and a Minerals Resource Rent Tax, will potentially raise operating costs and dampen the prospects of junior businesses. This environment is increasingly seen as capricious by investors. Openness to international trade and business was also challenged this year with the rejection of a bid by the Singapore Stock Exchange (SGX) to buy the
Australian Stock Exchange (ASX). This rejection was only the latest in a long list of attempted mergers and acquisitions that have been rejected by several Australian governments on national interest grounds. Facing ever more competitive tax regimes in the region, including New Zealands, the government of Australia continues to pursue low-political risk revenue solutions, rather than fundamental tax reform. While Australias large-scale commodity exporters are benefitting from a high dollar and excess demand, predominantly from China, secondary industries are suffering due to increasing costs of raw materials and a lack of interest from off-shore markets. The serious risk of a slowdown in China could have an extremely negative effect on the Australian economy. An associated decline in raw ore prices would undoubtedly have knock-on effects across the entire economy. Developments in infrastructure are mainly limited to an effort by the central government to deliver universal broadband, but new container terminals in Brisbane and Sydney, as well as new ports in Western Australia, are facing slow progress.
10
FDI
$30.58 billion
5. Taiwan 72.2
0 50 70.2 (6th) 74.4 (5th) 74.4 (5th) 67.9 (6th) 69.1 (6th) 77 (6th) 100
2010
FDI, net inflows

$10
23 million 10.8% $18,558 $35,700
$8 $6 $4 $2
GDP per capita

current US$
GDP per capita, PPP

net inflows
Source: World Bank World Development Indicators 2010, UNCTADStat
$0
2000
2002
2004
2006
2008
2010
While scoring well below the top contingent, Taiwan topped the remaining advanced economies in the Asia Pacific region through even and consistent performance across all six pillars. Taiwan continues to perform well on openness to international trade & business. The economy remains export oriented and Taiwans companies are displaying increasingly impressive innovative capabilities. Economic prospects have, in recent years, become increasingly dependent on mainland Chinas economy especially since the signing of the Economic Cooperation Framework Agreement (ECFA) in June of 2010. Taiwans political stability is always an open question. National elections are scheduled to be th held on January 14 2012, and at the time of writing the race looks like a dead heat between the incumbent President Ma Ying-jeou and opposition leader Tsai Ing-wen. During his term, President Ma has engineered and implemented a series of policies which have opened up Taiwans economy to mainland China. While these policies have undoubtedly improved Taiwans economic prospects in the time since they have been implemented, opposition
candidate Tsai has campaigned on a reversal of what a significant number of citizens believe to be a pro-China policy that threatens to compromise Taiwans de facto sovereignty and independence. This may include rolling back on some of the new economic linkages, but realistically Tsai would likely encounter enormous pushback from Taiwans powerful industrialists. The greater threat for the Taiwanese economy is a shift in Beijings policy with regards to Taiwan in response to any renewed calls for independence. Taiwans rule of law remains suspect, and the arrest, trial and jailing of former President Chen Shui-bian, regardless of guilt, contained troubling irregularities. However, whatever institutional weakness may exist in Taiwans judicial system, international executives surveyed regard legal protections for business to be adequate. Finally, the fiscal and monetary administration of Taiwan is one of its strongest attractions, allowing the country to pull through the slowdown of 2009 relatively unscathed. A drop in demand led the government to encourage domestic demand and cut tariffs, in an effort to maintain a diversified economy and maintain growth in its electronics and technology industries.
11
FDI
$ 2.492 billion
$2.492 Billion
6. Japan 69.9
0 50 61.5 (11th) 100 55.3 (10th) 82.2 (5th) 65.6 (7th) 74.2 (6th) 80.8 (5th)
2010
FDI, net inflows

127 million 5.1% $43,136 $33,993 -$1.36 billion
$30 $20 $10 $0 -$10
GDP per capita

current US$
GDP per capita, PPP

FDI
net inflows
2000
2002
2004
2006
2008
2010
Japan scored somewhat inconsistently on good governance for international business, with relatively strong scores on rule of law, corruption and even political stability, while suffering rather weak scores on taxation and fiscal and monetary administration. Despite the political instability inherent in the continuously revolving door of Japans Prime Ministers office, the government has in fact produced some quality legislation over this period. Moving forward, the reconstruction effort that has followed the earthquake and tsunami of March 2011 will drive growth in the coming years, and may present opportunities to push through much needed economic transformation. In the meantime, Japans fiscal and monetary situation remains weak, and the government and bureaucracy appear unable to make the hard policy choices necessary to promote an improvement in the figures. As such, international business can expect to see a continuation of the high taxation rates in the short to medium term. Weaknesses in Japans corporate governance standards and business practices were also put on
public display in late 2011 when it was revealed that Olympus board members had been involved in a decades long cover-up involving hundreds of millions of dollars. This scandal has called into question the integrity of Japanese corporate governance standards on a broad scale, and may lead to a regulatory response from the government a revision of the company law is currently under way. Business executives surveyed almost unanimously pointed to a lack of openness to international trade and business as a serious problem for carrying out operations in Japan. While cultural and language barriers present a hindrance to international investment, if one only looks at formal barriers to trade and restriction on investment, Japan is in fact a very open economy. Regardless of the shortcomings in Japans provision of good governance for international business, the country remains a huge and sophisticated market that remains largely untapped by international business. The Japanese government has recently expressed an interest in joining talks on the Trans-Pacific Partnership (TPP) a move that will set the stage for a renewed focus on regulatory reforms.
12
-$1.36 Billion
7. South Korea 67.8

0 50 63.7 (8th) 64.1 (8th) 65.4 (7th) 68.1 (5th) 64.7 (7th) 81 (4th) 100
2010
FDI, net inflows

$10
48.9 million 6.2% $20,757 $29,003 -$150 million
$8 $6 $4 $2
GDP per capita

current US$
GDP per capita, PPP

FDI
net inflows
-$2
$-150 Million
2000 2002 2004 2006 2008 2010
South Korea scored relatively well in this years index and, in contrast to neighbouring Japan, scored particularly well on fiscal and monetary administration. In fact, South Korea also bested Japan on taxation having implemented extensive tax reform in late 2010/early 2011 but performed relatively weakly on rule of law, corruption and political stability, giving Japan the edge over South Korea overall. Over the past year, South Korea has made great strides in openness to international trade and business. The ratification of the Korea-US FTA in late November 2011 more than four years after it was originally signed (and subsequently renegotiated) is a positive step in good governance for international business. July 2011 also saw the provisional implementation (pending final ratification) of the EU-South Korea FTA. With these two new major FTAs in place, South Korea can now claim to have concluded FTAs with 61% of the world economy in GDP terms. This years progress may also accelerate similar negotiations with China and Japan. However, these developments have also exacerbated a rift in Korean politics and society, ostensibly between the business and political
establishment and parts of the wider population particularly those on the left of the political spectrum, but also with young people more broadly. This rift has most recently manifested itself in the election of a lawyer-turned-civic activist Park Won-soon to the post of Mayor of Seoul the first independent to have won the post. This development will likely lead to a reconfiguration of South Koreas political landscape, as civic groups begin to play a larger role in politics and the traditional establishment parties orchestrate their response. 2012 will see not one but two major elections the first in April for the National assembly, and the second for the Presidency in December. While South Korea continues to make itself more open to international trade and business, its own indigenous companies continue to do well internationally. In addition to its well known consumer technology companies, South Koreas engineering, construction, oil and gas and petrochemical companies have reached far beyond the countrys borders to compete internationally.
13
$0
8. Malaysia 66.0
0 50 56.7 (8th) 70.8 (8th) 100 67.7 (7th) 67.6 (6th) 61.9 (8th) 71.4 (4th)
2010
FDI, net inflows

$10 28.4 million 7.16% $8,373 $14,591 $9.103 billion $0 $8 $6 $4 $2
$9.103 Billion
GDP per capita

current US$
GDP per capita, PPP

net inflows
2000
2002
2004
2006
2008
2010
Malaysia has again scored above and beyond it neighbors in Southeast Asia, with the exception of Singapore. Malaysia scored particularly well on taxation and openness to international trade and business, but relatively weakly on measures of corruption and political stability. Business leaders surveyed by V&P noted that openness to international trade and business was in fact improving in Malaysia, but perceive political stability to have somewhat weakened. July 2011 saw a government crackdown on the Bersih 2.0 rally, in support of clean and fair elections, in the capital of Kuala Lumpur. Considered an opposition rally, more than 1600 people including a number of opposition figures - were arrested by police for gathering without a permit. Upcoming General Elections, which may be held in early 2012, appear set to see the opposition regain states such as Perak, but it is not expected to win an outright majority in parliament. Either way, a poor performance by Barisan Nasional could jeopardise PM Najibs position, currently under pressure from a range of UMNO factions aligned against him. In the meantime, PM Najib has undertaken a number of ostensibly liberal
moves, including an announcement that he intends to repeal the Internal Security Act in 2012. Though Malaysia has generally been perceived as lax on corruption, there have been some signals that government officials are being reprimanded. The most high-profile case this year was the Port Klang Free Zone Scandal, involving the former Transport Minister. That said it remains to be seen whether or not he will be found guilty. FDI has bounced back to pre-crisis levels, and will likely further improve if ongoing free trade talks with the EU, scheduled to end in 2012, prove successful. Opposition held state Penang has pulled in substantial foreign investment, indicating that political change has not scared off investors. Najibs ongoing Economic Transformation Programme aims at further promoting foreign investment and developing Malaysia into a highincome country by 2020. Given the long lead times for the programmes projects, it remains to be seen if it will be a success. Finally, the government of Malaysia is in talks to sign up to the Trans-Pacific Partnership (TPP), which the US is promoting as an alternative to the Doha round.
14
FDI
9. China 57.5
0 50 56.9 (9th) 54 (11th) 60.0 (9th) 51.6 (14th) 46.7 (10th) 76.2 (7th) 100
2010
FDI, net inflows

$200
1.3 billion 10.3% $4,392 $7,536 $185.1 billion
$185.1 Billion
$150 $100 $50 $0
GDP per capita

current US$
GDP per capita, PPP

current international $ net inflows
2000
2002
2004
2006
2008
2010
China falls in the mid-point of the good governance for international business index. Trailing Taiwan, Japan, South Korea, and Malaysia, China nonetheless scores markedly higher that Vietnam, Indonesia and India. Chinas relatively strong scores on fiscal & monetary administration may be threatened in the coming years as a looming economic downturn threatens, partly due to the refocusing of the economy from export-led to an emphasis on domestic consumption. China is currently undergoing a mini-credit crisis, and the countrys policy toolkit is far more limited now than it was in 2008. In the interim the government appears to have overcome the inflation that rattled the economy in late 2010/early 2011. Chinas short to medium term political stability appears secure, with the change in government forthcoming in 2012-13 expected to move forward smoothly. Xi Jinping is likely to become President whilst Li Keqiang will take the role of Premier. Although many lower ranking officials will also be replaced, and many companies will have to forge new contacts within government, no dramatic policy shifts are anticipated.
The latest 5-year guidelines, released in 2011, indicate that the government will focus on expanding domestic consumption, reducing export dependence, reducing environmental impact of economic growth, ensuring a more even distribution of wealth and developing innovation. Each of these areas of focus represents significant opportunities for foreign companies in China. The government has also identified seven Strategic Emerging Industries, which will be promoted thorough a combination of government directed investment, tax incentives, and access to financing. While this may superficially appear positive for foreign business, policy provisions are likely to favour local companies, or demand further knowledge transfers from foreign companies. The perception of Chinas openness to international trade & business has suffered considerably over the past year. A number of high profile fines on Unilever and Walmart in 2011, for unauthorized price increases and mislabelling respectively, have been widely interpreted as part of a wider move by the government to further tighten the regulation of foreign companies.
15
FDI
10. Thailand 56.4

0 50 56.8 (10th) 61.8 (9th) 47 (11th) 59.8 (9th) 47.5 (9th) 65.7 (9th) 100
2010
FDI, net inflows

$12
69.1 million 7.803% $4,613 $8,490 $6.306 billion
$10 $8 $6 $4 $2 $0
GDP per capita

current US$
$6.306 Billion
GDP per capita, PPP

net inflows
2000
2002
2004
2006
2008
2010
Thailands ongoing weakness, besides the absence of outstanding performance in any one pillar, is in political stability. 2011 was a watershed year for Thailand, literally and figuratively. The national elections in July propelled the Thaksin Shinawatraallied Pheu Thai Party to power. The emphatic nature of the result appeared to cool tensions, however, the fundamental roots of the five year political crisis have not been seriously addressed and political sniping has continued, catalyzed in part by criticism of the governments handling of the disastrous floods that have submerged much of central Thailand and parts of Bangkok for several months. The floods have taken their toll on a wide range of sectors, including the hugely important automotive sector, electronics, agriculture and aquaculture. Many of the vast number of businesses affected will remain occupied with restoration for at least the first part of 2012. The impact on local banking and insurance has not been catastrophic, as most claims had been re-insured with overseas institutions. The construction sector will see sharp demand for housing restoration, and possibly also later from the massive infrastructure projects that will need to be undertaken to ensure that such floods are not repeated.
In light of the floods, a priority for the government in 2012 will be to restore investor confidence. With the country still under water, the prime minister has already formed two super committees tasked with providing policy recommendations to avoid a repeat of the this disaster and the government has announced that corporate income tax will be lowered from 30%, to 23% beginning in 2012, and further to 20% from 2013. The government is expected to continue to pursue the populist policies announced during the election campaign, with the budget for the 2012 fiscal year being in the range of US$80 billion. However, the planned increase in minimum daily wage has been postponed to 1 April 2012 for Bangkok, surrounding provinces, and Phuket. For other provinces, the 40% increase is set to be implemented in 2013. A cabinet reshuffle is likely in early 2012, and possibly again later in the year. Anti-government groups are likely to protest if former Thai Rak Thai politicians return to the cabinet but Pheu Thais electoral strength as well as the lack of a credible parliamentary alternative should keep the government in office. Finally, uncertainty over the King's health and the royal succession implies a further degree of uncertainty.
16
FDI
11. Indonesia 48.9

0 50 33.5 (14th) 65.7 (10th) 100 39.8 (14th) 53.9 (12th) 45.4 (15th) 54.8 (11th)
2010
FDI, net inflows

$15
239.87 million 6.1% $ 2,946 $4,293
$10 $5 $0 -$5 -$10
13.3 Billion
GDP per capita

current US$
GDP per capita, PPP

net inflows
2000
2002
2004
2006
2008
2010
Weakness and uncertainty in the direction of the countrys rule of law, political stability and corruption threaten to take Indonesia down a notch in 2012. Although interest in Indonesia among both direct and portfolio investors is at its highest point since before the Asian Financial Crisis of 1997-1998, this is more testament to current global economic turmoil than to any dramatic structural changes in Indonesias investment climate. Economic nationalism continues to pervade political and regulatory dialogues in Indonesia, with an emphasis on contract renegotiations, the divestment of assets from foreign to Indonesian ownership, and a disturbing manipulation of state institutions against foreign investors. Indonesias legal system remains largely unreformed and under the control of startling pervasive mafias (as they are known in Indonesia). On top of that, the increasingly overmatched Corruption Eradication Commission (arguably Indonesias most credible institution) is under siege from vested interests including politicians, judges, and law enforcement. In spite of these problems, Indonesias
macroeconomic fundamentals remain strong, with manageable public spending, sensible foreign exchange policies, and the successful control of so-called hot money inflows and outflows that can undermine business certainty and promote financial contagion. The appetite of China and India for unprocessed natural resources, and the reliance on domestic consumer spending rather than exports to drive growth has helped create conditions conducive for growth in spite of global economic instability. Infrastructure continues to be the bottleneck of Indonesias economic growth, and public and private investment remains inadequate with respect to need. The recent collapse of a major bridge in East Kalimantan, the most economically critical province outside Java, further demonstrates the level of mismanagement of public infrastructure. Finally, Indonesia has scheduled electionsboth presidential and legislativefor 2014 when President Yudhoyono, well known for his attempts to implement a reformist agenda, will be stepping down, leaving open the question of whether his successor will continue his efforts in delivering political and economic reform.
17
FDI
$13.304 billion
12. Vietnam 48.4

0 46.9 (13th) 44.7 (16th) 54.9 (10th) 51.9 (13th) 39.2 (12th) 53.0 (14th) 50 100
2010
FDI, net inflows

$10
86.94 million 6.78% $ 2,946 $3,181

$5
$8 Billion
GDP per capita

current US$
GDP per capita, PPP

$0
2000
2002
2004
2006
2008
2010
Vietnam faces an array of challenges in 2012 if it expects to improve or even maintain its present rank and score. Weakness in Vietnams fiscal and monetary administration threatens the overall economy, and has also weakened the countrys openness to international trade and business. With poor macroeconomic management and the resulting lower projected GDP growth rate, Vietnam also risks its attractiveness as a large and young market for foreign business. The macroeconomic situation has continued to deteriorate since late 2010, characterized by the downward spiral of the Dong, a high inflation rate and a rising trade deficit. Occupied with the National Congress of the Communist Party of Vietnam and the government reshuffle in the first half of 2011, Vietnam was slow to address its pressing macroeconomic problems. Once fiscal and monetary policies aimed at curbing inflation and strengthening the local currency were implemented, they were done so in such a rushed and uncoordinated manner that they brought few positive effects for the economy, instead creating more uncertainty for both local and international business and investors. With such demonstrated weakness in implementing
policy, it is unlikely that Vietnam will overcome this economic downturn in the short term. Labor conflicts have become an emerging problem as inflation has put pressure on wages and Vietnam has yet to install an effective policy framework to mediate labor relations. As a result, manufacturing is at risk of work stoppages and industrial disputes in 2012. Regardless of these problems, Vietnams medium term political stability and policy direction appears secure, with Prime Minister Nguyen Tan Dung remaining in office for a second term. Considered one of the most pro-business and pragmatic leaders in Vietnam, PM Dung drove the opening of Vietnams market to foreign investors, and is committed to align Vietnams business policies with international standards. While market liberalization is likely to continue, the pace of liberalization will largely depend on the outcome of an internal struggle between the Communist Partys liberal and conservative factions, as well as lobbying from state-owned companies with vested interests in market protectionism.
18
FDI
$8 billion
13. India 46.0

0 47.4 (12th) 47.6 (15th) 45.7 (13th) 46.4 (17th) 37.7(13th) 51.2 (15th) 50 100
2010
FDI, net inflows

$50
1.2 billion 9.7% $1,477 $3585.7
$40 $30 $20 $10 $0
GDP per capita

current US$
GDP per capita, PPP

$24.2 Billion
net inflows
2000
2002
2004
2006
2008
2010
India is a major destination worldwide for FDI, driven by its huge local market and workforce. Yet India faces serious weaknesses in providing good governance for international business, and these weaknesses represent a serious barrier to further expansion of much needed foreign investment in the country. While the Indian economy has benefitted greatly by more than twenty years of liberalization since 1991, further improvements of Indias openness to international trade and business remain hard won. The governments recent decision to allow 51% multi-brand retail FDI provoked outrage in some political circles and sectors of society, with one MP famously declaring that he would burn Walmart to the ground if it opened in India. Regardless, the move could be a major coup for international business in India and, if it stands, large multinational retailers are sure to pile into the Indian market. India was shaken by a number of high profile corruption cases in 2011, which lead to a series of demonstrations and protests that coalesced around a hunger strike undertaken by anti-corruption campaigner Anna Hazare. The movement activated Indias growing middle class previously considered
to be politically disinterested and eventually led to a number of major concessions by the government, most notably an agreement to establish an independent anti-corruption ombudsman. This attention bodes well for India, as the rate of corruption in the country remains abysmal. Indias fiscal and monetary administration also remains weak. While India was more or less unscathed by the global financial crisis, this was due more to its relative isolation rather than its strong technocratic governance. Economic growth in 2011 is lower than projected, around 7.7% in the last quarter, due to the 13% interest rate increase that the central bank enacted in an attempt to stem near double-digit inflation. Indias innovative private sector, which manages one way or the other to overcome the inefficiencies of the public sector, is a notable strength of the Indian economy. The IT sector is chief among these. It is also a sector, rare in India, which is directly linked to the health and performance of the global economy. In recent years, many Indian IT companies have begun setting up operations abroad and competing in markets traditionally dominated by western companies.
19
FDI
$24.2 billion
14. Sri Lanka 45.2

0 50.6 (11th) 48.0 (14th) 46.8 (12th) 42.2 (18th) 42.3 (11th) 41.3 (18th) 50 100
2010
FDI, net inflows

$1.0
20.9 million 8.0% $2,375 $5,040

$0.5
GDP per capita

current US$
$0.478 Billion
GDP per capita, PPP

$0.0
2000
2002
2004
2006
2008
2010
While Sri Lanka scored relatively well on rule of law, corruption, and new found political stability, the countrys weak performance on fiscal & monetary performance and taxation relegated the th country to 14 position on the index. With the official cessation of Sri Lankas longstanding civil war more than 2 years ago, the country has begun to enjoy the fruits of economic development that were otherwise constrained during the conflict. The country has set out on a path towards economic and political liberalization, and there exists a sense that Sri Lanka might be in the early stages of a sustained economic transformation. The countrys first motorway, paid for mainly by Chinese and Japanese investors, was recently opened, and projects catering to the shipping industry are also in the pipeline. The Sri Lankan economy has performed strongly, with GDP growth among the highest in the region since the end of the civil war. Similarly, FDI, though still relatively low, is also rising. Inflation also appears to be levelling off, and the central bank appears to be pursuing a long term economic goals.
Nonetheless, the effects of the civil war continue to be felt in Sri Lanka. Accusations of war crimes committed during the war threaten to destabilize national politics, and the police remain unaccountable to accusations of torture. While Sri Lanka scored relatively well on rule of law, eyebrows have been raised in some quarters by the consolidation of power by President Rajapakse since he won a supermajority in the 2010 election. Most notably, the President has passed a number of constitutional amendments placing more power in his own hands. On the other hand, the President has announced that the long-standing state of emergency will not be extended a positive move for Sri Lankas rule of law. Although Sri Lanka ranks second to last on the index for taxation, the government has taken steps to improve the situation by reducing corporate income taxes and abolishing a turnover tax. However, it remains to be seen if the government will make further necessary changes to improve the countrys competitiveness.
20
FDI
$478 million
15. Philippines 44.7

0 50 30.2 (15th) 59.4 (12th) 100 35.7 (15th) 54.1 (10th) 38.7 (17th) 50.2 (15th)
2010
FDI, net inflows

$4
93.26 million 7.63% $2,140 $3,939
$3 $2 $1
GDP per capita

current US$
GDP per capita, PPP

$1.713 Billion
net inflows
$0
2000
2002
2004
2006
2008
2010
The Philippines overall score was bolstered by relatively strong scores on openness to international trade and business and fiscal and monetary administration. However, low scores on political stability, rule of law, corruption, taxation, will need to be improved if the government wants to increase the rate of foreign investment. Business executives surveyed by V&P were very positive about improvements in the Philippines openness to international trade and business, fiscal and monetary administration, political stability, and rule of law. In the coming year, it will be up to the government to continue to deliver concrete results to meet these raised expectations. These perceptions are related to hard policy moves taken by the new Aquino government. The President has taken a hard stance against corruption, and in doing so he has increased his support amongst the electorate. Congress has also proposed removing the restrictions on foreign ownership from the 1987 constitution, though the President is not yet supportive. Even though elections are not expected until 2016, the ever present political jockeying has not
subsided, as made clear by the recent arrest of former President Arroyo on charges of election fraud, after a blocked attempt to leave the country for medical treatment. The Philippines improved score on rule of law is a result of apparent improvements in the countrys judicial system. However, further reform is necessary in order to secure this progress. In fact, the only pillar for which investors were not impressed with was taxation. As was the case last year, the Philippines taxation policy remains a major issue for attracting FDI. Although there have been efforts to improve tax efficiency, as yet the government has been unable to push those amendment through the house. While the Philippines did score weakly on fiscal and monetary administration, it has nonetheless made significant improvements over the past year, as indicated by a low rate of inflation, stable Peso, and growing dollar reserves. If the government can deliver on its promise to modernize the countrys infrastructure, improve the education system, and increase transparency in regulatory practices, the Philippines will undoubtedly increase the rate of FDI.
21
FDI
$1.713 billion
16. Cambodia 43.5

0 28.2 (16th) 45.3 (17th) 50 100 35.6 (16th) 49.2 (13th) 40.2 (16th) 62.6 (7th)
2010
FDI, net inflows

$1.0
14.1 million 6.7% $802 $2,150

$0.5
$0.783 Billion
GDP per capita

current US$
GDP per capita, PPP

$0.0
2000
2002
2004
2006
2008
2010
Cambodia scores relatively well on taxation, but is extremely weak on most other measures particularly fiscal & monetary administration, corruption, and rule of law. Nearly every business executive surveyed by V&P indicated that openness to international trade & business in Cambodia was improving. Government policy regarding investment is regarded as favourable, and investment incentives are regarded as competitive. Cambodias legal regime for investment is one of the most liberal in Asia Pacific, with the only distinction between foreign and local investors being the ability to own land. Even so, very long term leases are possible. Nonetheless, weaknesses across the pillars of good governance for international business have limited Cambodias potential to attract FDI. Although Cambodia has taken steps to improve its judicial system, progress in this area has been slow. However, there is a lack of notable cases whereby a foreign company has been singled out for harassment in Cambodia. The government is currently preparing laws covering arbitration and telecommunications, as well as the establishment
of a commercial court, in accordance with Cambodias WTO obligations. In an effort to tackle pervasive corruption, a new anti-corruption law has been put in place. However the scope of implementation remains to be seen, and the survey of business executives did not reveal a sense that corruption was improving as of yet. Political stability is perceived to be improving, and little change is expected in the 2012 elections. The Cambodian Peoples Party is expected to retain power in what should be a free election. The infrastructure with regard to roads and communications has also improved substantially in recent years. The main obstacle to investment is the cost of power, but this is expected to be ameliorated over the next five years as new facilities come on stream and the grid expands. Cambodias medium scale industry has seen increased investment essential to broadening the countrys economic base. Agriculture, the largest sector in Cambodia, is similarly receiving foreign investment, which should help to develop this inefficient industry.
22
FDI
$0.783 billion
17. Lao PDR 41.9

0 50 25.2 (17th) 58.2 (13th) 100 35.2 (17th) 37.8 (18th) 45.7 (14th) 49 (16th)
Population GDP growth (annual %) 2010 GDP per capita
current US$
FDI, net inflows

6.2 million 8.4% $1,208
$0.2 $0.4 $0.3
$350 Million
GDP per capita, PPP

$2543
$0.1 $0.0
net inflows
2000
2002
2004
2006
2008
2010
The Lao PDR ranks predictably low on this years index, but that is not to say that the country is not making progress in its transformation into a full market economy. In the index pillars of openness to international trade and business and fiscal monetary administration Laos is perceived to have made impressive gains over the past year. As the only land-locked country on the index it has long been argued that Laos is at a natural disadvantage, yet the abundant natural resources available within its borders provide Laos with a potential cash boon to drive development. With the government increasingly keen on exploiting such resources, industries such as mining and hydropower have been rapidly expanding and remain the focal point of the countrys impressive GDP growth. As seen in other resource rich but underdeveloped states, the apparent blessing of mineral wealth also has the potential detrimental effect of pushing the country to be overly dependent on the resource sector at the expense of balanced, sustainable development. More reforms are needed to attract foreign investment in other, diverse sectors. In addition, the countrys complicated tax system combined with a lack of transparency in the legal
system makes it difficult for firms to invest in the country. As more revenue comes in from hydropower and copper mining projects, which are exported to neighbouring countries either for power or manufacturing, the government will most likely relax laws in an effort to diversify its economy. Laos performs relatively well in terms of its political stability though the terms on which this stability is based may be of concern to some investors: the oneparty state maintains a tight grip on political dialogue and open dissent is rare. The decades long insurgency against the government by the Hmong minorities rumbles on in the mountainous northern region, but in an increasingly minor and sporadic fashion since a botched coup attempt by US-based Hmong refugees in 2007. Due to political links, Laos is following a similar governmental development to that of Vietnam and China, though clearly on a smaller scale. Though Laos recent FDI growth is impressive, and some reforms are being implemented, its current figures are still much lower than other nations in the region. Questions of whether Laos will be able to rise to the standards of its neighbours depends on if it will be able to use the income from its abundant resources to fund further development and diversification in the economy.
23
FDI
$350 million
18. Bangladesh 37.3

0 23.1 (18th) 46.3 (16th) 50 100 27.9 (18th) 43.9 (17th) 30.6 (18th) 52 (12th)
2010
FDI, net inflows

$1.5
149 million 5.8%

$1.0
$968 Million
GDP per capita

current US$
$673 $1,643 $968 million

$0.0
GDP per capita, PPP

$0.5
2000
2002
2004
2006
2008
2010
Bangladesh ranks ahead of only Myanmar a country still largely shut off from foreign investment in the Good Governance for International Business Index. Bangladesh scores remarkably well on the taxation pillar as the current government has looked to reform the countrys out-dated tax code. However, the provision of a more competitive tax regime is by far the simplest and easiest change that governments can affect in an attempt to attract foreign investment. Other fundamental inhibitors to investment remain. Corruption is still pervasive in Bangladesh, and although officials have taken steps to address the problem, it is still too early to determine their success. Though Bangladesh still runs an alarming trade deficit, an increasing amount of goods utilise the countrys ports en route to market, often originating from India, Nepal or Bhutan. India is the countrys major investor, assisting in the construction of the Dhaka Elevated Expressway. It also has a duty-free agreement for its textile industry. However, in energy production Russian and American companies are playing leading roles in developing the sector. These efforts should help in alleviating a chronic electricity supply shortage.
As alluded to above, the country is looking to expand its market economy, especially in the energy and infrastructure sectors. And although certain key industries, such as the financial and agricultural sectors, remain largely under public control it does appear that in future the government might allow further privatisation in effort to stimulate greater growth. Businesses in the country can expect an increasing amount of government support, and strong laws to protect investors. Bangladeshs often volatile political situation appears to have stabilised, and a change of government is unlikely in the coming elections. Parliament has also recently overturned a 15-year old law requiring that all elections be overseen by a non-partisan caretaker government, leading to an outcry from the opposition but elections are expected to be peaceful. With 57% of the population under 25, Bangladesh has a large workforce that is well educated, and has the lowest wages in the region, all of which suggests greater potential for rapid economic gains over the next few years.
24
FDI
19. Myanmar 30.1 (some data unavailable)

0 19.3 38.5 50 100 24.9 41.8 24.8 31.4
2009
FDI, net inflows

$0.8
48.0 million 5.1% $587 $1,200 $756 million
$0.756 Billion
$0.6 $0.4 $0.2 $0.0
GDP per capita

current US$
GDP per capita, PPP

net inflows
Source: IMF World Economic Outlook Database
2000
2002
2004
2006
2008
2010
Since the November 2010 elections, Myanmar has seen a series of surprising policy shifts reforms that contrast starkly with years of entrenched authoritarianism. These positive changes have resulted in tentative reengagement by Western governments, which could pave the way for an improving business and investment climate. Promising political developments include an improving human rights situation and dialogue with opposition leader Aung San Suu Kyi. The cancellation of the Chinese-funded Myitsone Dam project by the new government symbolised a significant rebalancing of foreign policy. Openness to international trade & business remains limited. Myanmars Trade Council meets weekly to decide whether to grant import/export licences and to authorise investments. Foreign investors have frequently needed to conclude joint ventures with military-owned conglomerates or crony companies. Encouragingly, however, impending amendments to investment law should make it easier for foreign investors to operate. In 2010, Myanmar approved US$20 billion of FDI, mainly from China, Thailand and South Korea more than the combined amount approved in the previous 22 years. In addition certain Western sanctions may be dropped in 2012, paving the way for an influx of investment from Europe and the United States investment likely to
be welcomed by the government as it looks to balance its increasingly overwhelming economic reliance on China. Rule of law remains weak and the legal system is susceptible to political influence. The Myanmar statute book is made up of a hotchpotch of laws and regulations ranging from the British colonial period to the ad hoc decrees of the recent military junta. As such, the legal system lacks the sophistication to adequately deal with the modern economy. Ignorance of the law is widespread, including among civil servants. Foreign companies also face higher tax rates, while local companies face lower rates that they often evade completely. The new government has engaged in dialogue with the IMF to initiate a much-needed reform of the exchange rate system. For the moment, however, fiscal and monetary administration remains poor, there being multiple official exchange rates that very much differ from the prevailing black market rate. In all, though progress has been made before only to be pushed back again, current developments do appear to have serious backing from the former junta, and the coming months will test if the current nominally civilian government can sustain them.
25
FDI
6 PILLARS OF GOOD GOVERNANCE FOR INTERNATIONAL BUSINESS

1. 2. 3. 4. 5. 6. Rule of Law Openness to International Trade & Business Political Stability Taxation Corruption Fiscal & Monetary Administration
26
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.
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
Economy New Zealand Singapore Australia Hong Kong Japan Taiwan Malaysia South Korea China Thailand Sri Lanka India Vietnam Indonesia Philippines Cambodia Laos Bangladesh Myanmar
Score
Components of the Rule of Law Pillar
1/3
V&P Expert Assessment V&Ps Senior Counselors assessed rule of law for international business based upon their in-depth knowledge and experience. Survey of Regional Executives Reflects the experience of international business leaders based in the region WEF Global Competitiveness Report 2011-2012 Judicial Independence Property Rights Efficiency of Legal Framework in Settling Disputes Efficiency of Legal Framework in Challenging Regulations WB Doing Business 2011 Enforcing Contracts
1/3
1/3
27
91.9 89.4 88.0 86.2 80.8 70.2 67.7 63.7 56.9 56.8 50.6 47.4 46.9 39.8 35.7 35.6 35.2 27.9 24.8
II.
OPENNESS TO INTERNATIONAL TRADE & BUSINESS

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.
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Economy Singapore Hong Kong New Zealand Australia Taiwan Malaysia Japan South Korea Thailand Philippines China Indonesia Cambodia Sri Lanka India Vietnam Bangladesh Laos Myanmar Score
Components of the Openness to International Trade & Business Pillar
1/3
V&P Expert Assessment V&Ps Senior Counselors assessed openness to international trade & business based upon their in-depth knowledge and experience. Survey of Regional Executives Reflects the experience of international business leaders based in the region HF Index of Economic Freedom 2011 Investment Freedom Trade Freedom
1/3
1/3
WEF Global Competitiveness Report 2011-2012 Prevalence of Trade Barriers Trade Tariffs Burden of Customs Procedures Business Impact of Rules on FDI WB Doing Business 2011 Trading Across Borders
28
91.8 91.4 83.2 80.6 74.4 67.6 65.6 64.1 61.8 54.1 54.0 53.9 49.2 48.0 47.6 44.7 43.9 37.8 31.4
III.
POLITICAL STABILITY
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 governments policy of security for the investment climate, stability of government, and the likelihood of a rapid reversal of progress made.
Components of the Political Stability

V&P Expert Assessment V&Ps Senior Counselors assessed political stability based upon their in-depth knowledge and experience. Survey of Regional Executives Reflects the experience of international business leaders based in the region WB Worldwide Governance Indicator 2010 Political Stability and Absence of Violence/Terrorism WEF Global Competitiveness Report 2011 - 2012 Business Costs of Crime and Violence
1/3
1/3
1/3
29
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
Economy Singapore New Zealand Hong Kong Australia Taiwan Japan South Korea Malaysia China Vietnam Thailand Sri Lanka India Laos Indonesia Cambodia Philippines Bangladesh Myanmar
Score 89.1 87.5 84.9 83.8 74.4 74.2 65.4 61.9 60.0 54.9 47.0 46.8 45.7 45.7 45.4 40.2 34.6 30.6 24.9
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.
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Economy Hong Kong Singapore New Zealand Malaysia South Korea Taiwan Cambodia Australia Thailand Japan Indonesia Bangladesh Vietnam China Philippines Laos India Sri Lanka Myanmar Score 89.5 89.0 76.9 71.4 68.1 67.9 62.6 60.0 59.8 55.3 54.8 52.0 51.9 51.6 50.2 49.0 46.4 42.2 41.8
Components of the Taxation Pillar
1/3
V&P Expert Assessment V&Ps Senior Counselors assessed taxation based upon their in-depth knowledge and experience. Survey of Regional Executives Reflects the experience of international business leaders based in the region WB Doing Business 2011 Paying Taxes
1/3
1/3
WEF Global Competitiveness Report 2011-2012 Extent & Effect of Taxation Total Tax Rate, % of Profits HF Index of Economic Freedom 2011 Fiscal Freedom
30
V.
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.
Components of the Corruption Pillar
1/3
V&P Expert Assessment V&Ps Senior Counselors assessed openness to international trade & business based upon their in-depth knowledge and experience. Survey of Regional Executives Reflects the experience of international business leaders based in the region Transparency International Corruption Perceptions Index 2011 Perceived corruption in the public sector
1/3
1/3
WB Worldwide Governance Indicator 2010 Control of Corruption WEF Global Competitiveness Report 2011-2012 Irregular payments and bribes Diversion of public funds
31
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
Economy New Zealand Singapore Australia Hong Kong Japan Taiwan South Korea Malaysia Thailand China Sri Lanka Vietnam India Indonesia Philippines Cambodia Laos Bangladesh Myanmar
Score 93.9 92.7 87.8 84.3 82.2 69.1 64.7 56.7 47.5 46.7 42.3 39.2 37.7 33.7 30.2 28.2 25.2 23.1 19.3
VI.
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.
Rank 1 2 3 4 5 6 7 8 9 9 11 12 13 14 15 16 17 18 19 Economy Singapore Hong Kong Australia South Korea New Zealand Taiwan China Malaysia Thailand Indonesia Japan Philippines Laos Vietnam India Bangladesh Cambodia Sri Lanka Myanmar Score 89.1 87.7 83.8 81.0 79.9 77.0 76.2 70.8 65.7 65.7 61.5 59.4 58.2 53.0 51.2 46.3 45.3 41.3 38.5
Components of the Fiscal & Monetary Administration Pillar
1/3
V&P Expert Assessment V&Ps Senior Counselors assessed public sector quality & effectiveness based upon their in-depth knowledge and experience. Survey of Regional Executives Reflects the experience of international business leaders based in the region WEF Global Competitiveness Report 2011-2012 Macroeconomic Environment HF Index of Economic Freedom 2011 Monetary Freedom
1/3 1/3
32
ACKNOWLEDGEMENTS
Vriens & Partners acknowledges and thanks our valued partners in the region for their contributions to the 2011 Asia Pacific Good Governance for International Business Index.
AUSTRALIA
JAPAN
CHINA
NEW ZEALAND
David Butcher & Associates
INDIA
SOUTH KOREA
33
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, Factors from well known sources including World Economic Forums Global Competitiveness Report, the World Banks Doing Business Index and Worldwide Governance Indicators, and the 2 Heritage Foundations Index of Economic Freedom.
Data from the World Economic Forums Global Competitiveness Report and the World Banks 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] For example, the score of a country that ranked 50 out of 189 countries worldwide is calculated as follows: [100-(50/189)*100] = 73.5
th
Please see the Annex B (Page 33) for a full breakdown of content used from external sources. These sources did not participate in, nor sponsor, approve or endorse the Good Governance for International Business index.
34
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. TIs mission is to create change towards a world free of corruption. The Corruption Perceptions Index 2011 measures the perceived levels of public-sector corruption in 183 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. Data Provider: Transparency International Description of Data Provider: International organization Data Type: Expert Assessments, Business Opinion Surveys Number of Economies: 183 Frequency: Annual Public Access: Freely available Website: http://cpi.transparency.org/cpi2011/results/ Adapted from the Corruption Perceptions Index. Copyright 2011 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 2010 measures the perceived levels of public-sector corruption.
V&P INDEX PILLAR

Corruption
INDICATORS USED / CONTRIBUTION

Corruption Perceptions Index Score
35
THE WORLD BANK AND THE INTERNATIONAL FINANCE CORPORATION | DOING BUSINESS
The Doing Business 2012 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 183 economiesfrom Afghanistan to Zimbabweand 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 years 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: 183 Frequency: Annual Public Access: Freely available Website: www.doingbusiness.org Terms of Use: Found at http://go.worldbank.org/OJC02YMLA0

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. 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 goodsfrom the contractual agreement between the 2 parties to the delivery of goodsare 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 vessels arrival at the port of entry to the cargos 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

Enforcing Contracts Trading Across Borders Paying Taxes
36
THE WORLD BANK | WORLDWIDE GOVERNANCE INDICATORS

The Worldwide Governance Indicators reports aggregate and individual governance indicators for 213 economies over the period 19962010, 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: 213 Frequency: Annual Public Access: Freely available Website: info.worldbank.org/governance/wgi/index.asp Terms of Use: Found at http://go.worldbank.org/OJC02YMLA0

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.
V&P INDEX PILLAR

Corruption Political Stability

Control of Corruption Political Stability and Absence of Violence/Terrorism
37
WORLD ECONOMIC FORUM | GLOBAL COMPETITIVENESS REPORT 2011-2012

The Global Competitiveness Reports 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: 142 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

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 Extent and Effect of Taxation Total Tax Rate, % of Profits Irregular Payments and Bribes Diversion of Public Funds Macroeconomic Environment
Political Stability Taxation
Corruption
Fiscal & Monetary Administration
38
THE HERITAGE FOUNDATION AND THE WALL STREET JOURNAL | INDEX OF ECONOMIC FREEDOM
The Heritage Foundation and The Wall Street Journal produce the 2011 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: 183 Frequency: Annual Public Access: Freely available Website: www.heritage.org/Index Sourced from the Heritage Foundations 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

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. 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. 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


Investment Freedom Trade Freedom Fiscal Freedom Monetary Freedom
Taxation Fiscal & Monetary Administration
39

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VRIENS & PARTNERS

Good Governance for International Business | 2011

Results of the 6 Pillars

Acknowledgements Annex A: Methodology Annex B: External Sources

Good Governance for International Business

Openness to International Trade & Business

Fiscal & Monetary Administration

Overview of the Results

Good Governance for International Business | 2011

FDI, net inflows

5.08 million 14.5% $43,867 $57,505

$40 $30 $20 $10 $0

GDP per capita

GDP per capita, PPP

2. Hong Kong 87.3

FDI, net inflows

7.07 million 6.97% $31,758 $46,157 $68.91 billion

$60 $40 $20 $0

GDP per capita

GDP per capita, PPP

3. New Zealand 85.5

FDI, net inflows

4.3 million 2.5% $29,352 $29,914 $602 million

GDP per capita

GDP per capita, PPP

Source: World Bank World Development Indicators, 2010

FDI, net inflows

22.3 million 1.3% $42,130 $39,406

$40 $20 $0 -$20 -$40

GDP per capita

GDP per capita, PPP

FDI, net inflows

23 million 10.8% $18,558 $35,700

GDP per capita

GDP per capita, PPP

FDI, net inflows

GDP per capita

GDP per capita, PPP

Source: World Bank World Development Indicators, 2010

7. South Korea 67.8

FDI, net inflows

48.9 million 6.2% $20,757 $29,003 -$150 million

GDP per capita

GDP per capita, PPP

FDI, net inflows

GDP per capita

GDP per capita, PPP

FDI, net inflows

1.3 billion 10.3% $4,392 $7,536 $185.1 billion

$150 $100 $50 $0

GDP per capita

GDP per capita, PPP

Source: World Bank World Development Indicators, 2010

10. Thailand 56.4

FDI, net inflows

69.1 million 7.803% $4,613 $8,490 $6.306 billion

GDP per capita

GDP per capita, PPP

11. Indonesia 48.9

FDI, net inflows

239.87 million 6.1% $ 2,946 $4,293