East Asia

1
East Asia Pacific Private Investors in
Infrastructure Perception Survey

• Prepared for Bali Workshop
• Infrastructure in EAP The Way Forward
• June 2004
• Prepared by Sharon Felzer World Bank

2
Objectives of study

• To gauge level of interest in infrastructure
  investment in East Asia Pacific among
  infrastructure companies from Asia, Australia,
  Europe, New Zealand and the US.
• To identify the criteria companies use to assess
  whether a country is appropriate for
  infrastructure investment.
  
• This study represents only the views of operators
  in the private sector.
  

3
Methodology

• 50 in-depth interviews were conducted with
  executives from 48 infrastructure companies.
  Interviews were conducted by telephone except
  those in Japan (face-to-face).
• Study overseen by public opinion specialist at
  World Bank. Interviews conducted by independent
  consultants.
  
• Names of companies came from Private
  Participation in Infrastructure (PPI) database
  (drawn from a variety of public domain
  information sources), World Bank Group staff and
  JBIC staff.
• Potential participants were randomly selected
  from sample frame.
  
• Individuals in 91 companies were contacted.
• Interview included qualitative and quantitative
  components.

Two companies requested that two individuals be
interviewed.
4
Methodology (continued)

• Energy 18
• 8 from companies headquartered in East Asia
• 10 from companies headquartered in the West
• Telecommunications 18
• 13 from East Asia
• 5 from the West
• Transport 10
• 5 from East Asia
• 5 from the West
• Water 4
• 1 from East Asia
• 3 from the West

Note East Asia includes companies from China
(including Hong Kong based companies)Indonesia,
Japan, Malaysia, Philippines, Singapore, South
Korea, Thailand. West includes Australia,
Europe, New Zealand, US
5
Key Findings

• Enthusiasm among investors for infrastructure
  investment in East Asia Pacific region. However
  this enthusiasm, and ultimate intent to invest
  more, is contingent upon a number of factors.

• Local infrastructure investors (within their own
  countries) appear marginally more confident about
  investing than other Asian investors. Asian
  investors appear marginally more confident than
  Western investors.

• Investors assess the strengths and weaknesses of
  the region similarly as related to infrastructure
  investment.

• Predictability emerged as the critical factor for
  successful investments particularly related to
  government policies and institutions.

• A level of caution may result from foreign
  investors perception that they are less than
  welcome.

6
Clear interest in infrastructure investment

• The region is considered by investors one of the
  most attractive places to invest. Key assets
  are
  
• Economic growth
• Large and growing populations
• Increasing demand
• Under-penetrated markets
• Focus is on developing countries because
  respondents say they are seeking higher returns,
  and their home markets are saturated.

7
Clear interest in infrastructure investment
Do you expect your company to increase, sustain,
or decrease your total sector investment
portfolio in developing countries in the region
in the next two years?
8
Clear interest in infrastructure investment
Do you expect your company to increase, sustain,
or decrease your total sector investment
portfolio in developing countries in the region
in the next two years?
9
Attractiveness of countries for investment
Which two countries do you consider the most
attractive in terms of investment in EAP?
Not all respondents provided two answers.
Question was open-ended. Some answers reflect a
respondents experience in just one country.
Numbers column reflects times that the country
was mentioned by all respondents who answered.
10
Clear interest in infrastructure investment

• Research indicates that while investors have
  moved on from the East Asia Crisis, for many it
  still influences the decision to invest.
  Interviewees tend to look through the prism of
  the East Asia crisis to evaluate a countrys
  attractiveness.
• The perception of a country as a place to invest
  results, in part, from how it weathered the
  crisis.
  
• The crisis has made investors far more
  selective.
  
• Our perspective on investing has changed
  considerably. In the early 90s East Asia looked
  great. But were far more discriminating now.
  Weve learned lots of sobering lessons.

11
Consistent views of the assets investors face in
region

• Strengths that engender interest to invest
• Growth (economic/population/demand)
• Increasing availability of funding
• Increasing transparency
• Hard working/educated labor force at still
  reasonable costs
  
• Regulatory environment (while still problematic,
  better than other developing regions)
  
• Some improvement in contract predictability

12
Consistent views of the challenges investors face
in region

• However, respondents consistently identified
  concerns that significantly temper their
  enthusiasm
  
• Judicial/legal framework
• Regulatory inconsistency
• Political instability
• Currency instability
• Respect for contracts

Predictability

• Were never sure of our contracts we live with
  constant insecurity.
  
• The lack of respect for contracts and
  renegotiation is a problem throughout the
  region.
  

13
Predictability The key to a successful
investment

• Predictability in the investment environment
  emerged consistently as a critical concern. While
  respondents reported a willingness to assume a
  basic level of risk, caution drives the
  landscape. There is little sense of urgency to
  make a deal.
• Its not worth it to mess around in countries
  that dont know what theyre doing or who change
  the rules.
  
• A change in the rules is the one thing we
  dread
  

14
Predictability The key to a successful
investment

• Predictability is measured through a number of
  indicators and these are as critical as the
  economic growth/market potential benefits in a
  country.
• Contracts
• Regulatory and judicial/legal environments
• Political stability
• Currency stability

15
Predictability The key to a successful
investment
16
Predictability The key to a successful
investment
17
Partnerships in countrycritical to successful
investments

• Partnerships emerged spontaneously as another
  critical factor to ensuring successful business
  investments in developing countries in EAP.
  
• Partnerships are perceived as often necessary
  although it means giving up a degree of control.
  
  
• The most important thing is finding a partner
  who is well-educated and who understands your
  business. The job goes best when you have the
  right relationship.
• We leave it to the local partner and want no
  knowledge of what goes on.
  
• Foreign investors in a country expressed
  hesitancy about their ability to navigate the
  partnering dynamic.
  

18
Expectation from governments Create more
predictability in the investment arena

• While investors recognize governments
  limitations, they would be more likely to invest
  if governments worked to create more predictable
  and consistent business environments.
• Governments have to be pro-active. The problem
  is they dont bother. We have to chase them
  begging for cooperation.
  
• They need to promote transparency so were not
  broken by rules, regulations and corruption.

19
Expectation from governments Create a more
predictable investment arena

• Respondents believe governments can do more to
  engender consistency in key areas
  
• Regulatory frameworks
• Legal/judicial frameworks
• Currency fluctuation
• Respect for contracts
• And governments can be more welcoming of
  investors.
  
• When we fail its a failure to judge the level
  of government commitment.
  
• We want governments to stand by us. Its the
  most difficult issue we face.
  
• Respondents also indicated that while capacity at
  the government level is evolving, improved
  capacity is critical.
  
• Bureaucrats need to be better trained, quicker
  and more positive in their attitudes Ignorance
  is a big issue among officials.
  

20
Role for official agencies bilaterals,
multilaterals, export credit agencies

• Respondents spontaneously discussed the role that
  official agencies could play in navigating the
  investment environment in developing countries in
  EAP.
• Help governments improve regulatory/legal
  environments
  
• Help countries develop local currency and debt
  markets
  
• Build capacity of public sector
• Assistance in navigating the partner dynamic
• Help to resolve disputes
• We expect more help from JBIC, ADB and the World
  Bank in case we have problems.
  
• Respondents were not terribly familiar with the
  exact role these agencies could play but
  expressed positive views about the organizations.
  
• To avoid interview bias, the study was designed
  primarily to explore broader issues with
  investors, rather than their perceptions of
  official agencies.

21
In sum.

• Growing enthusiasm
• Over the next fifteen years or so, this will be
  a very dynamic part of the world.
  
• Twenty or thirty years from now, East Asia will
  be the center of gravity for the whole world.
  
• Mitigated by the need for predictability in the
  investment environment
  
• Its about the basics. The rule of law first.
  Second, providing safe and secure environments so
  we can do our business normally.
  
• There needs to be well defined policies and a
  stable regulatory framework. If its not there,
  we wont operate. We need to be welcomed with all
  that that implies.