Forum on the ASEAN Comprehensive Investment Agreement (ACIA)
Kuala Lumpur, Malaysia, 21 March 2013
H.E. Lim Hong Hin
Deputy Secretary-General of ASEAN
for ASEAN Economic Community
Dato Sri Mustapa Bin Mohamed
Minister of International Trade and Industry
Datuk Noharuddin Nordin
CEO, Malaysian Investment Development Authority
Ladies and Gentlemen
I want to begin by congratulating H.E. Dato Sri Mustapa Bin Mohamed, the Ministry of International Trade and Industry, and the Malaysian Investment Development Authority, for taking the initiative to organize this Forum on ASEAN Comprehensive Investment Agreement (ACIA). I also want to thank, on behalf of the ASEAN Secretary-General, all the participants and sponsors for supporting and making this event possible.
As we all know ASEAN is now in a process of building an ASEAN Economic Community (AEC). By 2015, we envision the region to be an integrated market where there is free flow of goods, services, investment and skilled labour, and freer flow of capital. And here I would like to emphasize on the “free flow of investments” as one of the most critical goals of our regional integration. In my view, our ability to build the AEC by 2015 will depend on the extent by which we remove impediments to investment, by making our investment regime open and transparent, in order to attract more trade in goods and services, and capital.
One important lesson of the Asian financial crisis is that recovery without growth in private investment may not be sustainable. For example, although ASEAN countries were able to recover after 1997, the recovery was not accompanied by strong pick-up in investment. In ASEAN, private investment is still growing below potential despite the huge markets. Perhaps this is the reason why our economies are still vulnerable to external shocks. To be sure, the current global economic uncertainties offer us the same lesson: a domestically generated growth is what ASEAN needs to sustain our medium-term prospects.
That is why I find holding this ACIA Forum today very important and relevant to our current priorities in the region. When ACIA was signed by our Economic Ministers in 2009, the road for a comprehensive investment regime to support the AEC was initially paved. Its entry into force in March 2012 further cemented that goal of putting investment as a key driver of our economic integration and development.
Now that we are challenged again by the current global uncertainties, the more we should make ACIA a reality. ACIA has to work. We have to make sure that it is not just another agreement, but something that will create a difference in transforming our different investment regimes into one integrated regime that can create opportunities for our economies, and more importantly, for the markets.
Thus, I am very delighted that we are here today to promote ACIA. This is very timely and appropriate. As global uncertainties continue to undermine the stability of our financial markets and economic growth, we need ACIA to restore confidence in our region. It is this increasing aversion and poor sentiments that caused the volatility in capital flows, widening of credit spreads and depreciation of our regional currencies. Therefore, it is critical that investor confidence in the region is sustained if we want to move quickly out of this global crisis.
In fact it is domestic investment that has kept our economies afloat last year. Despite the on-going financial tensions in the world, ASEAN as a group was able to sustain its growth by 4.8 per cent in 2012. In particular, domestic investment has become a key driver, contributing 3.2 percentage points of the total growth in ASEAN GDP last year. Such contribution far exceeds that of other components of our domestic demand. Interestingly, the contribution of domestic investment last year also exceeds its average contribution of 1.3 percentage points to ASEAN economic growth over the last five years (2007-2011).
This only shows that ASEAN economic growth has become more broad-based and private sector-driven. This is good news. As you know, since the global crisis erupted in 2008, our economies have been subjected to external shocks. However, since then as well, we have become more resilient because of our resolve to strengthen our domestic demand. The fact that ASEAN economies remain dynamic despite these global uncertainties is due to the strength of domestic demand, in particular, domestic investment. It is also gratifying to note that the growth of domestic investment has been robust over the last five years. For example, domestic investment grew by 14.2 per cent last year, almost double its average growth of 7.9 per cent over the period of 2007-2011. As a driver of regional growth, the strong growth of investment is not only confined to a few countries. Last year almost all ASEAN5 economies registered strong growth in domestic investment particularly in Indonesia (where domestic investment grew by 15.4 per cent), Malaysia (21.7 per cent), Singapore (15.8 per cent), and Thailand (14.1 per cent).
Despite the good performance of our investment regimes, more is needed. As we all know, the dependence of most ASEAN countries on external demand has been an Achilles’ heel that made us vulnerable to the crisis. As the objective of this event suggests, we want this event as a showcase of ASEAN as an attractive market for business and investment.
In keeping with the objective of this event, let me now mention how ACIA can be a potent force in increasing investments in the region.
On liberalization, ACIA grants immediate benefits to both ASEAN investors and ASEAN-based foreign investors. Unlike in previous ASEAN investment agreements, under ACIA, ASEAN-based investors can immediately benefit from non-discriminatory treatment.
On protection, investors under ACIA will now be fully protected. They can freely transfer capital, profits and funds, and will be fully compensated in case investments are expropriated for public purpose. Investors will also have recourse to bring a claim to domestic courts (as applicable) or international arbitration in case of disputes with host government. The protection elements under ACIA can also extend and apply to investment in services.
Finally, on transparency, under ACIA, Member States are obliged to make publicly available all relevant laws, regulations and administrative guidelines that pertain or affect investments; and establish inquiry points. This year, ASEAN is also coming up with an “Invest ASEAN Website” to serve as gateway for ASEAN to communicate relevant and “must-know” information to businessmen and investors.
To be sure, the advent of ACIA is one of the most significant initiatives we have implemented to realize the AEC. Of course, we are not saying that ACIA alone will make the AEC. As a market-driven process, AEC should be supported by a host of different measures to make integration work. In the same manner that investment liberalization will not be realized without other critical factors to support investments, such as sound regulations, standards and confo
rmance, and infrastructure. That’s why in addition to ACIA, ASEAN is also committed to liberalize trade under the different economic agreements, and to reinforce mutually the movements of investments into the region.
Let me conclude.
As earlier mentioned, we are here today to promote investment in ASEAN. ACIA is an embodiment of that commitment by our various governments. But more is needed, including implementing a set of key priorities which have the potential of increasing investment in ASEAN, as well as in promoting the important role of business sector in our economies.
First, we need to maintain a stable macroeconomic climate to encourage businesses to invest and stimulate growth. So far the region has succeeded in building up our reserves and reducing our short-term external debt. However, monetary and fiscal management must be carefully maintained, particularly as countries continue to embark on accommodative monetary and fiscal policies to stimulate growth in the coming months. Prudent monetary and fiscal management is important to remove the source of vulnerability that deters business investment. We have to be transparent, strengthen our governance structures, and promote policy credibility.
Second, we have to deepen trade and economic integration. Considering the diversity of ASEAN markets, the only way to attract investors in the region is to ensure that they can access the home markets through deeper economic integration. Given the challenges of economic globalization, ASEAN should continue its efforts to remove bottlenecks to growth, improve infrastructure connectivity, and create an environment conducive for cross-border trade in goods, services, and investment to thrive. I think these are the essential conditions for countries in the region to compete in a global system.
Finally, we need to foster a dynamic business sector. ASEAN countries have long committed to promote private-sector driven growth. Now is the time to further reaffirm that commitment. As such more efforts are needed to deepen capital markets, strengthen regulatory framework, and reinforce legal systems. Here in lie the responsibilities of all governments in the region to engage with the business sector as market partners. Thus, I very much welcome this Forum as our concrete commitment to support the business community.
In closing, I would like to congratulate again the Malaysian government for hosting this Forum and the Seminar for the Investment Promotion Agencies.
I also would like to thank the ASEAN-Australia Development Cooperation Program for sponsoring and making this event possible.
Thank you very much.