Over the last two decades, many Asian companies have ventured to invest in the developing nations of Asia, Africa, Middle East and Latin America. Arising from these overseas investments is the question “Are Asian companies, particularly the medium-sized, non-multinationals, equipped to meet the challenges they will face?” What are the factors that dictate long-term investment decisions? In this context, “long-term investments” refer to those setting up manufacturing plants, plantations, hotels, banks, etc.

Based on my forty-over years of experience in helping Malaysia attract investors and assisting Developing Nations or LDCs (Least Developed Countries) understand the science and art of Investment Promotion, I have formulated a checklist on “THE KEY FACTORS FOR AN INVESTMENT DECISION”. Assuming that business potential does exist, the key factors are:

1. POLITICAL STABILITY
Political turmoil, coup-de-tats, violence, hostile neighbouring countries or terrorist activities could wipe out overnight even the most lucrative investments and endanger the lives of personnel. Many countries and companies have paid a heavy price because of political instability.

2. ECONOMIC STRENGTH
A country with sound economic fundamentals is not likely to make drastic or negative changes. As the economy grows, there will be increasing opportunities for government development projects and private sector investments to boost the purchasing power of people. Increased purchasing power means increased multiplier effects on the economy such as a rise in house and car ownership, which will in turn act as another source of stability. No investor would want to invest in a country with weak economic fundamentals.

A country with rampant unemployment, especially where people do not see any prospect of a positive future is a “time bomb” waiting to explode. As long as citizens do not have a physical stake in their country, i.e. secure jobs, housing, etc., they could easily be incited to partake in violence or riot activities, as “they have nothing to lose”. Indeed, there is too much truth in the expression “poverty anywhere is a threat to prosperity everywhere” for it to be taken lightly.

3.ATTITUDE OF WELCOME
Investors should always be welcomed as a friend and ally of the nation who should be wooed and supported for their investments can contribute to jobs and wealth creation and as well as the transfer of technology and know-how. This key factor should be made known to all levels of government officials and the people, and reflected in all dealings with foreign investors.

4.GOVERNMENT POLICIES
All investors are concerned about government policies that could affect their business. For investors who will be investing their money, time, personnel and resources into a country, a triumvirate of factors will be critical, namely the 3Es plus an additional factor relating to the Rule of Law.

1. EQUITY Guidelines:
   The degree of equity ownership is a critical factor and varies depending on the type of project. If the project is export-oriented and does not depend critically on local raw materials (especially depleting raw materials), the foreign investor would insist on majority or 100% foreign ownership. Developing countries wooing export-oriented manufacturers must provide strategic options to foreign investors, especially in the issue of ownership. If a project is for the domestic market, most multinationals generally accept the need to offer local ownership, or risk losing that market through high tariff barriers.

   The availability of suitable local joint-venture partners is another important consideration. Must joint-venture partners come from a select group of people having connections with government authorities for projects to succeed, or are investors free to choose their business partners?

   A satisfied foreign investor who is operating a successful enterprise and reinvesting is the best testimony of a country’s investment environment and a powerful ally to the government’s Investment Promotion.

2. EXPATRIATE Employment
   Expatriate employment is another critical issue. Any investor, investing anywhere in the world, need to have the flexibility to hire the right talent (foreign or local) to look after their project and interests. This is especially true for Asian investors in LDCs as (from their point of view) they are in an “unknown area”.

   Regardless of the availability of local personnel, governments must allow for permanent “foreign posts” in any project where the foreign investor has a degree of equity participation. Issues such as length of time for initial approval, yearly renewal of work permits, and multiple entry visas for expatriates and their families are important details to note in forging this policy.

3. EXCHANGE Control
   “How easy is it to bring my money into the country or to repatriate my profits and capital from the country?” The freedom of movement of capital and profits is not nearly enough. The ability of companies to hold foreign exchange external accounts in domestic or foreign banks (i.e. of their Forex earnings) is another positive factor, for this would help companies mitigate the foreign exchange risks they have to face.
4. RULE OF LAW (Legal Framework: Ownership of Land, Assets, etc.)
   This relates to the question of a clear and transparent legal framework and the investor’s knowledge that the “Rule of Law” (well-documented and defined) is effective. He should feel assured that over and above his ability to seek legal re-dress through recognised International/Regional Arbitration Centres, he should, if the case warrants, be able to go to the local courts of law and seek justice, according to the Rule of Law, even against government departments at national municipal or city levels.

The second part of this series, which will be featured in our August 2011 issue, explores the key factors of Infrastructure, Labour, Banking & Finance, Government Bureaucracy, Local Business Environment and Quality of Life.

SPECIAL NOTE
If you would like to know more about investing in developing nations, or wish to improve the investment environment of your country and attract Asian investors, please con tact:
Dato’ J. Jegathesan, Chief Executive Officer
JJ Ishwara Connect (JJIC) Malaysia
Email : jjegaic@yahoo.com • Office No. : +603-2283 1559