What is a favourable environment for a global
company when deciding for perennial investments
in a country?
Graham Almond
Managing Director
Lumicara Pte Ltd
Key factors in investment decision making
22/6/2015
Third Health Policy Decision Makers Forum Asia Pacific
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Key factors in investment decision making
• Element of uncertainty
– Marginal efficiency of capital - rate of return that is expected
considering the inputs and depreciation of capital
– Present and future prospects – labour costs and quality,
material costs, institutional quality, infrastructure
• Existing capacity
– Substantial level of competition, how/where do you play?
• Income levels
– Increasing income favours investment, who are the
customers
• Consumer demand
– Present and future forecast demand
• Liquid assets
– Ability to invest, availability of investment funds and
prioritization of business opportunities
22/6/2015
Third Health Policy Decision Makers Forum Asia Pacific
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Key factors in investment decision making
• Innovation and invention
– Implementation of new technology and TT along with
cost effective labour forces, institutional quality
• New products
– Driver of growth – sustainable differentiation and
competitive advantage
• Population growth
– Increasing customer opportunities -> driver of growth
• Government policy
– Govt policy to encourage investment with strong
evidence of focus on institutional quality
– Expansion of market opportunity thru other
mechanisms
• Political climate
– Political stability a key, disruption of activities a major
concern
22/6/2015
Third Health Policy Decision Makers Forum Asia Pacific
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The favourable environment – what does it look like?
• Element of uncertainty
– Relatively stable economic environment with developing
infrastructure
– Ability to compete – importance of institutional quality
• Existing capacity
–
–
–
–
Strong local Gx manufacturing capacity -> challenge/opportunity
Portfolio optimisation/disease mgmt approach – Rx(Gx)/OTC/CHC
Manufacturing quality a key essential – PIC/S – ID, MY, (TH, PH)
Ability to manufacture specialty products – e.g. biologicals
• Income levels
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Income Level Growth
2013 GDP per capita, in USD
Singapore
Regional Comparison of GDP per capita, in USD
55,182
Brunei
60,000
38,563
Malaysia
50,000
Thailand
40,000
Indonesia
ASEAN**
30,000
EU
Philippines
10,538
5,779
3,475
2,765
Vietnam
1,911
Laos
1,661
US
20,000
10,000
Cambodia
0
2005 2006 2007 2008 2009 2010 2011 2012 2013
** Avg excluding
Myanmar due to
limited data
• Compared to ASEAN GDP per capita (2013), EU and US are
significantly higher by 164% and 295% respectively.
1,007
ASEAN**
ASEAN***
13,431
3,876
** Avg excluding Myanmar due to limited data
*** Avg excluding Myanmar, Singapore and Brunei
Singapore and Brunei’s GDP per capita
are way ahead of their counterparts in the
ASEAN region – they are at par with
EU/US income level
Source: World Bank – World Development Indicators
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Higher GDP growth has been consistently recorded in ASEAN compared to
EU/US regions
2013 GDP (in billion USD) and GDP Growth (%)
1,000
Regional Comparison of GDP Growth (annual %)
900
8
8
ASEAN**
2
EU
0
2005 2006 2007 2008 2009 2010 2011 2012 2013
US
-2
6
700
600
4
500
2
400
300
0
200
-2
100
-4
GDP Growth (%)
4
GDP, in billion USD
800
6
-6
10
-
-4
IN TH MY SG PH VN MM BN KH LA
**Average GDP growth, excluding
Myanmar from 2005-08
• The 2008-09 global recession was felt across the regions but despite
that, GDP growth in ASEAN is still higher than that of EU/US
The top 6 countries – Indonesia, Thailand,
Malaysia, Singapore, Philippines and
Vietnam – make up ~96% of ASEAN GDP
Source: World Bank – World Development Indicators, CIA Factbook, Index Mundi
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Third Health Policy Decision Makers Forum Asia Pacific
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The favourable environment – what does it look like?
• Element of uncertainty
– Relatively stable economic environment with developing
infrastructure
– Ability to compete – importance of institutional quality
• Existing capacity
–
–
–
–
Strong local Gx manufacturing capacity -> challenge/opportunity
Portfolio optimisation/disease mgmt approach – Rx(Gx)/OTC/CHC
Manufacturing quality a key essential – PIC/S – ID, MY, (TH, PH)
Ability to manufacture specialty products – e.g. biologicals
• Income levels
– Economic growth: ASEAN 10% WW Popn, GDP +6-8%
• Consumer demand
– Growth in all sectors - Rx/OTC/CHC
– Increasing Govt focus on health
– OOP spending increasing/medical tourism
• Liquid assets
– Approaches may vary: M&A, partnership, expansion of existing
business
– ASEAN vs. other WW opportunities
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Third Health Policy Decision Makers Forum Asia Pacific
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The favourable environment – what does it look like?
• Innovation and invention
– IP protection favours environment for TT
– Regional medical challenges
• New products
– Improve access to new markets -> limit on the number of
manufacturing sites e.g. biologicals
– Improve patient outcomes and offer better payor value
– Novel access mechanisms
• Population growth
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Third Health Policy Decision Makers Forum Asia Pacific
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Population Growth
Regional Comparison, Population Growth (annual %)
2.00
1.80
1.60
1.40
1.20
ASEAN
1.00
EU
0.80
US
0.60
0.40
0.20
0.00
-0.20
2005
2006
2007
2008
2009
2010
2011
2012
2013
• Europe and US lag behind ASEAN in terms of population growth
• Slowdown in population growth, particularly among developed nations, is greatly
influenced by declining birth rates.
Source: World Bank – World Development Indicators
22/6/2015
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Changes in Birth Rate and Life Expectancy
Regional Comparison, Changes in Birth Rate
Birth Rate, crude (per 1,000 people)
25
20
15
ASEAN
• Although birth rate in ASEAN has
been gradually declining, it is still
relatively higher than that of
EU/US
EU
10
US
5
• Declining birth rates can be
attributed to people’s changing
priorities
0
2005 2006 2007 2008 2009 2010 2011 2012 2013
Regional Comparison, Changes in Life Expectancy
82
Life Expectancy, in years
80
78
76
ASEAN
74
EU
72
• Life span has been improving over
the years – with the highest
expectancy in Europe, followed by
the US
US
70
68
66
2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: World Bank – World Development Indicators
22/6/2015
Third Health Policy Decision Makers Forum Asia Pacific
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The favourable environment – what does it look like?
• Innovation and invention
– IP protection favours environment for TT
– Regional medical challenges
• New products
– Improve access to new markets -> limit on the number of
manufacturing sites e.g. biologicals
– Improve patient outcomes and offer better payor value
– Novel access mechanisms
• Population growth
– Strong driver of growth -> improved longevity, strong birthrate,
NCD challenge
• Government policy
– Incentive schemes to capture FDI
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Rising foreign direct investment in ASEAN – with Singapore (49.5%) and
Indonesia (18.1%) getting the most share
2013 FDI share – ASEAN3
Millions
Regional Comparison of FDI, in million USD3
1,200,000
Vietnam
6.9%
1,000,000
Brunei Cambodia
0.7%
1.0%
800,000
ASEAN
600,000
EU
Thailand
9.8%
US
400,000
Indonesia
18.1%
Laos
0.3%
Malaysia
9.0%
200,000
Singapore
49.5%
-
2005 2006 2007 2008 2009 2010 2011 2012 2013
Myanmar
1.8%
Philippines
2.8%
• Economic activities under the Services sector remain a key driver of
FDI inflows, with an average share of ~70% in the past four years,
followed by FDI in Manufacturing.1
• In 2013, EU, with total share of 22%, was the top source of FDI
inflows in ASEAN. Other major sources of FDI were Japan (19%),
ASEAN Member States (intra-ASEAN, 17%), China (7%) and Hong
Kong (3.7%). FDI inflows from these countries have continuously
increased while USA has been facing a declining trend since 2011. 1
Source:
1 ASEAN (2014). ASEAN Community in Figures Special Edition 2014: A Closer Look to at Trade
Performance and Dependency, and Investment. Jakarta: ASEAN Secretariat
2 Bank of America Merrill Lynch
3 World Bank – World Development Indicators
22/6/2015
• In 2013, ASEAN FDI inflows reached
USD 122 billion – more than 80% of
which (USD 101 billion) came from
extra-ASEAN inflows1
• ASEAN overtook China’s FDI in 20132
Third Health Policy Decision Makers Forum Asia Pacific
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The ASEAN Comprehensive Investment Agreement (ACIA) aims to create a free,
open and competitive investment environment among ASEAN member states
Promotion and Facilitation of FDI1
1.
2.
Restrictions on FDI
Existence of a single investment law covering
domestic and foreign investments
Principle of national treatment/nondiscrimination
to ensure a degree of equality between foreign
and domestic investors
3.
Protection against unlawful expropriation
4.
Guarantee of the right to the free transfer of
funds
5.
Possibility to recourse to investment arbitration
provided by law
6.
Adherence to international conventions on
arbitration and international investment treaties
(including BITs and FTAs)2
7.
Other incentives: tax deductions/exemptions,
simplified investment procedures, presence of
IPAs3, after-care services for investors
1. Limits on Foreign Equity Ownership
- Most governments apply this to certain sectors in order
to protect local enterprises
2. Screening or approval of foreign investment
- Within ASEAN, only Myanmar screens all FDI coming
in under the Foreign Investment Law
3. Restriction on Foreign Ownership of Land
- Almost all member states have restrictions on this
1 The
provisions serve as a guide but these are not yet fully adopted
by all member states
2 BITs: Bilateral Investment Treaties, FTAs: Free Trade Agreements
3 IPAs: Investment Promotion Agencies
Source: OECD (2014). Southeast Asia Investment Policy Perspectives.
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Third Health Policy Decision Makers Forum Asia Pacific
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The favourable environment – what does it look like?
• Innovation and invention
– IP protection favours environment for TT
– Regional medical challenges
• New products
– Improve access to new markets -> limit on the number of
manufacturing sites e.g. biologicals
– Improve patient outcomes and offer better payor value
– Novel access mechanisms
• Population growth
– Strong driver of growth -> improved longevity, NCD challenge,
strong birthrate
• Government policy
– Incentive schemes to capture FDI
– Commitment to institutional quality
• Political climate
– Improving political stability -> reassuring for ROI certainty
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Third Health Policy Decision Makers Forum Asia Pacific
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Summary – key points
• Opening the market and attracting FDI
– Help countries to quickly gain SEC achievements
• ASEAN/AP – one of the most dynamic regions with high potential
– Population and income growth
– Increased lifespan/strong birth rate
– Abundant and cost-effective labour force
– Preferential investment policies/incentives
• Build strong relationships with Government partners
– Prioritization of health/tackle health challenges
– Regional diseases
– Incentives to drive investment
– Besides traditional factors that influence FDI (labour cost, economic growth,
population size, …) research indicates institutional quality need to be further
addressed
– More stable political climate
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