Emerging Asia
S.W.O.T. Report
August 2011
Economic dynamics
10
8
Systemic risks
6
Infrastructure
4
2 China
India
Indonesia
0Malaysia
External political risks
Social instability risks
Philippines
Thailand
Vietnam
Ease of doing business
Domestic political risks
Comparing risks and opportunities in:
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
POLITICAL & ECONOMIC RISK CONSULTANCY LTD.
Contents
I.
SUMMARY ........................................................................................................................................ 1
II.
ASSESSMENT OF BUSINESS ENVIRONMENT................................................................................... 3
A.
ECONOMIC DYNAMICS........................................................................................................................... 3
1.
Growth prospects data .............................................................................................................. 4
2.
Market size prospects data ....................................................................................................... 5
3.
Wealth ....................................................................................................................................... 6
4.
Inflation ..................................................................................................................................... 6
5.
Public debt ................................................................................................................................ 7
6.
Balance of payments ................................................................................................................. 8
7.
Foreign debt .............................................................................................................................. 9
8.
Foreign direct investment inflow dynamism........................................................................... 10
9.
Export dynamism .................................................................................................................... 11
10.
Import dynamism ................................................................................................................... 13
B.
1.
2.
3.
4.
5.
6.
7.
8.
C.
HUMAN AND PHYSICAL INFRASTRUCTURE SUPPORT .................................................................................... 16
Physical infrastructure/utilities for domestic market ............................................................. 17
International infrastructure links (airports, communications, etc.) ........................................ 18
Pollution .................................................................................................................................. 19
Technical labor pool depth ...................................................................................................... 20
Depth of higher education ...................................................................................................... 21
English speaking / comprehension proficiency of labor force ................................................ 22
Health facilities ........................................................................................................................ 23
Natural disaster disruption potential ...................................................................................... 24
EASE OF DOING BUSINESS ...................................................................................................................... 27
D.
1.
2.
3.
4.
DOMESTIC POLITICAL RISKS .................................................................................................................... 32
The risk of a change of government and key leaders in coming two years ............................ 33
The risk of a disruptive political transition .............................................................................. 35
Quality of the government’s policies ...................................................................................... 37
Ineffectiveness of the government in implementing its policies ............................................ 38
1.
2.
3.
4.
SOCIAL INSTABILITY RISKS ...................................................................................................................... 40
Labor activism ......................................................................................................................... 40
Social activism / unrest ........................................................................................................... 43
Terrorism and personal security risks ..................................................................................... 45
Extent that regionalism is a problem ...................................................................................... 47
1.
2.
3.
EXTERNAL POLITICAL RISKS .................................................................................................................... 49
Direct military threats ............................................................................................................. 49
Vulnerability to social instability in other countries ............................................................... 52
Vulnerability to policy changes by governments in other countries ....................................... 54
1.
2.
3.
SYSTEMIC RISKS ................................................................................................................................... 57
Extent that corruption is a problem ........................................................................................ 57
Nationalism and other cultural risks ....................................................................................... 61
Institutional weaknesses ......................................................................................................... 63
E.
F.
G.
4.
III.
Intellectual property rights risks ............................................................................................. 65
S.W.O.T. REVIEW ....................................................................................................................... 68
A.
CHINA ............................................................................................................................................... 68
B.
INDIA ................................................................................................................................................ 70
C.
INDONESIA ......................................................................................................................................... 72
D.
MALAYSIA.......................................................................................................................................... 74
E.
PHILIPPINES........................................................................................................................................ 76
F.
THAILAND .......................................................................................................................................... 78
G.
VIETNAM ........................................................................................................................................... 80
APPENDIX 1: FORMULA FOR CALCULATING THE BUSINESS ENVIRONMENT INDEX ................................ 82
APPENDIX 2: ALL GRADES USED TO ASSESS THE BUSINESS ENVIRONMENT ........................................... 83
APPENDIX 3. ABOUT POLITICAL & ECONOMIC RISK CONSULTANCY, LTD. ............................................. 85
A S.W.O.T. Study of Asia’s Emerging Countries
I.
August 2011
SUMMARY
Overall Business Environment Scores
10
Economic dynamics
Ease of doing business
Social instability risks
Systemic risks
9
8
7
6.11
6
Infrastructure
Domestic political risks
External political risks
6.18
5.97
5.80
5.16
5
4.67
4.58
4
3
2
1
0
China
India
Indonesia
Malaysia Philippines Thailand
Vietnam
Grades are scaled from zero to 10, with zero being the best possible and 10 the worst.
1.
China has the best overall score of the emerging Asian economies covered by this report, while Indonesia has
the worst overall score. However, as the SWOT review in Section III indicates, each country has its own
strengths and weaknesses and there are plenty of opportunities in the higher risk countries just as there are
numerous threats that investors need to be careful of in the lower risk countries. In fact, while global
investors are likely to grow increasingly nervous about China risks in the coming year, they are likely to grow
more comfortable with Indonesian risks due to the reliability of the domestic consumer market and the
relatively predictable political environment.
2.
China stands alone as having the most interesting economic prospects of the seven emerging markets covered
by this report, while the Philippines and Vietnam will have to work the hardest to attract foreign investor
attention.
3.
India is the most difficult country in which to do business, followed by Indonesia and the Philippines, while
Thailand and Malaysia are to two countries where it is easiest for foreign investors to do business. However,
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A S.W.O.T. Study of Asia’s Emerging Countries
August 2011
domestic political risks are highest in Thailand and Malaysia too, while India’s democratic system might be
messy but it is also stable.
4.
Companies that consider intellectual property risks and other threats posed by China to be unacceptably high
are likely to focus more on Malaysia and Thailand, both of which have better reputations for being more
straight forward in their approach to foreign investment and trade than the other emerging economies
covered in this report. They also offer relatively good human and physical infrastructure support.
5.
Social instability risks are highest in India and Indonesia. They are lowest in Vietnam and China, although
social instability has been increasing in both these countries lately.
6.
External political risks are highest for India due mainly to security threats posed by Pakistan, while China is in
second spot in terms of external risks, as it is encountering more friction with many of its neighbors, it is more
exposed to instability in developing countries elsewhere due to its growing foreign investments in oil and
other commodities, and trading relations with the US and the EU are increasingly problematic.
7.
All of the countries covered by this report have some major systemic problems, ranging from corruption to
financial sector inadequacies, and other institutional weaknesses. This is one of the main reasons why they
are still emerging market economies and have not yet reached developed status.
Although systemic
deficiencies are some of the biggest problems foreign investors and traders will face in doing business with
these countries in the near term, in the medium term some of the biggest opportunities in all the countries
covered here will involve providing solutions to the systemic problems – namely, environment, human
resource, and physical infrastructure deficiencies. Industry-wise, this implies some of the biggest growth
opportunities will be in education, health care, environmental clean-up, and the provision of infrastructure
that can help countries and major cities overcome gridlock and other bottlenecks that interfere with the
movement of people and goods.
8.
Corruption and bureaucratic inefficiency will remain prominent problems in all of emerging Asia, but they are
not insurmountable obstacles to economic development. The bigger threat to development comes from
entrenched local groups (in both the public and state-owned sectors) who fear competition and favor the
status quo. Such groups have the capability to block necessary reforms from taking place. Corruption in India
and Malaysia, although not worst in absolute terms than in many of the other countries covered by this
report, has the potential to be most destabilizing socially and politically in the coming year.
Popular
backlashes against the problem of graft are building in both these countries.
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A S.W.O.T. Study of Asia’s Emerging Countries
II.
August 2011
ASSESSMENT OF BUSINESS ENVIRONMENT
A. ECONOMIC DYNAMICS
Ranking Emerging Asian Countries by
Economic Dynamics
10
9
8
6.82
7
5.57
6
6.70
5.42
4.88
4.53
5
4
3
2.40
2
1
0
China
India
Indonesia Malaysia Philippines Thailand
Vietnam
Grades are scaled from zero to 10, with one being the best possible and 10 the worst.
Below we give grades on a zero to 10 scale assessing various aspects of the countries we surveyed in
terms of economic strengths and weaknesses (S-W). A grade of 10 is the worst grade possible, indicating a serious
inadequacy or drawback. A grade of zero is the best grade possible, indicating a very positive feature or aspect of
the country.
Variables and Grades Assessing Economic Dynamics
Variables
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
a. Growth prospects
1.00
3.00
5.00
8.00
7.00
8.00
5.00
b. Market size
0.00
2.00
4.00
8.50
6.50
6.00
7.00
c. Wealth
5.00
9.00
7.00
0.00
8.00
4.00
9.00
d. Inflation
3.00
6.00
6.00
2.00
4.00
3.00
8.00
e. Public debt
2.00
8.00
4.00
8.00
8.00
7.00
8.00
f. Balance of payments
3.00
7.00
5.00
1.00
3.00
3.00
8.00
g. Foreign debt
1.00
3.00
5.00
6.00
6.00
5.00
6.00
h. Foreign investment success
4.00
7.00
6.50
3.50
9.00
3.50
5.00
i. Export dynamism
6.33
4.00
8.33
4.67
5.67
2.33
6.00
j. Import dynamism
2.67
4.67
5.33
4.33
8.33
4.67
5.33
Economic dynamism score
2.40
5.57
5.42
4.53
6.82
4.88
6.70
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A S.W.O.T. Study of Asia’s Emerging Countries
August 2011
Data and Definitions Used to Calculate Economic Grades
1. Growth prospects data
Real GDP Growth Rate
(Percent change)
Country
2009
2010
2011
2012
2013
2014
2015
Average
China
9.20
10.30
9.59
9.52
9.48
9.52
9.46
9.58
India
6.76
10.37
8.24
7.82
8.17
8.14
8.12
8.23
Indonesia
4.58
6.11
6.20
6.50
6.70
7.00
7.00
6.30
Malaysia
-1.71
7.16
5.50
5.20
5.10
5.10
5.00
4.48
Philippines
1.06
7.33
4.95
4.97
5.00
5.00
5.00
4.76
Thailand
-2.33
7.80
3.96
4.53
4.70
4.75
4.85
4.04
Vietnam
5.32
6.78
6.26
6.75
7.23
7.44
7.50
6.75
Source: International Monetary Fund, World Economic Outlook Database, April 2011
Grade for growth prospects
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
1.00
3.00
5.00
8.00
7.00
8.00
5.00
Definition: The average annual rate of real GDP growth between 2009 and 2015 as estimated by the IMF in its
World Economic Outlook Database in April 2011.
Grading scale:
Grade
Real GDP growth rate average
0
>10
1
<10
2
<8.99
3
<8.25
4
<7.5
5
<6.75
6
<6
7
<5.25
8
<4.5
9
<3.75
10
<3
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A S.W.O.T. Study of Asia’s Emerging Countries
August 2011
2. Market size prospects data
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
GDP (US$ billion in 2010)
5,878.26
1,537.97
706.74
237.96
188.72
318.85
103.57
Population (millions in 2010)
1,341.41
1,215.94
234.38
28.25
94.01
63.88
88.26
Source: International Monetary Fund, World Economic Outlook Database, April 2011
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
0.00
0.00
4.00
0.00
5.00
3.00
7.00
10.00
8.00
5.00
6.00
6.00
9.00
5.00
0.00
2.00
4.00
8.50
6.50
6.00
7.00
GDP -- US$ billion
Population -- 2010
Grade for market size
Definition: The simple average of two variables: the US dollar size of the GDP, in current terms in 2010, plus the
size of the population in 2010. In both cases we used hard data published in the IMF in its World Economic
Outlook Database, April 2011.
Grading scale:
Size of GDP
Grade
GDP size in US$
billion in 2010
Population in
millions in 2010
0
>5000
>1000
1
<5000
<1,000
2
<3999
<500
5000
3
<3000
<250
4000
4
<2000
<200
3000
5
<1000
<100
2000
6
<500
<75
1000
7
<250
<60
0
8
<200
<50
9
<150
<40
10
<100
<30
GDP in 2010 -- US$ billion
7000
6000
5878.26
1537.97
706.74
237.96
China
India
188.72
318.85
Indonesia Malaysia Philippines Thailand
103.57
Vietnam
Size of Population
Population in 2010, millions
1600
1400
1341.41
1215.94
1200
1000
800
600
400
234.38
200
28.25
94.01
63.88
88.26
0
China
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India
Indonesia Malaysia Philippines Thailand
Vietnam
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A S.W.O.T. Study of Asia’s Emerging Countries
August 2011
3. Wealth
Per capita GDP (US$
thousand in 2010)
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
4.382
1.265
3.015
8.423
2.007
4.992
1.174
Source: International Monetary Fund, World Economic Outlook Database, April 2011
Grade for wealth
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
5.00
9.00
7.00
0.00
8.00
4.00
9.00
Definition: The US dollar size of the GDP in 2010 divided by the size of the population for that same year.
Grading scale:
Wealth
Grade
Per capita GDP (thousands of US$)
0
>8000
1
<8000
2
<7000
3
<6000
7
4
<5200
6
4.
Per capita GDP in US$ thousands, 2010
9
8.423
8
5
5
<4500
6
<3800
3
7
<3100
2
8
<2400
9
<1700
10
<1000
4.992
4.382
4
3.015
2.007
1.265
1.174
1
0
China
India
Indonesia
Malaysia Philippines Thailand
Vietnam
Inflation
Country
2010
2011
2012
Average
China
4.7
4.2
2.0
3.6
India
8.6
7.7
5.9
7.4
Indonesia
7.0
7.3
5.5
6.6
Malaysia
2.4
2.8
2.5
2.6
Philippines
3.0
5.1
4.2
4.1
Thailand
3.0
5.1
2.4
3.5
Vietnam
11.8
15.0
8.0
11.6
Source: International Monetary Fund, World Economic Outlook Database, April 2011, except for Vietnam. We used our own
forecasts for 2011 and 2012 for Vietnam.
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A S.W.O.T. Study of Asia’s Emerging Countries
Grade for inflation
August 2011
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
3.00
6.00
6.00
2.00
4.00
3.00
8.00
Definition: The average annual rate of consumer price inflation for the previous year, the current year and the
forecast rate for the coming year.
Grading scale:
Inflation
Grade
Consumer price inflation
0
<1
1
<2
14
2
<3
12
3
<4
10
4
<5
8
5
<6
6
6
<8
4
7
<10
2
8
<15
0
9
<20
10
>20
Annual average consumer price inflation between 2010 and 2012
11.6
7.4
6.6
4.1
3.6
3.5
2.6
China
India
Indonesia Malaysia Philippines Thailand
Vietnam
5. Public debt
Public debt as a percentage
of GDP in 2010
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
17.5%
55.9%
26.4%
53.1%
56.5%
42.3%
56.7%
Source: CIA World Factbook
Grade for public debt
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
2.00
8.00
4.00
8.00
8.00
7.00
8.00
Definition: The US dollar size of the public debt in 2010 divided by the size of the GDP for that same year.
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A S.W.O.T. Study of Asia’s Emerging Countries
August 2011
Grading scale:
Grade
Public debt to GDP ratio
0
<10
1
<15
Public Debt
Public debt as a percentage of GDP in 2010
2
<20
3
<25
4
<30
5
<35
6
<40
7
<50
8
<100
9
<200
10
>200
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
55.9%
53.1%
56.7%
56.5%
42.3%
26.4%
17.5%
China
India
Indonesia Malaysia Philippines Thailand
Vietnam
6. Balance of payments
Current Account BoP as a Percentage of GDP
(Percentage)
Country
2009
2010
2011
2012
Average
China
5.95
5.21
5.71
6.31
5.80
India
-2.82
-3.19
-3.67
-3.79
-3.37
Indonesia
2.58
0.89
0.89
0.40
1.19
Malaysia
16.50
11.82
11.39
10.83
12.63
Philippines
5.81
4.49
2.92
2.82
4.01
Thailand
8.29
4.64
2.75
1.92
4.40
Vietnam
-6.56
-3.79
-4.01
-3.93
-4.57
Source: International Monetary Fund, World Economic Outlook Database, April 2011
Grade for balance of payments
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
3.00
7.00
5.00
1.00
3.00
3.00
8.00
Definition: The current account balance of payments measured in US dollars divided by the Gross Domestic
Product in current US dollar terms. Estimates for 2009 and 2010 and forecasts for 2011 and 2012 are provided by
the IMF in its World Economic Outlook Database in April 2011.
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A S.W.O.T. Study of Asia’s Emerging Countries
August 2011
Grading scale:
Grade
Balance of Payments
Current account BoP/GDP
0
>15
1
>10 - 15
2
>6 - 10
3
>4 - 6
4
>2 - 4
5
>0 - 2
6
>-2 - 0
7
>-4 - -2
8
>-6 - -4
9
-10 - -6
10
<-10
Current account-to-GDP average for 2009-2012
%
14
12
10
8
6
4
2
0
-2
-4
-6
12.63
5.80
4.01
4.40
1.19
-3.37
China
India
Indonesia Malaysia Philippines Thailand
-4.57
Vietnam
7. Foreign debt
External debt as a percentage of
Gross Domestic Product in 2010
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
6.92%
15.42%
27.75%
30.51%
31.67%
25.87%
32.30%
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
1.00
3.00
5.00
6.00
6.00
5.00
6.00
Source: CIA World Factbook
Grade for foreign debt
Definition: The US dollar size of the external debt in 2010 divided by the size of the Gross Domestic Product for
that same year.
Grading scale:
Grade
External debt as a % of GDP
0
<5%
1
<10%
2
<15%
3
<20%
4
<25%
5
<30%
6
<35%
7
<40%
8
<50%
9
<100%
10
≥100%
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August 2011
8. Foreign direct investment inflow dynamism
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
Stock of FDI (US$ billion through
December 2010)
574.3
191.1
81.2
77.4
24.5
117.9
78.0
Per capita FDI through 2010 (US$)
428.1
157.2
346.5
2741.1
260.6
1845.7
883.2
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
Source: CIA World Factbook.
China
Stock of FDI
0.00
4.00
5.00
5.00
9.00
4.00
5.00
Per capita FDI
7.00
10.00
8.00
1.00
9.00
3.00
5.00
Grade for foreign investment dynamism
3.50
7.00
6.50
3.00
9.00
3.50
5.00
Definition: The simple average of two variables: the US dollar size of total stock of foreign direct investment
inflow through December 2010 plus the per capita size of stock of FDI inflow for that same period. Our logic for
combining these two variables is that the absolute size of the FDI inflow is an indication of the focus of interest on
the part of foreign investors while the per capita FDI size is an indication of both the openness and wealth of the
country to foreign investment. We chose the stock of foreign investment rather than FDI inflow for a single year
because the longer term is a better indication of the consistency of government policies and investor interest.
Grading scale:
Grade
Stock of FDI inflow
(US$ billion through Dec. 2010)
Per capita stock of FDI
through Dec. 2010 (US$)
0
>500
>3000
1
<500
<3000
2
<400
<2500
3
<300
<2000
4
<200
<1500
5
<100
<1000
6
<75
<750
7
<50
<500
8
<40
<400
9
<30
<300
10
<20
<200
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August 2011
Per Capita FDI
Foreign Direct Investment
Stock of FDI through 2010, US$ billion
Per capita stock of FDI through Dec. 2010, US$
700
600
3,000
574.3
2,741.14
2,500
500
1,845.71
2,000
400
1,500
300
883.22
1,000
191.1
200
81.2
100
117.9
77.4
78.0
428.13
500
157.16
24.5
0
346.49
260.60
0
China
India
Indonesia Malaysia Philippines Thailand
Vietnam
China
India
Indonesia Malaysia Philippines Thailand
Vietnam
9. Export dynamism
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
Merchandise exports (US$ bil.
in 2010)
1577.93
211.95
157.82
207.36
51.50
195.30
71.63
Per capita exports in 2010 (US$)
1176.3
174.3
673.4
7339.9
547.8
3057.4
811.6
Average annual growth rate of
exports between 2001 and 2010
21.3%
17.4%
10.7%
8.6%
4.1%
11.7%
18.0%
Sources: Asian Development Bank, Key Indicators for Asia and the Pacific. Figures for 2010 are national estimates.
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
Grade for merchandise exports in 2010
1.00
5.00
6.00
5.00
9.00
6.00
9.00
Grade for per capita exports in 2010
5.00
10.00
7.00
0.00
7.00
2.00
6.00
Grade for average annual growth rate of
exports between 2001 and 2010
1.00
3.00
6.00
7.00
9.00
6.00
2.00
Average
2.33
6.00
6.33
4.00
8.33
4.67
5.67
Definition: The simple average of three variables: the US dollar size of merchandise exports in 2010, the per capita
size of exports for that same year, and the average annual growth of merchandise exports for the decade from
2001 through 2010.
Grading scale:
Grade
Exports (US$ billion in 2010)
Per capita exports in 2010
(US$)
Average annual growth rate of exports between 2001
and 2010
0
>2000
>5000
>30
1
<2000
<5000
<30
2
<1500
<4000
<20
3
<1000
<3000
<18
4
<500
<2000
<16
5
<250
<1500
<14
6
<200
<1000
<12
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7
<150
<750
<10
8
<100
<500
<8
9
<75
<300
<6
10
<50
<200
<4
Total Merchandise Exports
Merchandise exports in 2010 in US dollar billion
1,800
1,600
1577.93
1,400
1,200
1,000
800
600
400
211.95
200
157.82
207.36
195.30
71.63
51.50
0
China
India
Indonesia Malaysia Philippines Thailand
Vietnam
Per Capita Exports in 2010
Per capita exports in 2010 in US dollars
8,000
7339.9
7,000
6,000
5,000
4,000
3057.4
3,000
2,000
1176.3
1,000
174.3
673.4
547.8
811.6
0
China
India
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Indonesia Malaysia Philippines Thailand
Vietnam
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Export Growth Dynamism
Average annual export growth between 2001 and 2010
25%
21.3%
20%
18.0%
17.4%
15%
11.7%
10.7%
10%
8.6%
4.1%
5%
0%
China
India
Indonesia Malaysia Philippines Thailand
Vietnam
10. Import dynamism
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
Merchandise imports (US$ bil.
in 2010)
1006.00
268.40
96.86
127.05
43.00
144.74
68.80
Per capita imports in 2010 (US$)
753.70
223.84
418.30
4576.40
466.24
2160.85
788.89
Average annual growth rate of
imports between 2001 and
2010
20.7%
8.4%
4.2%
12.0%
20.0%
18.0%
20.4%
Sources: Asian Development Bank, Key Indicators for Asia and the Pacific. Figures for 2010 are national estimates.
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
Grade for merchandise imports size in
2010
2.00
4.00
7.00
6.00
9.00
6.00
8.00
Grade for per capita imports in 2010
5.00
9.00
7.00
0.00
7.00
3.00
6.00
Grade for average annual growth rate
of imports between 2001 and 2010
1.00
1.00
2.00
7.00
9.00
5.00
2.00
Average
2.67
4.67
5.33
4.33
8.33
4.67
5.33
Definition: The simple average of three variables: the US dollar size of merchandise imports in 2010, the per
capita size of imports for that same year, and the average annual growth of merchandise imports for the decade
from 2001 through 2010.
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Grading scale:
Grade
Imports (US$ billion in 2010)
Per capita imports in 2010
(US$)
Average annual growth rate of imports
between 2001 and 2010
0
>2000
>5000
>30
1
<2000
<5000
<30
2
<1500
<4000
<20
3
<1000
<3000
<18
4
<500
<2000
<16
5
<250
<1500
<14
6
<200
<1000
<12
7
<150
<750
<10
8
<100
<500
<8
9
<75
<300
<6
10
<50
<200
<4
Total Merchandise Imports
Merchandise imports in 2010 in US dollar billion
1,600
1,400
1394.8
1,200
1,000
800
600
319.4
400
135.7
200
182.0
171.6
54.9
84.0
0
China
India
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Vietnam
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Per Capita Imports in 2010
Per capita imports in 2010 in US dollars
7,000
6074.83
6,000
5,000
4,000
2727.82
3,000
2,000
1,000
1039.82
262.67
951.77
584.31
578.81
0
China
India
Indonesia Malaysia Philippines Thailand
Vietnam
Import Growth Dynamism
Average annual import growth between 2001 and 2010
25%
20.9%
21.3%
20%
19.3%
18.0%
15%
12.3%
9.4%
10%
5.8%
5%
0%
China
India
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Indonesia Malaysia Philippines Thailand
Vietnam
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B. HUMAN AND PHYSICAL INFRASTRUCTURE SUPPORT
Overall Scores for Human and Physical
Infrastructure Support
10
9
7.88
8
7.38
7
6.38
6
5
5.13
4.63
4.50
4
3.50
3
2
1
0
China
India
Indonesia Malaysia Philippines Thailand
Vietnam
Grades are scaled from zero to 10, with zero being the best possible and 10 the worst.
We got the grades for this section by interviewing expatriate managers in the countries. We asked each
manager to use his/her subjective opinion to grade the specific infrastructure / backdrop feature on a one to 10
scale, with one being the best grade possible and 10 the worst. We limited the survey audience to expatriates
because they have foreign reference points against which to benchmark local conditions, whereas many local
managers lack such reference points. The survey audience consisted of at least 100 people in each of the countries
surveyed. Respondents provided scores only for the country in which they are residing and working, not for other
countries in the region.
Following the table of grades is a brief explanation explaining the specific infrastructure and backdrop
conditions. These are the views of PERC’s senior analysts shaped by their personal experiences and the comments
of the survey respondents.
Variables and Grades Assessing Human and Physical Infrastructure Support
Variables
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
a. Physical infrastructure/utilities for
domestic market
5.00
10.00
8.00
4.00
9.00
3.00
9.00
b. International infrastructure links
(ports, airports, communications,
3.00
9.00
8.00
4.00
8.00
3.00
9.00
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etc.)
c. Pollution
9.00
9.00
7.00
5.00
6.00
4.00
6.00
d. Technical labor pool depth
2.00
1.00
8.00
3.00
5.00
7.00
7.00
e. Depth of higher education
1.00
1.00
9.00
4.00
5.00
6.00
7.00
f. English speaking / comprehension
proficiency
4.00
1.00
7.00
2.00
2.00
8.00
6.00
g. Health facilities
5.00
3.00
8.00
3.00
7.00
1.00
8.00
h. Natural disaster disruption potential
7.00
7.00
8.00
3.00
9.00
5.00
7.00
Infrastructure and backdrop score
4.50
5.13
7.88
3.50
6.38
4.63
7.38
Grades range from zero to 10, with zero being the best possible and 10 the worst.
Explanation for Human and Physical Infrastructure Support Grades
1. Physical infrastructure/utilities for domestic market
Country
Grade
Rationale
China
5.00
China is a big country and there are still parts, particularly inland, where the
infrastructure is inadequate. If we were rating only the major coastal cities,
China’s score would be much better, but these more developed regions still have
trouble interfacing with inland regions, where the quality of infrastructure is
worse. The government has been aggressively investing in roads, rail facilities,
power, domestic communications and other facilities and conditions today are
much, much better than they were just a decade ago. The biggest problem in
the near term will relate to traffic on roads and rail facilities. They are
increasingly clogged due to heavy freight usage (particularly moving coal). Safety
issues are also a concern.
India
10.00
India has not invested nearly as much in its domestic infrastructure as China has.
Consequently, it is much more difficult moving goods around the country. Power
blackouts are a serious problem. Water is in short supply in many areas. The
poor quality of India’s physical infrastructure is one of the country’s biggest
problems.
Indonesia
8.00
One of President Susilo’s biggest failures to date has been his inability to
stimulate investment in physical infrastructure despite his labeling this a top
priority. Two big signposts to watch in the immediate future are new
investments in the power sector and the success or failure of a mass transit
railway project in Jakarta.
Malaysia
4.00
Malaysia has relatively good infrastructure. There are some periodic problems
with power and water, but overall conditions are quite good and the
infrastructure for moving goods around the country is adequate.
Philippines
9.00
The Philippines has not invested nearly as much as it should in maintaining
existing physical infrastructure and building new infrastructure. It is difficult
moving goods around the country and companies need to invest in back-up
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systems to make up for public infrastructure deficiencies.
Thailand
3.00
Until the recent political turmoil, Thailand had been doing a good job of
improving its physical infrastructure. The political turmoil has slowed new
infrastructure investment and is diverting resources away from what should be
priority areas to political powerful areas like the military, which could mean
bigger problems further down, but the quality of the country’s current domestic
infrastructure is still good relative to most of the other emerging countries
covered here.
Vietnam
9.00
Vietnam has not invested nearly enough in physical infrastructure. There are
deficiencies and delays in the development of interprovincial roads, bridges,
intra-city public transportation and power projects. The transport infrastructure
system in Vietnam had fallen far behind economic growth and is an impediment
to those who want to expand their businesses in the nation. Rail service is
shoddy, four-lane highways are an exception rather than a rule, and airports are
only just beginning to be modernized.
2. International infrastructure links (airports, communications, etc.)
Country
Grade
Rationale
China
3.00
China would score the best of all emerging countries rated here if our grade
were confined to the quality of international infrastructure links in major coastal
cities and national development zones like Pudong and Tianjin, but infrastructure
in second- and third-tier cities is not as developed, which is one of the main
reasons why the major coastal cities have such a big advantage over more inland
cities, where it is more difficult to get goods into and out of the country.
India
9.00
Civil aviation and ports are crying out for modernization. India would deserve a
10 were it not for the country’s international telecommunications links, which
are good enough to have enabled the country to become the world’s premier
backroom processing center. International airports and the quality of
international air services are improving as the government allows the private
sector to play a larger role.
Indonesia
8.00
Indonesia has a few ports and airports such as near Jakarta and in Batam that are
not bad by international standards, but efficiency even at these ports of entry is
poor. The physical quality of ports and airports in many other parts of the
sprawling archipelago is very poor.
Malaysia
4.00
Malaysia’s ports and airport links, as well as its international communications
links, are quite good. If anything, they are under-utilized relative to their
capacity.
Philippines
8.00
The Philippines’ ports and airports are notoriously bad. In addition to poor
maintenance and physical standards, bureaucratic inefficiency and corruption
are other problems. As in India, telecommunications infrastructure is better
than the infrastructure required to ship goods into and out of the country, so the
Philippines has been able to develop backroom processing industries.
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Thailand
3.00
Thailand has invested quite heavily in its ports and airport infrastructure.
Statistics indicate that Laem Chabang port can compete with ports in the region
relatively well in areas of freight carrying rates and docking times. Malaysia
actually has better sea ports than Thailand, but we gave Thailand a better grade
overall mainly because its international airport has many more direct
international flights to more parts of the world.
Vietnam
9.00
Most of Vietnam’s ports are relatively small with obsolete facilities and poor
support services. For now, Vietnam is a feeder country in the context of global
trade, relying on transshipment in one of Asia’s larger ports to get its goods to
the rest of the world. On the import side, it relies overwhelmingly on Asia, with
eight of every 10 boxes coming into Vietnam provided by its Asian neighbors.
3. Pollution
Country
Grade
Rationale
China
9.00
China has a big problem with air and water pollution. Some cities are worse than
others, but the quality of the environment nationwide has suffered as a result of
rapid industrialization. Official statistics understate the actual magnitude of the
problem, but the poor quality of air and water are some of the biggest
complaints that expatriates working in the country have.
India
9.00
Industrial pollution, soil erosion, deforestation, poor water quality, and land
degradation are all worsening problems. The government is also constrained
financially from mounting an effective program to pay for the clean-up.
Indonesia
7.00
The problem of pollution in Indonesia is largely regional. Some parts of the
country, like Bali, are pristine, but others like Jakarta are suffering from air,
water, and other types of pollution that are as bad as in any major city in Asia.
Unfortunately, the quality of the physical environment is worst in the most
populated areas. Poor waste management, traffic and weak regulation of
industrial waste are all contributing factors. Water is not potable. Only bottled
water should be consumed. Sewage and drainage systems are incomplete. In
rural areas, the burning of rainforests, illegal mining and other abuses are
contributed to environmental degradation.
Malaysia
5.00
The Green movement is fairly strong in Malaysia, and parts of the country
market themselves on the basis of their eco-tourism potential. Part of
Malaysia’s problem with air pollution is imported from Indonesia due to the
forest fires that sometime burn there. The country also has its own problems
dealing with industry and vehicular emissions, as well as waste management, but
it generally does a better job of managing these environmental issues than other
emerging Asian economies.
Philippines
6.00
Water pollution is probably a bigger problem than air pollution in the Philippines.
The discharge of domestic and industrial wastewater and agricultural runoff has
caused extensive pollution of the receiving water-bodies. The government is
unable to back up its strong environmental rhetoric and regulations with action.
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Part of the problem is bureaucratic, but a major part has to do with a lack of
financing. Only 7% of the country’s total population is connected to sewer
systems and a minority of households has acceptable effluent from on-site
sanitation facilities.
Thailand
4.00
Tourism is such an important industry in Thailand that there has been more
attention to protecting the environment than in many other Asian countries.
There is still a big problem with water and air pollution in Bangkok, but many
other parts of the country are in much better shape. Over-development is a
growing problem in areas catering to foreign tourists, straining the ability of
these areas to provide enough clean water and deal with waste.
Vietnam
6.00
Pollution is likely to become a bigger issue in Vietnam in view of the country’s
rapid rate of industrialization and the lack of official attention to managing
environmental degradation. However, the country is less developed industrially
than most of the others covered here and the problem of pollution has therefore
not grown as large. It is the trend that is worrying. A 2008 environmental report
by the World Bank ranked Hanoi and Ho Chi Minh City as the worst in Vietnam
for pollution, while an environmental study by 400 international scientists in the
same year said Hanoi and Ho Chi Minh City were the worst-ranked cities for dust
pollution in the whole of Asia.
4. Technical labor pool depth
Country
Grade
Rationale
China
2.00
China has a large pool of engineers, scientists and other technically-skilled labor.
Its universities graduate more than 800,000 engineers a year and thousands
more receive overseas training in the best universities the US has to offer. The
only reason the country does not get a better grade is because growth has been
so rapid and there has been such a large influx of foreign direct investment that
this kind of labor is getting more expensive and turnover rates are increasing.
India
1.00
India has more than 400,000 university educated engineers entering the labor
market each year, and as in China there are also thousands of Indian students
studying in the US and other foreign universities. The main difference between
China and India in terms of the depth of the pool of technical labor is that there
has been less foreign direct investment in India and slower growth overall, so the
strains on the technical labor pool have not been as obvious.
Indonesia
8.00
Indonesia lacks engineers and technically skilled labor. Much of this labor has to
be imported, since the local universities are not turning out enough qualified
graduates fast enough.
Malaysia
3.00
This is one of Malaysia’s biggest strengths. The absolute size of the pool is not
nearly as large as in India or China, but the lack of foreign direct investment and
the relocation of many electronic industries to China mean the demand for
engineers and technically skilled labor has been weaker in Malaysia lately. It is
probably easier for a foreign investor to staff a new facility in Malaysia with
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experienced technical talent than it is in either India or China, but it would not
take long before this slack is taken up, which is why we have given Malaysia a
slightly worse grade than the two much larger countries.
Philippines
5.00
The Philippines has a reputation for a talented labor force, and its universities
graduate more than 40,000 engineers a year. However, the quality of that labor
force is starting to suffer as a result of low investment in education and a lack of
job opportunities, which denies many technically-trained workers the actual
experience they need to match the skill levels available in countries like
Malaysia, India and China.
Thailand
7.00
Limited technical labor availability in Thailand is a major reason why some
foreign investors are looking elsewhere. Thailand’s educational policy is
primarily at fault for the shortage. The country has been successful in attracting
foreign investment in a number of technologically-sophisticated industries, but
the demand this has created for technical talent has squeezed the country’s
ability to supply this kind of labor.
Vietnam
7.00
The lack of technical talent remains a major source of concern for enterprises in
Vietnam. Around 65% of the country’s total workforce is unskilled. Some 78% of
Vietnamese people aged 20-24 are either untrained or do not have the skills they
need.
5. Depth of higher education
Country
Grade
Rationale
China
1.00
In addition to turning out large numbers of engineers, China’s universities are
also turning out an increasing number of business managers, financial specialists,
lawyers and people with other skills that companies need. There are over 110
million students in primary and secondary education and 11 million in higher
education. Around 19% of the age group 18 – 24 years has access to (postsecondary) higher education, which includes both higher vocational and
university education. Higher education is being reformed rapidly, with a focus on
both expansion of capacity and improvement of quality.
India
1.00
More than one third of India’s population might be illiterate, but the population
is so large and the university system so well developed that the country also
turns out a huge number of highly educated graduates. India’s universities and
technical institutes face a shortage of faculty and concerns have been raised over
the quality of education, but the country is still turning out a large number of
quality graduates.
Indonesia
9.00
Indonesia produces a lot of higher education graduates but there are major
questions with regard to the quality of these graduates. Indonesia's National
Board for Higher Education Accreditation has announced a target stopping the
bad teaching practices and ridding universities of unaccredited undergraduate
courses by 2012. However, this is more an indication that there are big problems
in the country’s higher education system than a sign that headway will be made
in reducing those problems.
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Malaysia
4.00
The government’s affirmative action policies probably did more to harm the
country’s higher education system than to help it. There has been a move away
from subjects like mathematics and engineering to subjects like religious studies,
which means there has been a mismatch between the talent Malaysian industry
needs and what its schools are supplying. However, the country’s universities
are still turning out quality graduates and recently there has been a move to
redirect higher education back toward subjects like engineering, economics and
science.
Philippines
5.00
The Philippines’ education system is becoming a victim of under-investment.
The quality of teaching is deteriorating as more Filipinos look abroad for work,
and funding constraints affect both who can afford to go to schools and how the
schools are equipped. There was a time when the Philippines would have been
graded near the top of this list of countries here, but it currently deserves to be
rated only near the middle of the pack, which is what we have tried to indicate
with a grade of five.
Thailand
6.00
Reform in Thailand’s education system succeeded at achieving almost universal
primary education in the 1990s. Secondary education, though, continued to lag;
and the country’s university and post-graduate system is not producing enough
talent to match the demand that is resulting from the growing number of foreign
investors that have set up in the country. The quality of the country’s existing
universities is quite good, but the Education Ministry is highly politicized and this
is seriously interfering with the development of the country’s education system.
Vietnam
7.00
Vietnam’s culture puts a high priority on education, but a lack of funding and
out-dated teaching methods mean the country’s institutes of higher education
are not turning out the quality of graduates that the country really needs. A lack
of linkage between teaching and research activities and a large discord between
theory and practical training lead to a large number of graduates being unable to
find a job, while skills shortages is a bottleneck for companies in many industries.
6. English speaking / comprehension proficiency of labor force
Country
Grade
Rationale
China
4.00
English is taught at all levels of education starting from junior middle school and
in some cases also at some primary schools, especially in Beijing and Shanghai.
English also is one of the three compulsory subjects of the national college
entrance examinations and thus a requirement for university admission. English
is also taught at all university programs. In order to obtain a Bachelor degree, all
students must pass the so-called College English Test (CET) at level four. Many
universities and colleges employ foreign teaching staff to teach English to
students and staff. Private English language schools are wildly popular all over
China. At the company level, English is not widely spoken among manual
workers, but it is widely spoken among while collar workers and managers.
India
1.00
India's emergence as a major software and IT hub has in part been possible due
to its English-educated workers. However, there are concerns that the teaching
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of English is not being pushed as hard in India as in other countries like China and
that this could hurt the country’s competitiveness further down the road. We
still think India deserves to be rated a one for this variable. English is still more
widely spoken in India than in China, including among workers with only a
primary level of education, but it is not a given that this favorable score will be
maintained in the medium term. There might be too much complacency that
past standards are being maintained.
Indonesia
7.00
Although English is understood and commonly spoken in the tourist areas, the
Indonesian people as a whole are often not fluent speakers of English. Except for
those who work in international business or the travel industry, English is not
usually essential to daily life in Indonesia and thus not practiced on a regular
basis.
Malaysia
2.00
Language is a politically-charged topic in Malaysia – more so than in the other
countries covered here. There are groups who favor teaching in native tongues,
especially Malay, but there are other groups who favor the use of English in
order to maintain and enhance Malaysia’s international competitiveness. Lately
this latter group seems to be winning the debate and English is being pushed
harder. Throughout the debate, English standards have remained relatively high
in Malaysia compared with the other countries covered here.
Philippines
2.00
English is still widely spoken in the Philippines, but teaching standards are
deteriorating and the country no longer deserves to be graded a zero or even a
one. To be sure, the widespread use of English remains a selling point for the
country, but it is exaggerated in terms of the percentage of the population that
feels comfortable communicating in this medium.
Thailand
8.00
The use of English, while increasing, remains at a sub-standard level. The
government is pushing the teaching of English in schools, but it does not have
the infrastructure to support this program. Many primary teachers freely admit
that they are forced to teach English although they have little or no knowledge
of the language.
Vietnam
6.00
In recent years, English is becoming more popular as a second language. English
study is obligatory in most schools and the language is seen as being important
to landing better jobs. Hence, many Vietnamese are studying English at their
own initiative in their spare time, which stands in stark contrast to places like
Thailand and Indonesia.
7. Health facilities
Country
China
Grade
5.00
Rationale
China’s medical infrastructure is improving. More hospitals and clinics catering
to expatriates are available in major coastal cities and industrial zones, but
facilities in secondary cities are much more basic. In most rural areas, only
rudimentary medical facilities are available, often with poorly trained medical
personnel who have little medical equipment and medications.
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India
3.00
Medical care is available in the major population centers that approaches and
occasionally meets Western standards. This industry is supporting India’s push
to develop medical tourism the way Thailand is doing. However, outside of the
major cities medical care is usually very limited and it is frequently unavailable in
rural areas.
Indonesia
8.00
The general level of sanitation and health care in Indonesia is substandard. Routine medical care is available in all major cities, but most
expatriates leave the country for all but the simplest medical procedures,
preferring their home countries or neighboring countries like Singapore and
Thailand.
Malaysia
3.00
Malaysia would like to take a page out of Thailand’s book and turn health care
into a major foreign-exchange earning industry. In view of the country’s Islamic
majority, it should be able to market its services especially well to Middle East
countries.
Philippines
7.00
Health care in the Philippines suffers from serious financial constraints. The
country has excellent doctors and nurses, but many of these people emigrate to
other countries, where the pay is better. Staffing quality in the Philippines is still
acceptable, but the quality of equipment in most hospitals is lacking. This poor
physical infrastructure, together with poor sanitation conditions, is why we have
scored the health care system as poorly as we have.
Thailand
1.00
The quality of some of Thailand’s hospitals and clinics is so good that it has
become a major draw for people from other countries to travel to Thailand for
their medical care.
Vietnam
8.00
International health clinics in Hanoi and Ho Chi Minh City can provide acceptable
care for minor illnesses and injuries, but more serious problems will often
require medical evacuation to Bangkok or Singapore. Emergency medical
response services are generally unreliable or completely unavailable. Many
medicines that are readily available in the West are frequently hard to obtain in
Vietnam.
8. Natural disaster disruption potential
Disaster Statistics by Asian Country
(period covered: 2000 – 2009)
Country
Number of disasters
Deaths
Affected (mil)
Cost (US$ mil)
China
286
98,663
1,173.102
181,749.0
India
186
59,462
608.611
23,739.29
Indonesia
154
179,875
11.748
12,573.74
Malaysia
34
267
0.461
1,501.00
146
9,535
50.152
2,225.04
Thailand
53
9,481
28.211
2,101.11
Vietnam
82
3,533
20.914
5,055.21
Philippines
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Source: "EM-DAT: The OFDA/CRED International Disaster Database. www.emdat.be - Université Catholique de Louvain Brussels - Belgium"
The biggest number of natural disasters in the years ahead will be precisely in those populous, emerging
market economies like China, India and Indonesia that are supposed to lead Asia economically in the coming
decades. As they increase in economic size, it is inevitable that the economic cost of natural disasters will also
increase. However, our scoring is based not only on the number of natural disasters but also on a government’s
perceived capability to deal with such disasters in terms of advanced warning systems, preparing the population,
and responding with emergency relief when disasters happen. Some governments like China and India have a
better record in this regard than do the governments of Philippines and Indonesia. This influenced our grading.
Country
Grade
Rationale
China
7.00
China suffers from more natural disasters than any other country in the world. It
is particularly vulnerable to typhoons, flooding and earthquakes. China has a
long record of trying to develop early warning systems for natural disasters and it
does a good job of mobilizing the PLA and other bodies to mount emergency
relief efforts. What it does not have a long history of doing is being transparent
in its handling of domestic emergencies or the damage they cause. It also does
not publicize man-made actions (like shoddy building construction) that could
have aggravated the tolls from the disasters.
India
7.00
Parts of northern India are highly susceptible to earthquakes. Severe flooding is
common in Bihar, Assam and Orissa. However, the government has a fairly good
track record of responding to such disasters when they occur. In 2009, India
suffered more mortalities than any other country in the world due to disasters,
had the third largest number of victims, and ranked fourth in terms of dollar
damages. On the positive side, India’s whole approach to disaster management
is much more transparent than China’s, and while the government plays a
prominent role, there is more reliance on non-government organizations like the
Red Cross than in the Mainland. This helps to depoliticize the issue of disaster
relief.
Indonesia
8.00
Many areas of Indonesia are at high risk for natural disasters due to its
geographic location and topography. Earthquakes, volcano eruptions, tsunamis
and massive forest fires are a sampling of types of disasters Indonesia has
suffered in the recent past. The Indian Ocean earthquake and tsunami in
December 2004 killed more than 130,000 people and left over 37,000 missing in
Aceh and North Sumatra. Flooding and landslides frequently follow heavy rains.
The government’s track record in dealing with emergencies is not particularly
good, and this shortcoming also carries over into its handling of most kinds of
man-made emergencies.
Malaysia
3.00
Malaysia does not experience many natural disasters. It does suffer periodically
from fallout from Indian Ocean earthquakes and forest fires in Indonesia, but the
country rarely suffers from natural disasters of its own. This relative safety
feature is something that the Malaysian authorities should probably stress more
in their marketing efforts to investors and tourists.
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Philippines
9.00
The Philippines is a volcano-, typhoon-, flood-, and earthquake-prone country.
Making matters worse, the government’s financial constraints have reduced its
ability to respond to natural disasters. Consequently, more lives are lost and
days of business lost to natural disasters than is the case in most of the other
countries covered by this report. We grade the Philippines worse than Indonesia
because Manila, the capital of the Philippines where business is heavily
concentrated, has a worse record of being disrupted by typhoons and other
disasters than does Jakarta.
Thailand
5.00
Parts of Thailand were hit by the 2004 tsunami, but by and large the country is
not exposed to the kinds of natural disasters that are more typical in places like
the Philippines and Indonesia. We grade the country more harshly than Malaysia
because the government’s track record for dealing with disasters when they do
happen is much less impressive. The same poor response capabilities carries
over to other man-made kinds of emergencies, be it in dealing with insurrection
groups in the south or political protesters in Bangkok. Instead of dealing with
problems quickly, the government and the institutions like the military and
police that are supposed to be at the front line in dealing with emergencies make
mistakes that allow the problems to drag on longer than they should, exaggerate
the problems of property damage and loss of lives, and hurt the country’s
international image.
Vietnam
7.00
Vietnam experiences frequent weather‐related natural disasters similar to other
coastal nations like the Philippines and Cambodia. The major cities of Vietnam
are generally not as vulnerable as the rural areas, where the people have limited
infrastructure to protect them in extreme weather events, and rely on the
natural environment as their primary source of income. As prone as Vietnam is
to disasters, mega-catastrophes are rare, and the government can deal with
most of the crises itself. But it does need – and accepts – foreign aid to mitigate
damage by natural disasters.
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C. EASE OF DOING BUSINESS
Overall Scores Assessing the Ease of
Doing Business
10
9
8
7.44
7
7.00
7.00
6.00
6
5
4
4.00
3.78
3.56
3
2
1
0
China
India
Indonesia Malaysia Philippines Thailand
Vietnam
Grades are scaled from zero to 10, with zero being the best possible and 10 the worst.
PERC’s Evaluation of the Ease of Doing Business
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
1.
Starting a Business
3.00
9.00
8.00
5.00
8.00
3.00
7.00
2.
Dealing with Construction Permits
3.00
10.00
5.00
5.00
6.00
2.00
4.00
3.
Registering Property
3.00
6.00
6.00
5.00
6.00
3.00
4.00
4.
Getting Credit
4.00
3.00
6.00
2.00
7.00
4.00
7.00
5.
Protecting Investors
6.00
6.00
8.00
4.00
7.00
5.00
8.00
6.
Paying Taxes
7.00
9.00
7.00
2.00
8.00
5.00
8.00
7.
Trading Across Borders
3.00
8.00
7.00
3.00
7.00
3.00
5.00
8.
Enforcing Contracts
3.00
9.00
8.00
4.00
7.00
3.00
5.00
9.
Closing a Business
4.00
7.00
8.00
4.00
7.00
4.00
6.00
Ease of Doing Business
4.00
7.44
7.00
3.78
7.00
3.56
6.00
Grades range from zero to 10, with zero being the best possible and 10 the worst.
The World Bank ranks 183 economies on their ease of doing business, from 1 – 183, with first place being
the best. A high ranking on the ease of doing business index means the regulatory environment is conducive to
the operation of business. This index averages the country's percentile rankings on 9 topics, made up of a variety
of indicators, giving equal weight to each topic. The rankings presented in the table below are from the Doing
Business 2011 report, published November 4, 2010.
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The table presents the World Bank’s conclusions for the seven countries we cover in this report. The
rankings are useful and in most cases a fairly good reflection of reality. Please note, however, that we do not agree
with all the grades provided by the World Bank. The table above show how we would grade these same variables,
while the textual part of this section explains our rationale for changing the grades the way we have.
World Bank Ease of Doing Business Rankings
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
1. Starting a Business
151
165
155
113
156
95
100
2. Dealing with Construction Permits
181
177
60
108
156
12
69
3. Registering Property
38
94
98
60
102
19
40
4. Getting Credit
65
32
116
1
128
72
30
5. Protecting Investors
93
44
44
4
132
12
172
6. Paying Taxes
114
164
130
23
124
91
147
7. Trading Across Borders
50
100
47
37
61
12
74
8. Enforcing Contracts
15
182
154
59
118
25
32
9. Closing a Business
68
134
142
55
153
46
127
Ease of Doing Business Rank
79
134
121
21
148
19
93
Source: World Bank, Doing Business ranking, ranging from 1 to 183, with one being the best rated country and 183
the worst.
In order to be able to incorporate the World Bank’s findings with our own report, we had to change the
grading scale. The method we used to do this was to assume that the ranking for an individual country for a
specific variable corresponded to a particular position on a line ranging from one to 183. Starting a business in
China, for example, corresponded to the 151 position on the line. We then converted this position to a line
ranging from zero to 10, using the following formula, assuming a = the World Bank’s grade and b = the grade
converted to a 0 – 10 scale:
(a-1) / (183-1) = b/10
or
b = (a – 1) x (10)
(183-1)
In the case of starting a business in China, this converts to the following score:
b = (151 – 1) x (10)
(183-1)
b = 8.24
Applying the formula to all the grades in the World Bank’s East of Doing Business ranks produces the following
table converted to PERC’s 0 to 10 grading scale:
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World Bank Ease of Doing Business Rankings Converted to 0 – 10 Grading Scale
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
1.
Starting a Business
8.24
9.01
8.46
6.15
8.52
5.16
5.44
2.
Dealing with Construction Permits
9.89
9.67
3.24
5.88
8.52
0.60
3.74
3.
Registering Property
2.03
5.11
5.33
3.24
5.55
0.99
2.14
4.
Getting Credit
3.52
1.70
6.32
0.00
6.98
3.90
1.59
5.
Protecting Investors
5.05
2.36
2.36
0.16
7.20
0.60
9.40
6.
Paying Taxes
6.21
8.96
7.09
1.21
6.76
4.95
8.02
7.
Trading Across Borders
2.69
5.44
2.53
1.98
3.30
0.60
4.01
8.
Enforcing Contracts
0.77
9.95
8.41
3.19
6.43
1.32
1.70
9.
Closing a Business
3.68
7.31
7.75
2.97
8.35
2.47
6.92
Ease of Doing Business
4.29
7.31
6.59
1.10
8.08
0.99
5.05
Grades range from zero to 10, with zero being the best possible and 10 the worst.
It is important to note that the original number we changed was intended by the World Bank to be a
ranking, not a score. Turning the ranking into a score is a bit like turning an orange into an apple. It does
necessarily follow that a poor ranking necessarily means the variable in question is being performed poorly in the
country in question, i.e., that it deserves a poor grade. Perhaps all 183 countries are performing that function
relatively well in terms of meeting the expectations of a company and the margin of difference between countries
is very small. However, the World Bank ranking is informative in its own right, which is why we have reproduced it
here, and we used this ranking as a starting point – not the end point – for arriving at our own grades.
It is also important to note that we have taken a much more subjective approach to grading than the
World Bank and that there are advantage and shortcomings to each approach. The World Bank defines each
variable it is quantifying according to very specific criteria. For example, the variable “dealing with construction
permits” looks specifically at the procedures a business in the construction industry goes through to build a
standardized warehouse. It does not look at the procedure a manufacturer goes through to build a factory or a
bank goes through to set up an office. Similar standardized case studies are used to quantify the other variables.
Thus, while the scores are accurate for the specific case studies, they are not necessarily accurate for different
situations involving different industries. Our own approach is more subjective and is based on the replies we
received from senior managers in a wide range of industries.
In order to obtain grades to be used in this report, we started with the findings of the World Bank, but
then modified specific grades based on our own experience and the findings from our interviews. The table
presented at the start of this section shows how we have modified the World Bank’s data. In all cases, we did not
try to have two-digit accuracy but provided grades that were rounded to the nearest integer. Below we present
our explanation for changing the scores the way we did.
China: First of all, China is a big country and some parts of the country score much better than others, depending
on such variables is the quality of the local governments and the autonomy of the local authorities to deal with
issues like taxation and permits. The grades we used relate to well-developed national level industrial zones like
Shenzhen, the Tianjin Economic Development Authority and Pudong. Zones like TEDA in China are very
professionally managed. The zones themselves have most of the approval powers that a foreign investor would
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need. It is fairly straight forward and quick to start of business and deal with construction permits – not nearly as
onerous as the World Bank’s Doing Business Survey indicated. Indeed, the process is easier than in most of the
other countries covered by this report, if not all of them. There is also a very effective system in place for
employing workers, although with foreign and domestic companies searching for professionals in the same talent
pool, the process of recruiting, developing and retaining employees is increasingly arduous for Western business. If
we were to score the industrial zone in Suzhou, China, many of the scores would be worse, and if we were grading
some inland areas like Chongqing or Xian, they would be worse still. We are assuming in our scoring, therefore,
that foreign investors will go through the necessary due diligence to select the areas that are most suitable for
them.
Simply going by the number of foreign investments that have been approved and progressed to the operational
stage, China deserves to be rated very strongly for starting a business, as well as dealing with construction permits.
Moreover, in view of the success both foreign investors and local companies have had in growing their exports
and, in recent years, bringing in more imports, China deserves to be rated more strongly than the World Bank has
done for trading across borders.
India: Our biggest difference with the World Bank with respect to India is that as high as the World Bank’s score
was for dealing with labor issues, the situation is actually more difficult. It is particularly difficult firing workers and
labor militancy is another problem. Also foreign investors do not have the degree of protection that the World
Bank survey implied. The local court system is slow and can be difficult to work with even though the necessary
laws are on the books. State and city authorities can also cause problems for investors against which national level
authorities can offer little protection. On the other hand, the tax situation in India is not quite as bad as the World
Bank’s survey indicated. Most investors know where they stand tax-wise. Finally, trading across borders should be
graded more critically. India is good when it comes to international flows of data, but there are many barriers to
merchandise exports and imports. This is why the country has not attracted more export-oriented foreign
investment than it has and why most foreign companies are looking at domestic market opportunities, not using
India as an export base.
Indonesia: As critical as the World Bank’s grades generally were of Indonesia, several were not critical enough.
Dealing with any permits in Indonesia, be they construction or some other kind, means dealing with the country’s
notorious bureaucracy. It can be a frustrating experience. Trading across borders is also more difficult in
Indonesia than the World Bank indicated. There are all sorts of barriers to imports, while exporting can also be
difficult and in some industries like timber and minerals is complicated by smuggling. In view of Indonesia’s huge
population and its substantial mineral resources, the absolute level of both exports and imports should be much
larger were it not for the barriers that exist. Finally, foreign investors do not generally enjoy the level of protection
that the World Bank’s favorable score seemed to imply. A look at the experience of major investors in the wake of
the 1997/98 financial crisis shows that many had extreme difficulty exiting from their investments when they
wanted, and there are many other cases where foreign investors have found themselves discriminated against by
Indonesia’s judicial system.
Malaysia: Just because Malaysia has not been attracting large amounts of foreign direct investment does not
mean the government does not want to. The investment promotion agencies are very aggressive and have
considerable authority that can assist foreign investors in dealing with construction permits, visas, and other
paperwork. The labor force is a mixed picture. The more pessimistic World Bank grade is accurate when it comes
to employing unskilled, production labor, which is in short supply and sometimes needs to be imported. However,
it is relatively easy to employ high quality, local skilled labor, which is why we graded the variable assessing
employing workers more favorably since few foreign investors would be looking at Malaysia as a low-cost base for
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labor intensive manufacturing. The country is more advanced than that and is more suitable for more
sophisticated investments. Finally, although foreign investors generally enjoy better protection in Malaysia than in
the other countries covered here, with the possible exception of Thailand, the situation is not as favorable as the
World Bank indicated. Many foreign investors in the local stock market, for example, were caught short when the
government imposed capital controls in response to the 1997-98 financial crisis. In general, if the foreign
investment is in an industry that is a high priority for the government, the investors get a lot of government
support and protection, but if they are a lower priority, the door is more closed and help let alone protection is less
forthcoming.
Philippines: We were slightly more generous in our grading for the Philippines than was the World Bank. In
general, we felt that the Philippines needed to be graded more closely to difficult environments like Indonesia and
India, not a lot worse. That said, most of our scores were also quite negative. It is not easy doing business in the
country. However, it is not nearly as hard employing labor as the World Bank indicated in its Doing Business
survey. And despite the shortcomings of the local judicial system, it is a bit easier for investors to get protection
and enforce contracts than the Doing Business survey indicated.
Thailand: Conditions in Thailand are similar to those in Malaysia except that Thailand is more open to a wider
range of foreign investment. The most notable case is automotive manufacturing, which Malaysia has tried to
shelter from foreign competition in order to groom local champion companies, while Thailand has pursued exactly
the opposite strategy and has opened the door to foreign investment – with huge success. The World Bank
ranking does not adequately reflect the level of bureaucracy that exists in Thailand, particularly when it comes to
companies that both sell to (and source from) the local market and export product that they manufacture. Foreign
investors enjoy a fairly high level of protection, but the situation differs from industry to industry. Investors in
infrastructure and other projects in which the state sector figures prominently are much more vulnerable than
investors in fields like export-oriented manufacturing that are the preserve of the private sector.
Vietnam: As one of Asia’s newest markets and production sites, Vietnam is enjoying a level of investor enthusiasm
that is somewhat inflated. Those foreign companies that have made the plunge are pioneers and tend to accept
the difficulties of newly emerging markets as a given. For example, Vietnam’s judicial system is weak and the
country does not offer the level of contract enforcement that the Doing Business survey indicated. It is also more
difficult dealing with the bureaucracy than is indicated by such scores as registering property, and the financial
system is still quite underdeveloped, which means getting credit is a lot harder than the World Bank indicated.
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D. DOMESTIC POLITICAL RISKS
Domestic Political Risks
10
9
8
6.81
7
5.75
6
5
4.69
4.50
China
India
4.75
5.00
4.63
4
3
2
1
0
Indonesia Malaysia Philippines Thailand
Vietnam
Grades are scaled from zero to 10, with zero being the best possible and 10 the worst.
Variables and Grades Used to Compute Domestic Political Risks
Domestic political risks
a. The risk of a change of
government and key leaders
in coming two years
b. The risk of a disruptive
political transition
c. Quality of the government's
policies
d. Ineffectiveness of the
government in
implementing its policies
Average score
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
6.75
4.00
4.00
7.00
3.00
7.00
4.00
4.00
3.00
3.50
7.00
5.00
8.00
3.00
4.00
5.50
5.50
4.00
5.00
5.50
6.50
4.00
5.50
6.00
5.00
5.50
6.75
6.50
4.69
4.50
4.75
5.75
4.63
6.81
5.00
Grades are scaled from zero to 10, with zero the best grade possible and 10 the worst.
This section analyzes risks to the business environment caused by potential threats to government
stability and the quality of government policies. Some government changes, such as those in mature democracies
brought about by regularly scheduled elections, are part of the normal political process, while others such those
brought about by coups or revolutions are much more disruptive. Policies can change quite radically from one
government to the next, and even if there is no change in government, it is possible for the party in power to
change policies in ways that radically alter the business environment. Another type of domestic political risk
relates to a government’s ability to implement its policies. The best of plans can fail if the government cannot sell
them to the public or get government institutions responsible for implementing policies to do their jobs properly.
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Other sections in this report assess social unrest risks and institutional weaknesses, but this section focuses on the
government’s ability to implement its policy agenda as well as potential quality changes in that agenda.

The risk of a change of government and key leaders in coming two years (elections, major
reshuffles, key retirements, death risks, etc.)

The risk of a disruptive political transition (coups, bitterly contested elections in which legitimacy
of results is questioned, manipulation of elections and key government appointments, etc.)

Quality of the government's policies (to what extent are government policies conducive to rapid
economic growth, stable inflation, trade growth, foreign investor confidence, etc.)

Ineffectiveness of the government in implementing its policies (due to bureaucratic interference
with policy implementation, vulnerability to populism, interference from special interest groups,
etc.)
The sum of the four sub-variables is equal to 100% of the score for total domestic political risks. For the
purpose of this report, which is being written for a general audience, we are giving all the sub-category variables
the same weighting. Therefore, each of the four sub-variables in the domestic political risk section carries a weight
of 25%.
Variables are graded on a scale of zero to 10, with zero being the best or most favorable grade possible
and 10 the worst. All grades were arrived at by polling PERC’s senior analysts and discussing the appropriate
grades among ourselves. We have tried to explain our rationale in the text provided for analyzing each variable.
These are perceptions and probably include personal biases. There are different perspectives than our own.
However, we have tried to be objective in providing our scores and assessments based on our years of working in
Asia and assessing exactly these same variables for companies that need an independent audit of a range of risks
to which they are exposed. Please bear in mind that PERC does not do lobbying, deal facilitation, or public
relations work. Our only function is to identify and assess country risks. We give as objective an evaluation as we
can on a range of variables, many of which are extremely difficult to quantify (like corruption, nationalism and
institutional quality) but have an undeniable impact on the quality of the business environment and the risks to
which companies are exposed.
1. The risk of a change of government and key leaders in coming two years
This variable relates to key leadership changes such as the presidency, premiership, monarchy, cabinet
positions and legislative leaders. The business environment can be disrupted by a change in government leaders,
be it in the form of a cabinet reshuffle, the death of a person in power, elections, or coup. A grade of zero is
equated to a situation where the government’s position is secure and current leaders are expected to stay in
power for the next 24 months. A grade of 10 would indicate a major leadership change is likely that could
profoundly alter the business environment for the worse. Elections normally indicate higher grades, especially if
new people who will be assuming positions of power hold significantly different policy views than the out-going
leaders. However, the highest or worst scores are reserved for possible leadership changes that are either extraconstitutional or happen so infrequently (such as the death of a long-serving authoritarian leader) that there is a
great deal of uncertainty about exactly what the impact would be on policy, social and political stability.
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Country
August 2011
Grade
Rationale
China
6.75
There will be a generational change in top leadership in late 2012, which is why
the grade assessing the risk of a change of leadership is as high as it is. There will
be major changes, but all the new leaders will have Communist Part backgrounds
and share similar goals. There seems to be a consensus on the individuals to
replace Hu Jintao as president and Wen Jiabao as premier. They are Xi Jinping
and Li Keqiang, respectively. Other positions are still up for grabs. The current
bias is favoring individuals who lean toward conservatism, particularly when it
comes to national security issues and dealing with threats to social stability.
India
4.00
One of the most profound differences between India and China is the nature of
their political systems. India has a multi-party democracy, while China has a oneparty authoritarian system. India’s system might appear more disorderly than
China’s, but there is plenty of factional maneuvering in both systems. In fact, we
rate the risks associate with a change of leadership in India to be less than in
China. Another reason for the more favorable grade is that the next change of
leadership in China will come a year before the next change in India, where
legislative elections do not have to be called until May 2014, although the actual
date will probably be earlier. Prime Minister Manmohan Singh, who is 78, is not
likely to seek another term. If the Congress Party is able to head up the next
coalition government, the front-runners to become the next prime minister
include Rahul Gandhi (son of Congress Party President Sonia Gandhi), Home
Minister Palaniappan Chidambaram, Finance Minister Pranab Mukherjee and
Defense Minister A. K. Antony.
Indonesia
4.00
The next national elections will not be held until 2014. Leadership changes
between now and then will be confined mainly to Cabinet-level positions, which
are important but do not normally result in radical changes in policy. Indonesia’s
political system today is much more stable than during the Suharto days due
mainly to the formalized democratic transition process and the decentralization
of power from the executive branch to the legislature and local-level
governments.
Malaysia
7.00
Domestic political risks are relatively high due to the strong challenge posed by
the political opposition and differences within the ruling Coalition. Elections do
not have to be held until mid-2013, but they are likely to be held earlier, which is
one reason we graded the risk of a change in key leaders as high as we have. The
other reason is because the outcome of the election is anything but certain, and
since only one political coalition has led Malaysia since independence, the
possibility of seeing an election put the current opposition in power has raised
new questions, foremost among them being if a new coalition would be any
better at healing the country’s racial differences and forging a new sense of
national unity.
Philippines
3.00
The main reason domestic political risks are as low as they are in the Philippines
is because the country has just held presidential elections and the next one will
not be held until 2016. There will be congressional and senate elections before
then (in May 2013), but the country is in the early stages of what is likely to be a
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period of stability in key government positions. Those changes that do take
place will be mainly to replace holdovers from the former Arroyo government
with appointees with whom the Aquino government feels more comfortable.
Thailand
7.00
Domestic political risks are higher for Thailand than any of the other countries
covered here. The score we have assigned to the variable assessing the risk of a
change in key leaders has fallen since the elections, which went relatively
smoothly, but political risks will remain high until the new government is
showing some success and it becomes clear that its life will not be cut short by a
coup. The newly-elected government is untested and, despite outward signs of
acceptance by rival parties and special interest groups like the military and
royalists, could yet have the rug pulled out from under it. The divide among
different special interest groups remains wide. It is possible that the latest
election has begun the healing process, but it is also possible that it will
ultimately only polarize the country further. There are also major uncertainties
about how stability will be affected by a change in the monarchy, which could
happen at any time.
Vietnam
4.00
The Communist Party is firmly in control. It has a track record for orchestrating
smooth changes in leadership. Thus, while top level changes are possible in the
coming year, they are not a factor that need concern foreign investors a great
th
deal. At the 11 National Party Congress in January 2011, National Assembly
Chair Nguyen Phu Trong, 67, was elected as the Party Secretary General, while
Prime Minister Nguyen Tan Dung, 62, was re-elected as Politburo member. At
th
the first session of the 13 National Assembly, which was held in July, the NA
approved a second five-year term for Prime Minister Nguyen, despite criticism of
his perceived mishandling of the economy and the debt bomb that nearly
brought down state-run Vietnam Shipbuilding Industry Group. The NA also
endorsed Mr. Truong Tan Sang to succeed Nguyen Minh Triet as president.
2. The risk of a disruptive political transition
This category refers to a situation in which there could be an exceptional change in government and the
extent that this change is likely to be orderly. Normal elections would score low or favorably provided the outgoing government is likely to retire gracefully and the in-coming government is not promoting negative
revolutionary changes. Note, even revolutionary changes from the status quo per se need not be bad. For
example, foreign business and the local population might welcome a radical change in government in a country
like Burma or North Korea. This variable refers to potentially disruptive changes like assassinations, violent coups,
a shift to anarchy, or other changes that seriously undermine the ability of key institutions like the judiciary to
function independently. This variable does not refer to the quality of political leadership, which is covered in
variables 1c and 1d assessing policies. It refers strictly to the extent that future changes of government could be
disruptive.
Country
China
Grade
4.00
Rationale
Low but possible considering the number of disruptive changes that have
occurred since 1949. The system for selecting new governments is now more a
matter of top-level consensus bargaining than it was, but different factions still
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exist and it is possible that their maneuvering could turn disruptive. However,
we consider the risk unlikely.
India
3.00
Ruling parties and coalitions frequently change in India, but the process is part of
the system. It is not particularly disruptive, even when changes have been
precipitated by shocks like assassinations. Consequently, we rate the risk of a
disruptive political transition to be less in India than in China.
Indonesia
3.50
Indonesia has had its disruptive political change – back in 1998. Since then the
system of elections has improved and is now sufficiently mature to warrant
confidence that future political transitions will be relatively smooth.
Malaysia
7.00
UMNO has dominated the political scene in Malaysia for so many years that
there are major questions about what would happen if it were to lose power to
the opposition, which is now a greater possibility than in the past. Islamic groups
with somewhat fundamentalist views could figure prominently in a transition, as
would groups with much more secular, liberal views. Bridging the gap between
these positions would not be easy and could be a cause of disruption. At the
same time, new Muslim Malay rights groups like Perkasa are emerging that
might react violently if threatened with a loss of political power or the abolition
of certain Malay entitlements. Many Malaysians, foreign investors and other
observers are likely to draw comparisons between the way a grassroots
movement seems to be building for political and systemic change in Malaysia
with recent social uprisings in Egypt, Libya, Syria and other Islamic countries.
Malaysia might be in a different part of the world, but its population still follows
developments in the Middle East closely and many Malaysians identify with the
grievances being voiced by demonstrators in these other Islamic countries with
long-standing governments that have been extremely resistant to change.
Philippines
5.00
Election campaigns in the Philippines have a record of involving considerable
violence. However, the system itself is durable. It involves the same elite
families jockeying for power, but the process is hardly “smooth.” Moreover, as
we have seen with the transition from the Arroyo to the Aquino governments,
there can be special complications that are not typical in other Asian countries –
for example, in the way Mrs. Arroyo tried to force her own people into key
positions so they could continue to influence policy and offer her a degree of
protection against her alleged abuses of power even after she left office.
Thailand
8.00
The transition to the new government so far has gone smoothly, but the risk that
it could turn disruptive remains formidable. A grade of 10 would mean a civil
war, with the possibility of a radical change in the system, such as what
happened in Iran when the Shah was deposed. We think this risk is very low.
Thailand’s “personality” as a country will not change radically, but the political
system is in a state of flux that could involve some violence and policy
uncertainty.
Vietnam
3.00
Vietnam’s political system is fairly stable. The only reason we did not give the
country a more favorable score is because of the rigidities of a one-party system
that is intolerant of opposition or dissent. This system will have to evolve as the
economy modernizes and people’s expectations rise.
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3. Quality of the government’s policies
This variable refers to the economic and socio-political policies of a government that could be initiated or
changed in a way that threatens the business environment. Policies that open the door to foreign investment,
improve infrastructure, and promote greater social and diplomatic stability are graded favorably, while policies
that restrict foreign investment or imports, interfere with the independence of key institutions, cause social
tensions, or limit development of foreign business are graded negatively.
Country
Grade
Rationale
China
4.00
In terms of following policies that sustain rapid economic growth and maintain
overall social stability, China deserves very high marks. However, both the
national and local governments are becoming more selective in the kinds of
foreign investment they want to attract and some existing investors claim that
government policies are starting to discriminate more against them.
India
5.50
India is more protectionist than China and the quality of its policies reflect this.
The government is also not doing as well as China and many other Asian
governments in managing its fiscal accounts, holding down inflation, and building
infrastructure fast enough to sustain the level industrialization and economic
growth that is taking place.
Indonesia
5.50
The quality of the government’s policies is very mixed. It has been quite good
when it comes to managing fiscal and balance of payments problems, as well as
inflation. There has also been a positive move away from the use of subsidies.
However, policy has not been nearly as good when it comes to clarifying
investment laws and regulations, fighting corruption, and creating conditions
that foreign investors in mining and many other industries, including
infrastructure development, find attractive.
Malaysia
4.00
The government is moving in the right direction in terms of opening the door
more to foreign investment and moving away from counter-productive
affirmative action policies, but the speed of change is not fast enough. The
government has also not done enough to reduce fears of foreign investors that
special interest groups, including Islamic fundamentalists, will not gain too much
influence in shaping economic policy.
Philippines
5.00
Government leaders say the right words in analyzing the country’s numerous
problems, but their actions and the policies they actually implement have been
consistently disappointing. In the final months of the Arroyo government, for
example, the administration misrepresented the actual conditions of the fiscal
accounts to make them look better than they wore. It is too early to make many
conclusions about the quality of the Aquino government’s policies, but economic
managers have been successful in convincing international ratings agencies to
improve the country’s sovereign risk rating.
Thailand
5.50
The previous government’s political policies have been bad, but its economic
policies, particularly with respect to protecting important sectors like tourism
and export-oriented manufacturing, have been quite good. This is a major
reason why the economy has not suffered more than it has from the political
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turmoil. Foreign investors have been saying for years that while political risks do
matter to them they are of less concern than oil prices and the cost of other
energy, constraints on the business activities of foreign companies, and the
ambiguity of many business laws, including new regulations relating to
environmental and health issues.
Vietnam
6.50
The government still does not feel comfortable with free market policies and is
unwilling to push reform of the state sector hard or fast enough. Lately, policy
has been more reactive than proactive, and the result has been relatively radical
economic swings to which the government has responded by announcing new
administrative controls and measures that frequently do more to treat the
symptom of problems than the problems themselves. This is why we rate the
quality of the government’s policies as poorly as we do.
4. Ineffectiveness of the government in implementing its policies
This risk refers to the inability of a government to implement policy due to some factor such as lame duck
status, bureaucratic inertia, a coalition gridlock, etc. A grade of zero is given to a country with a government
experiencing no problem at all formulating and implementing its policies. On the other hand, a grade of 10 is
reserved for a country whose government has little or no power to carry out policies of any significance.
Country
Grade
Rationale
China
4.00
The authoritarian form of government lends itself well to implementing policies
quickly. However, there is frequently a tendency of local governments to give
the impression that they are following national government policy when, in fact,
they are following their own agendas in ways that are actually at odds with
central government policy. This lack of transparency can create the misleading
impression that the government is being more effective than it actually is in
implementing its policies.
India
5.50
India’s policies are constrained more by the need to strike compromises with
different stake holders, including different political parties that make up the
ruling coalition, civil servants, and labor groups. Consequently, many policies are
implemented more slowly than in China and they frequently sacrifice economic
prudence for the sake of political expediency. India is one of the most regulated
countries in the world, and the red tape is a major cause of slow policy
implementation. The red tape also is conducive for corruption. Fighting
corruption scandals has seriously distracted the current government and is one
of its major vulnerabilities.
Indonesia
6.00
The government does not match its rhetoric with follow through policies.
Legislation is slow, slanted toward elite special interest groups, and frequently
implemented very poorly by a bureaucracy that is bent on pursuing its own
agenda and protecting its turf. These problems are becoming more apparent as
the second and final term of the Susilo government enters its final phase.
Malaysia
5.00
The government has not pushed reform fast enough, especially when it comes to
movement away from policies designed to groom national champion companies
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in priority industries like automotive manufacturing or in adopting policies that
are less discriminatory against ethnic Chinese and Indians. However, there are
Malay groups who complain that the government has been moving too fast in
these reforms and warn that social instability could result. This threat is why
Prime Minister Najib Razak is proceeding as cautiously as he is. The political
realities are understandable, but they could cost Malaysia considerably in terms
of fulfilling its economic development potential.
Philippines
5.50
The government’s ineffectiveness in implementing its policies is largely by
design. Many vested interest groups like things just the way they are and are
blocking reforms that should be taken for the sake of the overall economy. It will
probably not be long before President Aquino starts losing support due to his
failure to deliver on many of his promises. However, he faces many obstacles
and the system is resistant to reforms that upset the status quo.
Thailand
6.75
Political infighting is interfering with policy implementation more than was the
case a few years ago. While the election may have cleared away some
uncertainties, the result has not removed doubts about the competence and
policies of the new government, although business leaders have reiterated
earlier comments that irrespective of the outcome of the election, the economic
growth needed to encourage foreign and local investment would be sustained.
Business supports many of the new government’s policies in principle, but there
is still anxiety about their formulation into legislation and their actual
implementation. The government can claim to have a clear mandate for these
policies and they certainly have the numbers in parliament. But there are doubts
about government spending plans, particularly big increases in the basic wage,
higher salaries for civil servants and guaranteed incomes for graduates,
guarantees of high rice prices, provision of hi-tech equipment including one
million tablet computers for schools and other subsidies and welfare handouts.
Vietnam
6.50
The government is fairly effective at implementing its policies when it puts its
mind to it. As in China, many lower level groups pay lip service to orders from
the central government, but when the national level leaders really want to crack
the whip, they can and are effective at doing so. However, there is a bias toward
the state sector that has created problems – and will continue to do so.
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E. SOCIAL INSTABILITY RISKS
Social Instability Risks
10
9
8
6.88
7
6.39
6.06
6
5
5.45
6.00
4.40
3.75
4
3
2
1
0
China
India
Indonesia Malaysia Philippines Thailand
Vietnam
Grades are scaled from zero to 10, with zero being the best possible and 10 the worst.
This section refers to risks associated with tensions within society that could affect the business
environment. The variables relate to such issues as labor unrest, cultural and ethnic divisions, and law and order
considerations. It also includes insurrection movements and societal splits based on such considerations as race,
religion, and historical regional frictions. It includes problems caused by religious extremism, and demonstrations
by the general public or vested interest groups that have the potential to upset political stability, force important
policy changes that could be negative for the business environment, or result in discrimination against foreign
investment and imports.
Social instability risks
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
a. Labor activism
5.60
7.00
5.25
4.00
4.50
4.00
4.00
b. Social activism/unrest
4.00
6.00
6.50
6.30
6.50
7.00
3.50
3.00
7.00
7.00
5.00
7.00
6.00
3.00
5.00
7.50
6.80
6.50
6.25
7.00
4.50
4.40
6.88
6.39
5.45
6.06
6.00
3.75
c. Terrorism and personal
security risks
d. Extent that regionalism is a
problem
Average score
Grades are scaled from one to 10, with one the best grade possible and 10 the worst.
1. Labor activism
The labor variable refers to the threat of union activism, strikes, and other acts by workers that disrupt
the business environment, block important policy reforms, threaten privatization programs, and pressure the
government to adopt measures that discriminate against foreign business or certain nationality groups.
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Country
August 2011
Grade
Rationale
China
5.60
Although China has developed a reputation for having little labor unrest, this
could now be changing. There has been a noticeable increase in labor unrest in
the past year. It has been concentrated in the Pearl River Delta region but has
affected other parts of the country as well. Some of the strikes have resulted in
sizeable pay hikes, but labor has other demands than just wage hikes. New labor
regulations – which took effect January 1, 2008 – are designed to protect better
workers' rights, including signed, written contracts for all employees. The new
mandates have also hiked labor costs. Some of the strikes that are now taking
place reflect workers’ attempts to see that these new regulations are enforced
better than before, but there is an underlying frustration among some groups
that costs have risen faster than their incomes and they are finding it increasingly
difficult to make ends meet.
India
7.00
India has a militant labor force. Unions are well organized and have considerable
political clout. The government cannot afford to alienate organized labor and
has adopted laws that offer workers considerable protection, particularly on
matters relating to firing. Industry wants more freedom to hire and fire. Its
demands include a ban on flash strikes; a reduction in the number of labor laws;
closure without prior permission of units employing up to 1,000 employees
(against 100 at present); greater use of contract labor in non-core areas; and a
different dispensation for special economic zones to compete in export markets
with China (where it is far easier to close shop and sack employees). However,
the government is not in a strong position to make these reforms.
Indonesia
5.25
A series of labor law reforms that strengthened basic labor rights were passed in
Indonesia soon after the fall of Suharto. The pendulum of influence swung
toward organized labor, and most employers have been complaining about labor
issues ever since, claiming labor laws are frequently open to different
interpretations that are enforced inconsistently and in ways that are open to
abuse – usually in favor of militants. Labor laws have been revised, so the
situation is not as bad as it was. The movement has become highly fragmented,
with more than 180 unions officially registered today. Pressure is therefore
building for a consolidation of labor unions into three or four large
confederations. However, there are so many turf wars within the movement
that it will be difficult actually bringing this consolidation about. Indonesia’s
labor movement has been greatly politicized in recent years. This has taken
some of the sting out of the movement, since some of the most active labor
leaders have moved into politics. Union members also complain that some
unionists who led major industrial strikes and demonstrations during the final
years of the New Order era have been co-opted by the Establishment after
getting positions as commissioners at state-owned enterprises and enjoying
wealth, like houses and cars.
Malaysia
4.00
Labor militancy is not a big problem in Malaysia. There is a shortage of many
types of production labor, which has prompted many companies to rely on
imported migrant workers from countries like Indonesia and Bangladesh.
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However, this means companies are more vulnerable to periodic policies
designed to clamp down on illegal migrants and the use of imported labor than
by domestic labor militancy. In general, companies have a great deal of flexibility
in managing the size of their labor force. Individual employees can use the
system quite effectively to challenge layoffs if they feel they are justified, but
workers are severely restricted in their ability to organize and strike. Large
groups of workers including immigrants, employees in the electronics industry
(the country’s largest) and certain classifications of employees in the public
sector face restrictions on the right to organize. The right to strike is not
specifically recognized and many legal restrictions to strikes exist, both in terms
of workers who are excluded as well as in terms of procedures. The formation of
general unions is prohibited and trade union membership is limited to workers in
similar trades. Trade unions cannot form general/national confederations of
trade unions; the Malaysian Trade Union Congress, which acts as an association
established under the Societies Act, cannot conclude collective agreements nor
call for industrial action.
Philippines
4.50
The Philippines has an active labor movement that in many ways is more typical
of a developed economy than a developing one. Union membership has fallen in
recent years – in part because there has been a shift away from manufacturing,
where there is a tradition of unions, to services, where unionism is less well
established. The government is also not aggressively promoting the formation of
unions in workplaces. Laws exist to guarantee minimum wages, provide for
overtime, and guard against abuses like child labor, but they are frequently
ignored – more by locally-owned companies than foreign investors. The union
movement has helped to reduce many of these abuses and keep them in check.
In theory, companies are free to hire and fire workers. However, in practice care
has to be taken in doing so. It is important to make sure workers receive all the
benefits to which they are entitled, but conferring with local officials beforehand
in order to make sure that everything is done properly frequently runs the risk of
having those same officials leak the company’s plans to the affected workers,
who are then in a stronger position to take disruptive action.
Thailand
4.00
Organized labor has rarely displayed any political muscle. Less than 10% of Thai
workers are in labor unions. Only the public sector unions made up of workers in
railways, other transport, the docks, telecommunications and electricity
generation wield some political influence but invariably in pursuit of their own
narrow interests, not for any political cause or to benefit workers more broadly.
They have, for instance, with help from other quarters, been able to stymie
successive governments’ attempts to privatize state-owned assets in transport
and the utilities because they believe the change would harm them.
Vietnam
4.00
Vietnamese workers are not free to join or form unions unless they are affiliated
with and have been approved by the Communist Party-controlled Vietnam
General Confederation of Labor (VGCL). Under the Vietnamese Labor Code, the
VGCL is required to organize a union within six months of the creation of any
new business. However, only 85% of state-owned enterprises, 60% of foreigninvested enterprises, and 30% of private enterprises actually have been
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unionized. Where VGCL-affiliated unions have been established, the
representatives often have close ties to the management. Workers at their own
initiative have set up hundreds of unaffiliated labor associations. These
unaffiliated labor organizations are not afforded the legal protections that are
given to the VGCL-affiliated unions, but they have still staged strikes and other
demonstrations. Starting in 2006, unprecedented numbers of workers began to
join "wildcat" strikes at foreign-owned factories around Ho Chi Minh City and in
surrounding provinces in the south.
2. Social activism / unrest
This variable covers threats posed by public demonstrations other than labor strikes. Such
demonstrations might be held by students, political activists and any other special interest groups.
Demonstrations per se do not push up risks provided they are orderly, but if they threaten the stability of the
government, the quality of government policies, the government’s ability to implement positive policies, or the
quality of the environment for foreign investors, we view them as a negative development.
Country
Grade
Rationale
China
4.00
One of the government’s top priorities is maintaining social stability. However,
the emphasis is more on short-term stability than on reforms that would
maintain stability in the medium term. Some of the short-term measures, like
arresting artists, dissidents, lawyers and Internet users, might be intimidating
enough to keep the lid on unrest but the same measures also risk a backlash
eventually that could be more destabilizing than if different tactics had been
employed to begin with. China is a high risk country in terms of the potential for
social unrest to deteriorate and become a much bigger problem than it is at
present. Income inequality is growing, creating resentment among poor
Chinese, especially migrant laborers and farmers. The media is being censored
even more than usual, and the government is cracking down hard on Internet
sites considered to be controversial and taking other steps to control Web
content. The authorities are using carrots as well as sticks to hold down the risks
of social unrest. For example, the government plans to cut taxes for people with
lower incomes and raise them for rich under new legislation expected to pass
shortly. The government is also emphasizing a subsidized housing program to
help urban poor. However, there has been a lot more effort in cracking down on
dissent than on addressing the causes of complaints, indicating that the
government is much more sensitive about social stability, with the implication
being that potential problems could be building and threats intensifying.
India
6.00
India, a diverse, multi-ethnic, multi-faith country, has always struggled with a
degree of social instability as various minority groups seek redress against
discrimination. India's policymakers have historically been able to manage the
risks fairly well, considering the complexities of a varied and open society. Still,
the risks exist, and in some ways the rapid growth of the economy is aggravating
rather than reducing them, since it is widening the gap between the “haves” and
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“have-nots” in ways that could cause more social tensions. There are a number
of causes of social unrest in India, but most of them are local issues, which mean
the unrest stays local and disaffected groups from different parts of the country
have little reason to unite. Two issues that are exceptions are the high rate of
inflation, particularly food prices, and corruption at the national level.
Indonesia
6.50
Religious activism is a source of unrest not only between Islamic and non-Islamic
groups but also between Islamic groups with different views. So far the
government has not handled these conflicts well at all and has allowed some
more conservative views to dominate others by sheer intimidation. The problem
of basic crime against persons and property also remains moderately high in
parts of the country, while migration is another cause of friction that can at
times result in violence. In Maluku, West Timor, West and Central Kalimantan
and Central Sulawesi, some former displaced groups are actively discriminated
against by indigenous residents. These groups often share a number of common
problems including poor housing conditions, lack of access to land, lack of
economic opportunities, food insecurity, and limited social integration with
surrounding communities.
Malaysia
6.30
Malaysia's government does not take any kind of disobedience lightly. It grants
few licenses for free assemblies. When illegal ones are planned, police detain
opposition leaders and at times invoke the controversial Internal Security Act
(ISA) to arrest activists. Even so, the number and intensity of demonstrations
have been increasing in recent years, as the opposition gains strength and is
willing to challenge the government’s attempts to keep a lid on protests. There
are even protests against the tactics of the government (like employing the ISA)
to block demonstrations. In addition to politics, race and religion are other
causes of unrest, with ethnic Indians, Chinese and Malays all highly protective of
their own interests. Ethnic Chinese and Indians, the two largest minorities, have
become more vocal in demanding racial equality in part because of growing
economic hardships, while the government’s recent moves to scale back
affirmative action policies for native Malays runs the risk of angering younger
Malays who view such policies as entitlements. Recently there have even been
frictions within the same ethnic and religious groups. For example, there is a
growing rift between conservative and moderate/liberal Muslims over who can
act as a religious leader and how Islamic law should be applied.
Philippines
6.50
Of the economies covered by this report, wealth discrepancies in the Philippines
are second only to those in China. Not surprisingly, this disequilibrium has
contributed to various kinds of social unrest, including moderately high crime
rates (especially for cash-raising activities like kidnapping and extortion), a
communist guerrilla movement and insurrections by groups like Muslim rebels in
Mindanao that feel disadvantaged. However, as in India, the Philippines’
political structure is adaptive and flexible enough to survive these kinds of
problems – probably better than countries like China and Vietnam, which are
more rigid and place so much emphasis on control that they would be
discredited by the kind of turmoil that is the norm in the Philippines. The grade
for the Philippines is higher than for the two more authoritarian Communist
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countries because social unrest in the coming year or two will be higher and
more publicized in the Philippines, but the risk of this unrest escalating to really
disruptive proportions is low.
Thailand
7.00
Recent elections have resulted in a reduction in the number and intensity of
public demonstrations, but this could be temporary. Social unrest is likely to
remain a prominent problem in Thailand through 2012, as the so-called “Red
Shirts” and “Yellow Shirts” keep using public protests as a way to press their
positions. The country is divided into camps, with one – mainly drawing from
rural areas and now in power – supporting the position of exiled former Prime
Minister Thaksin Shinawatra, while the other – drawing mainly from middle-class
urban groups and royalists, supporting almost anyone but Thaksin and his
associates. This group has lost power and is now in the opposition, but it
remains very influential in the military and has the capability to organize more
demonstrations to protect and promote its interests. If the current king were to
die within the next two or three years, social instability could be further
aggravated. The country would go into a period of mourning, but a monarchy
transition could make it more difficult for opposing groups to find enough
common ground to strike a compromise.
Vietnam
3.50
Vietnam’s Communist Party places a very high priority on maintaining social
stability and has the power to prevent isolated outbreaks of unrest from
spreading nationwide. There are dissidents in Vietnam, including democracy
activists, human rights defenders, cyber-dissidents, and members of
unsanctioned religious organizations. The government keeps all these groups on
a very short leash, frequently arresting leaders and jailing them.
3. Terrorism and personal security risks
This variable refers to insurrection movements, the focus of foreign terrorist groups and crimes against
persons and property.
Country
Grade
Rationale
China
3.00
From the perspective of foreign investors, China is one of the safest countries in
Asia. The risk of being a victim of a terrorist attack is small. Petty crime is a
problem, but not major crimes like murder and assault. In the wake of the
military crackdown on Uighurs in Xinjiang province in the Summer of 2009, China
now faces a greater threat from foreign Islamic terrorists. Al Qaeda has
threatened retribution. However, China is a very hard target for such terrorists.
Threats are higher in regions like Xinjiang where minorities are actually located
than in major cities like Shanghai, Beijing or Guangzhou, where most foreign
investors are concentrated.
India
7.00
India has more domestic insurgency movements than any other country covered
by this report. It also has a serious problem with Islamic terrorists, which is
aggravated by continuing instability in neighboring Pakistan. Unlike in many
countries, where terrorism risks are in secondary cities, in India they are high in
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primary cities like Mumbai too. All of these problems will keep terrorism and
personal security risks higher in India in the coming few years than in most
countries.
Indonesia
7.00
There has been a reduction in insurrection threats in recent years. The reason
the grade remains high is because there is still a threat of acts of terrorism by
Islamic extremists. The government has reduced but not eliminated the ability
of such terrorists to carry out acts of violence. Indonesia is a front-line state in
the fight for the hearts and minds of Muslims, so Islamic extremists have a strong
interest in keeping their cause alive in the country, just as the US, Australia and
other governments have an interest in supporting the Indonesian government to
make sure the Republic remains a showcase example of a moderate Islamic
democracy.
Malaysia
5.00
Government security forces have done a good job of fighting Islamic terrorism.
The grade of five reflects a situation where extremists would like to have a
higher profile but when the government has succeeded in preventing this from
happening. There is no reason to expect this status quo to change in the coming
year.
Philippines
7.00
There are threats posed by domestic insurrection movements, including a
Communist insurgency and Islamic extremism. Separatist extremism in southern
Philippines is a particularly complex issue that involves religion, regionalism,
economic and ethnic dimensions. Furthermore, it is linked in various ways to
global and regional terrorist problems. As in China but unlike India and
Indonesia, terrorism threats in the Philippines are much bigger in some regions
than others. For example, risks are much higher in Mindanao than in the capital
region around Manila where most expatriates live and work. In the capital
region concerns center much more around common crime and similar personal
security risks, not terrorism. However, these types of personal security risks are
higher in the Philippines than in other countries covered here.
Thailand
6.00
Personal security from crime is probably a bigger threat than terrorism. The
latter problem exists in the south of the country, where there is an Islamic
rebellion, but so far acts of terrorism have been confined largely to this region.
Acts of terrorism that have taken place in Bangkok and other areas outside the
south have been associated less with the Islamic rebellion than with the fight for
political power between different groups, including the police and military. Most
of these incidents have been small in scale – such as a hand grenade being
thrown in a public place – but they do show such risks exist.
Vietnam
3.00
Vietnam has even less of a threat of terrorism than China. Its minority problems
are much less than China’s and there are no ties linking local issues with global
extremist groups. Expatriates have to worry about petty crimes like pickpocketing and robbery, but major crimes against persons and property are
unusual.
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4. Extent that regionalism is a problem
Regionalism refers to the problems that can result when people from one part of a country defend their
regional interests in ways that can put them at odds with the national government or with people from other parts
of the same country. This may be due to economic or historical circumstances, for example when a national
government is dominated by people coming from one region and is perceived to discriminate against people from
other regions. It includes problems arising when different regions of the same country fail to cooperate on mutual
problems like pollution. However, for the purposes of our model, the religious and ethnic motivations that may
also underlie regional sentiments are not included in this section. They are covered in the earlier section analyzing
social activism/unrest risks. The same goes for insurrection movements attempting to gain independence or
autonomy for a particular region, which are covered in section 3.
Country
Grade
Rationale
China
5.00
Regionalism has been an issue in China since the days of the war lords. There
are numerous dimensions to the modern problem, and some are growing. One
involves minority groups living in places like Tibet and Xinjiang who resent the
way they have been treated by Han Chinese and the government. Another
involves provincial-level governments that pay lip-service to instructions from
the national government in Beijing while pursuing policies that are motivated
more by local priorities that sometimes are not aligned with national priorities.
Finally, there is a cultural dimension to the problem. The Mainland might use
the Mandarin dialect as the common language, but China is still divided by
groups distinguished by their individual dialects. They might be all Han Chinese,
but they still identify more with their localities in China and have strong biases
against people from other localities. This type of problem is growing more
complicated with the reintegration of special administrative regions like Hong
Kong and Macao, and it will become even more so as the differences between
Taiwan and the Mainland shift from being identified as mainly political to being
regional/cultural, with people interfacing more who have very different
backgrounds, experiences and aspirations.
India
7.50
Regionalism is a major feature of India. State politics is extremely important and
conditions vary greatly from state to state. Kashmir is one of the most extreme
examples of regionalism in India that has a big negative impact on social
instability. However, there are many more, with different regions run by
governments with very difficult ideological philosophies and different religious
dynamics. There are also big differences in wealth and population density
between regions, fueling migration flows that can aggravate social tension.
Indonesia
6.80
Regionalism has decreased as a problem compared with five years ago due
mainly to the progress that has been made in restoring peace to Aceh province.
Papua province remains a conflict area, but in general violence associated with
regionalism and separatist movements has decreased in Indonesia. Instead, the
main way regionalism is manifesting itself as a problem is in dividing resources
with the national government. Since the fall of the Suharto regime, power has
been decentralized much more. Most regional governments have fought for a
greater share of income that previously went to Jakarta. This has resulted in
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disagreements that have squeezed foreign investors, interfered with the building
of new infrastructure, and cause inconsistent application of regulations. It has
also added a new local dimension to such problems as corruption.
Malaysia
6.50
Regionalism in Malaysia takes two forms. The oldest form divides Peninsula
Malaysia from Sarawak and Sabah. There has been considerable resentment in
the latter two regions that they have not received as many economic and
political benefits as they should have from the wealth they generate the country
through their natural resources. In some ways, the growing problems of the
ruling Coalition have reduced this problem, since they have increased the power
of politicians from Sabah and Sarawak to leverage their support for the
government in exchange for more positions of influence. However, a growing
new form of regionalism is the way the political opposition is winning control of
more states. It was one thing when the opposition controlled only one state, but
now that the opposition controls a large number of the 13 states, it is much
more difficult for the government to use fiscal inducements and penalties to
either woo back or penalize errant states.
Philippines
6.25
Regionalism is a big factor in the Philippines but not a particularly disruptive one
except for the Islamic separatist movement in the south of the country. People
throughout the country strongly identify themselves with the regions in which
they originate. They normally vote along regional lines and their personal
allegiances are based mainly on family and regional connections. Except for in
the south of the country, migration is not a major source of friction between
people from different parts of the Philippines.
Thailand
7.00
The political stalemate between so-called Red and Yellow Shirts can be defined
in regional terms, with the division separating rural northeast from urban areas.
The Islamic insurrection movement in the south of the country is a different
manifestation of problems associated with regionalism. A lasting solution to
Thailand’s current problems is unlikely to happen until those aspiring to political
power find a formula that is inclusive of a critical mass of both rural and urban
groups, not one or the other.
Vietnam
4.50
Regionalism is a problem in Vietnam since it contributes to widening income
gaps and a sense of ethnic discrimination. Vietnam has 54 ethnic groups, with
the Kinh comprising more than 80% of the population of 85.8 million, according
to government figures. They are the dominant ethnic group. A few others, such
as the Tay and Hoa (ethnic Chinese), have similar standards of living and
education. But most other ethnic minorities -- more than eight million people -live in the mountainous and remote areas and are economically disadvantaged.
The poverty rate for these groups is 69.3%, compared with 23.11% for the
majority Kinh and Chinese ethnic groups, according to the UN Children’s Fund.
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F. EXTERNAL POLITICAL RISKS
External Political Risks
10
9
8
7
6
6.33
5.27
5
4.00
4
3.92
4.33
4.67
4.08
3
2
1
0
China
India
Indonesia Malaysia Philippines Thailand
Vietnam
Grades are scaled from zero to 10, with zero being the best possible and 10 the worst.
This section evaluates risks associated with changes in other countries that could directly or indirectly
harm the business environment in the country being analyzed. Some forms of direct external risks are the
possibility of being attacked by another country’s military or subjected to trade and other forms of discrimination.
Indirect forms of external risks include policies by other governments that might affect global economic and trade
growth, exchange rate stability, immigration flows, and direct investment trends.
External political risks
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
a. Direct military threats
6.00
7.50
4.00
3.50
3.50
3.50
5.00
b. Vulnerability to fallout from
socio-political instability in
other countries
c. Vulnerability to policy
changes by governments in
other countries
4.50
7.00
4.00
4.25
4.50
4.25
4.00
5.30
4.50
4.00
4.00
5.00
4.50
5.00
5.27
6.33
4.00
3.92
4.33
4.08
4.67
Average score
Grades are scaled from zero to 10, with zero the best grade possible and 10 the worst.
1. Direct military threats
This variable refers to threat of being attacked or invaded by another country’s military. It also refers to
fallout from military activity involving other countries.
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Country
August 2011
Grade
Rationale
China
6.00
China’s military risks are increasing, and the country is also increasing as a
military risk to some other countries. China is aggressively trying to modernize
its army, navy and air force and also the capability to project military power
longer distances. A lot of public attention is on China’s rise as a power capable of
confronting the US, and recently Washington has been raising its profile as a
counter-balance to China in the region, particularly in the South China Sea.
However, Washington is not where the biggest military threats to China lay or
where China poses the biggest risks. They are much closer to home and involve
neighbors such as North Korea, India, Russia and Vietnam. China has more
countries along its border than any other country in the world, and relations with
many of these countries are not particularly stable. It has fought wars with
Russia, Vietnam, Japan, and India, as well as a civil war with the KMT on Taiwan.
It shares a border with North Korea, which is aspiring to develop nuclear
weapons capability – something that Russia, India and Pakistan already have.
Although North Korea is supposed to be an ally, there are clearly limits on
China’s ability to influence the behavior of the regime in Pyongyang.
India
7.50
In the immediate future, India’s biggest military threat comes from Pakistan,
while in the medium future, China could emerge as a bigger threat, particularly if
it tries to increase its naval presence in the Indian Ocean and presses its claims to
disputed territory along its Himalayan border with India. Although relations
between New Delhi and Islamabad have improved in recent years, the
continuing high level of our score reflects concern that the rise of Islamic
extremism, especially along the tribal areas near the border with Afghanistan,
has put Pakistan in an unstable political situation. This problem is likely to
intensify as a result of the US fight against Al Qaeda, the Taliban and the desire
to stabilize the political situation in Afghanistan. These objectives cannot be
achieved unless Pakistan has success in containing its own problem with
extremists. If it fails to do so, instability in Pakistan could greatly intensify. There
could be government changes, fallout from which could include a harder military
line against India or, at the very least, more activity involving coordinated action
by Islamic extremists on both sides of the border.
Indonesia
4.00
Indonesia does not face any significant military threats from another sovereign
country, which is fortunate since the country’s military capabilities are limited
due to its scarce financial resources. There are some border issues with
Malaysia, the Philippines and Singapore but nothing that is really a major military
threat. What the country does face is a threat from foreign Islamic extremists
who are giving support to indigenous terrorist groups. Indonesian security
forces would like to be more effective in blocking the movement of Islamic
militants between Indonesia and southern Philippines. They would also like to
be able to fight smuggling and piracy in the waters surrounding Indonesia much
better than they are currently able to do. One of the bigger security issues
Indonesia will have to face in the years ahead is adjusting to China’s desire to
project its own naval power. China is investing heavily in blue-water capabilities
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and wants to raise its profile in the Indian Ocean, which means it will also have
to raise its profile in waters surrounding Indonesia on its way to this region.
With the US Navy also patrolling these waters, Indonesia could feel pressured to
beef up its own naval capabilities to protect its interests and avoid being ignored
in its own backyard.
Malaysia
3.50
Malaysia does not face many direct military threats. The country’s armed forces
are concerned mainly with border patrol activity, which includes fighting pirates
in the waters around Malaysia, defending the country’s claims of sovereignty
over outlying islands also claimed by other countries like China and Indonesia,
and preventing the Islamic insurgencies in the Middle East as well as in
neighboring countries like Thailand, the Philippines and Indonesia from spilling
across the border into Malaysia. Malaysia potentially could be targeted by
Islamic terrorists, with foreign groups assisting domestic extremists, but the
country’s security forces so far have done a good job of policing against this
threat.
Philippines
3.50
Most security threats to the Philippines are internal rather than external, which
is fortunate since the country’s armed forces are poorly equipped and stretched
thin by fighting domestic insurgencies. They can patrol the country’s waters
against limited threats like pirates and smugglers, but they do not have the
capacity to confront larger threats. This is one reason why China has tended to
emphasize its sovereignty claims over islands also claimed by the Philippines
since it knows the risk of a confrontation is small. Fortunately for the
Philippines, it does not face many other direct military challenges.
Thailand
3.50
Most of Thailand’s security challenges are internal, and its armed forces are illequipped to engage in foreign wars with other countries, including even less
well-equipped neighbors. Fortunately, Thailand does not have any outright
“enemies” on its borders. There are outstanding border disputes, smuggling and
other cross-border criminal activities to police against, and insurgency problems
in other countries that at times can spill across the border into Thailand, but
these are well-known risks that have been managed for decades. They have
never been allowed to escalate to the point where they adversely affect the Thai
economy or the environment for foreign investors. The Thai military might at
times be involved with clashes with troops from neighboring countries (such as
recently happened with Cambodia), but there are also cross-border commercial
interests (some involving Thai military leaders) that help to stabilize cross-border
relations and prevent disputes from escalating to really dangerous levels.
Vietnam
5.00
Vietnam has the strongest military of any ASEAN country – much stronger than
immediate neighbors like Cambodia and Laos. It faces no significant military
threats from these countries. However, the military risk from China, Vietnam’s
northern neighbor, is formidable. Vietnam and China each assert claims to the
Spratly and Paracel Islands, archipelagos in a potentially oil-rich area of the South
China Sea. While China occupies the entire Paracels, having forced off
Vietnamese forces 35 years ago, the Spratlys are dominated by Vietnam, which
has built military bases on more than 20 reefs and islets. The governments of
the two counties have tried to minimize their differences in recent years,
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stressing economic cooperation, but their strategic interests still clash when it
comes to who has sovereignty rights over some of the most significant
waterways in the world. In a direct reaction to China’s naval expansion and
improving power projection capabilities, Vietnam is building up its fleet of Kiloclass submarines and new jet fighters. Hanoi has also been pursuing closer
military relations with the United States through joint military exercises, and
sharing intelligence on terrorism, drugs, and other transnational threats.
Vietnam has also hosted US warships at its ports recently.
2. Vulnerability to social instability in other countries
This is a measure of the potential for political turmoil or social unrest in another country to harm or upset
the business environment in the country being analyzed. Such instability could affect such factors as immigration,
investor confidence, and capital flows.
Country
Grade
Rationale
China
4.50
Perhaps the most profound change that has taken place in China over the past
three decades is how much more interdependent it has become with other
countries in the world. This has enabled the economy to perform as
spectacularly as it has, but it has also made China much more vulnerable to
social unrest and other developments around the world. For example, China’s
growing economic links with other countries as far away as Africa and Latin
America mean its supply lines are increasingly vulnerable to being disrupted by
instability in these countries. China is now threatened by piracy off the coast of
Africa in ways it never was before. In some ways, unrest in countries like Iran
and Sudan is creating openings for China to make strategic investments in oil and
other resources on favorable terms, but these investments also entail significant
risks and could put China at odds with the US if Washington feels China’s policies
are negating the effectiveness of its own policies toward these countries. China
also has to worry about how smoothly North Korea is able to carry out its next
political succession and how allies like Pakistan cope with increasing instability.
There are indications that recent terrorist incidents in Xinjiang Province were
supported by Islamic radicals in Pakistan.
India
7.00
India is more vulnerable to social unrest in other countries than most of the
other countries covered by this report. In particular, adverse developments in
Pakistan could result in more terrorist acts and other security risks in India. Risks
arising from the Sri Lanka have fallen as a result of the end of the civil war there.
However, a number of other neighboring countries have domestic insurgency
problems that pose risks for India too. Further afield unrest by Tibetans in China
creates diplomatic problems for India too, since many Tibetan exiles live in India.
Sympathy by Tibetan exiles in India to the plight of Tibetans in China could be a
source of future diplomatic problems between New Delhi and Beijing.
Indonesia
4.00
Indonesia has religious and ethnic sensitivities that can be inflamed by foreign
developments, particularly in countries where Islamic groups are perceived to be
fighting for a righteous cause, but the government has done a good job of
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managing these sensitivities lately. The local population today is focused more
on domestic problems and less on developments involving Israelis and
Palestinians, the war in Iraq, social unrest in Egypt, Libya and Syria, or problems
in southern Philippines. Indonesia has avoided being drawn into regional
conflicts like the controversy surrounding the military regime in Myanmar or the
on-going border dispute between Thailand and Cambodia, although it has tried
(so far unsuccessfully) to play the role of a mediator in the latter dispute. In
general, it only makes comments on regional developments that directly affect
Indonesia, such as Malaysia’s treatment of Indonesian workers. This kind of
issue can spark local protests and some government initiatives to protect the
interests of Indonesians, but the government has been careful not to allow these
kind of periodic points of friction from driving the country’s relations with its
neighbors.
Malaysia
4.25
Malaysia does have to worry about insurrection movements in neighboring
countries like Indonesia, Thailand and the Philippines. Insurgents from these
countries have at times fled to Malaysian territory to escape capture. Poverty,
natural disasters and other factors in neighboring countries like Indonesia and
Bangladesh have also fuelled illegal immigration to Malaysia, contributing to
domestic social problems. Up to 850,000 illegal immigrants, mostly Indonesians,
are believed to be in Malaysia, meeting the labor-short country's chronic need
for cheap, semi-skilled workers at construction sites, plantations, factories,
restaurants and hotels. They are blamed by ordinary Malaysians for crime, the
growth of shanty settlements and the spread of disease. They are also resented
for repatriating their wages rather than spending the money in Malaysia. The
recent rise of social unrest in Middle Eastern Islamic countries could be a new
challenge for the Malaysian government if the local population identifies with
the grievances of protestors in these countries and is motivated to mount similar
protests against their government.
Philippines
4.50
Social unrest and other forms of violence in countries like Saudi Arabia and other
Middle East nations create risks for the hundreds of thousands of Filipinos who
work in these regions. The actual magnitude of these risks has decreased in the
past year. A year ago we were concerned that the global recession could
seriously hurt remittances of Filipinos working abroad. However, as it turned out
such remittances continued to grow, helping to support the entire Philippine
economy.
Thailand
4.25
External socio-political risks for Thailand are steady and average. To be sure,
Thailand is vulnerable to illegal immigration flows from neighboring countries,
particularly Myanmar. The Thai government is also worried that Islamic
extremists in the south might be getting support from sympathizers across the
border in Malaysia and possibly from even further afield. However, these risks
need to be kept in perspective. The past year has seen social turmoil in
Myanmar, but it did not have a major impact on Thailand. The Cambodian
government is applying diplomatic pressure on Thailand because of a border
dispute that has been largely instigated by the Thai military, but Phnom Penh has
been careful not to allow large local demonstrations directed against Thai
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interests, and it is likely to keep a lid on these kind of nationalist pressures
because it would be bad for tourism and other sectors of the Cambodian
economy.
Vietnam
4.00
Vietnam is not particularly vulnerable to social instability elsewhere in the
region. In some cases it even benefits from problems elsewhere in the region.
For example, to the extent that Thailand’s domestic political problems are
hurting rice and other agricultural exports, Vietnam has been able to fill in the
gap and push its own exports of these commodities. Developments in Cambodia
and Laos generally do not have a big impact on Vietnam, while recent labor
problems in China do more to shift investor attention to Vietnam than to
aggravate problems there.
3. Vulnerability to policy changes by governments in other countries
This variable refers to the extent to which policies advocated by foreign governments could disrupt the
business environment in the country being analyzed either directly or indirectly. Direct examples include
embargoes and boycotts taken by one government against another country. Indirect examples of negative fallout
for one country arising from policies taken by another government that might be motivated by strictly domestic
considerations include environmental degradation, economic mismanagement, and health care mistakes.
Country
Grade
Rationale
China
5.30
Power is shifting to China from the US, and this is affecting not only China’s
policies with other countries but also those countries’ policies with China. Most
are trying to move closer to China economically, but they are wary about how
China will try to flex its new economic, military and diplomatic muscles. US and
European policy toward China could turn more protective due to these
countries’ problems with unemployment. This will put more pressure on China to
find new sources of growth, which means it will have to adjust its policies to take
into account the new global conditions. Whereas it is relatively easy for China to
articulate its policy differences with Japan and Western governments, it is more
difficult to do so with Russia, North Korea, Southeast Asia, the Central Asian
Republics, and governments of developing countries in Africa. China wants to
maintain the public image that its relations with all these countries are close and
smooth. In fact, there are growing points of potential friction. These countries
fear having their own manufacturing sectors overwhelmed by cheap Chinese
imports and most of the benefits from China’s direct investments going to China
and Chinese businessmen, not local companies. They do not want to place all
their eggs in the Chinese basket and their policies could start reflecting these
concerns more in the years ahead.
India
4.50
India’s economy is more self-contained than China’s and therefore is not as
vulnerable to policy changes in other countries. India’s trade levels are much
smaller than China’s and it also has less foreign investment exposure. Much of
what it does have is in developed countries like the US and UK, but both these
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governments are trying to strengthen their relations with India. One
government that could change its policies in ways that hurt India by increasing
national security threats is Pakistan. In the longer term, China’s policies toward
India might not be supportive if the two countries clash in sourcing raw materials
from emerging markets and in competing for markets. China is increasing its
voice in bodies like the ADB and the IMF. It could use this clout to oppose giving
certain kinds of assistance to India.
Indonesia
4.00
Indonesia is heavily reliant on multilateral agencies and foreign governments to
provide financial support for the country’s development efforts but there is little
risk that this support will weaken or be interrupted. Foreign governments like
Australia, Japan and the US want very much for the Susilo government in
Indonesia to succeed and are therefore extending it a lot of financial and other
support. One of the bigger security issues Indonesia will have to face in the
years ahead is adjusting to China’s desire to project its own naval power. China
is investing heavily in blue-water capabilities and wants to raise its profile in the
Indian Ocean, which means it will also have to raise its profile in waters
surrounding Indonesia on its way to this region. Indonesia could feel pressured
to beef up its own naval capabilities to protect its interests.
Malaysia
4.00
Malaysia is doing a good job of managing its relations with major trading
partners like China, the US, Japan, Australia and the EU. There are some strains,
but the overall trend is good and stable. The most important single relationship
that Malaysia has is with Singapore. The two governments have recently settled
some long-standing points of disagreement and they are starting to stress more
their complimentary possibilities that can be exploited to their mutual benefit
rather than get hung up on points of competition as was often the case in the
past. ASEAN is the most important regional grouping for Malaysia. So far the
group has fallen short of its goals, holding back regional integration possibilities,
but the group’s free trade agreement with China could be used by Malaysia to
attract more foreign direct investment.
Philippines
5.00
The foreign policies of other countries that Manila most needs to worry about
relate to how they manage their economies, accept Philippine labor, and permit
outsourcing to offshore call centers. The relationship between the US and the
Philippines is stable, while the Philippines also gets considerable financial help
from Korea and Japan. Relations with China, on the other hand, are mixed. The
Philippines is not benefiting from China’s economic boom as much as many
other Asian countries, while Beijing’s recent assertion of its sovereignty rights
over islands in the South China Sea that are also claimed by the Philippines could
be a source of diplomatic friction in the future. The botched hostage attempt
that saw a number of Hong Kong tourists killed will cause governments to issue
travel warnings to the Philippines that will hurt the tourism industry. The
incident is also continuing to complicate Philippine relations with both Hong
Kong and China as the issue of appropriate compensation to families of the
victims drags on.
Thailand
4.50
Most major foreign governments like those of the US, China, Japan and the EU
members tend to cultivate close relations with Thailand and avoid getting
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involved with its political affairs. There has also not been any increase in
protectionism directed against Thai exports. The one government that has
adopted a policy change recently that has upset Bangkok is neighboring
Cambodia. The government in Phnom Penh changed its policy in response to
provocation by Thailand regarding sovereignty over a temple and border area
that the UN has long recognized as belonging to Cambodia. However, neither
side wants this dispute to escalate and their responses to date have been
measured. As of this writing, this dispute is de-escalating, but it is unlikely to be
resolved completely.
Vietnam
5.00
The two most important governments to Vietnam are the US and China.
Relations with the US have improved considerably and Vietnam would like the
US to stay engaged with the region so it plays a balancing role vs. China. This
policy could get more attention in the coming year if China keeps trying to assert
its control over disputed islands in the South China Sea. In the longer-term, the
most important external policy changes that will affect Vietnam relate to
decisions by countries like China, Thailand, Laos and Cambodia on how to use
the Mekong River for their own interests. The Mekong Delta is the source of
25% of Vietnam’s GDP and half of its rice production. Decisions by governments
of countries lying upstream from Vietnam that affect the flow and quality of
water to Vietnam have tremendous implications for Vietnam. There are efforts
to coordinate policies relating to the Mekong, but major differences could still
arise since the main motivating factor of upstream governments will be to
maximize their use of the river for their own development purposes.
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G. SYSTEMIC RISKS
Systemic Risks
10
9
7.81
8
7
6.94
6.79
6.56
5.76
6
7.10
6.18
5
4
3
2
1
0
China
India
Indonesia Malaysia Philippines Thailand
Vietnam
Grades are scaled from zero to 10, with zero being the best possible and 10 the worst.
This category of risk focuses on the quality of a country’s key institutions, including its judiciary, media,
financial system, regulatory bodies, organized religion, and major branches of government. They also include
corruption and cultural traits like nationalism and xenophobia. These risks are some of the most difficult for a
country to eliminate since they are a part of its "personality," but they can and do change with time.
Systemic risks
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
a. Extent that corruption is a
problem
7.00
8.00
8.50
6.25
8.40
8.00
7.00
b. Nationalism and other
cultural risks
6.00
7.25
6.75
6.00
5.00
4.00
6.00
c. Institutional weaknesses
6.25
6.00
7.50
5.00
6.00
6.50
7.00
d. Intellectual property rights
risks
7.90
6.50
8.50
5.80
6.85
6.20
8.40
6.79
6.94
7.81
5.76
6.56
6.18
7.10
Average score
Grades are scaled from zero to 10, with zero the best grade possible and 10 the worst.
1. Extent that corruption is a problem
Corruption is operationally defined as the misuse of entrusted power for private gain. This variable
evaluates the risks associated with economies that tolerate bribery or the granting of favors, normally to
government employees, for approvals or concessions that would not be granted without these favors. In some
cases a bribe is paid to receive preferential treatment for something that the bribe receiver is required to do by
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law. In other cases the bribe is paid to obtain services the bribe receiver is prohibited from providing. Corruption
exists in one form or another in all countries. However, the problem is especially bad in countries lacking the
systemic checks and balances needed to prosecute instances of corruption when uncovered. It is also a major
problem in countries where those involved with corruption can change the laws and regulations to legitimize what
would normally be considered to be corruption. This type of corruption might be tolerated today by the
government in power but those involved risk being prosecuted by a successor government or a foreign policing
organization with cross-border powers.
Country
China
Grade
Rationale
7.00
The level of corruption in China is not just large; it is a potential political and
economic cancer that could undermine the economy, sap public confidence, and
result in political turmoil. It is one variable that threatens the sustainability of
the government’s entire modernization program. Communist Party leaders,
including President Hu Jintao, have repeatedly said the fight against corruption is
crucial to the party’s survival. The recent crackdown on organized crime and
corruption in the province of Chongqing is the tip of the iceberg when it comes
to corruption in China. Graft takes many forms such as bribery, fraud, influence
pedaling and abuse of power – particularly at the city and provincial levels of
government, although the past year has seen one Supreme People’s Court judge
fired on suspicion of taking bribes, while a former chairman of Sinopec was
convicted of taking bribes and given a suspended death sentence. Most
recently, the Railway Ministry has been caught up in a range of corruption
scandals. These are particularly sensitive since this ministry’s high-speed rail
projects are under the direction of the national government, not the local
government, and therefore link corruption to national-level leaders.
Corruption is also evident in the flood of underground capital leaving China and
being gambled away in Macao and invested in prime real estate in Hong Kong.
The most serious problems with corruption do not involve foreign investors. The
heart of the problem lies with state-owned companies and those with access to
state-assets. Anti-corruption crackdowns have had limited success. The closer
the government gets to its next generational change in leadership, the more the
authorities are likely to want to be seen as cracking down on corruption.
Unfortunately, they are also likely to be less tolerant of “whistleblowers” who
are stirring up for public view examples of corruption that the authorities would
rather not have publicized. From the perspective of national leaders, they need
to be seen as being effective, and whistleblowers threaten this image.
India
8.00
Corruption is a major problem in India – not simply because it exists but also
because average Indians are sick and tired of it and are extremely frustrated that
more is not done to reduce the problem, which they blame on excessive
bureaucracy, political greed, and institutional deficiencies. The local judicial
system is so slow moving that people who carry out corrupt acts are able to go
unpunished for much longer than in most countries and are actually encouraged
by both the delays in litigation and the low pay of judges and lawyers. According
to the Central Bureau of Investigation, which is in charge of rooting out and
prosecuting corruption, there are 9,240 corruption cases still pending in courts.
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Considering that the CBI averages 1,200 investigations a year, this implies a
backlog of 7.7 years. Indians are freer to express their frustrations with
corruption than are average Chinese – and they do so. However, the
government’s recent arrest of anti-corruption activist Anna Hazare has backfired
badly and shows both how strongly the public feels about corruption and how it
has the potential to destabilize the government.
Indonesia
8.50
Corruption remains one of Indonesia’s biggest problems. During the first term of
President Susilo, people were encouraged by his efforts to fight corruption. In
particular, they were impressed with the record of the anti-corruption
commission (KPK) in pursuing cases against high officials and in securing
convictions (including against President Susilo’s own father-in-law). However,
those spearheading the anti-corruption fight stepped on so many toes of
bureaucrats and politicians that they have become victims of a backlash,
seriously hindering their efforts. Establishment figures who would rather
preserve the system just the way it is rather than permit real reform to take
place have forced the ouster of some of the leading corruption fighters in the
government and are blocking lasting reform.
The anti-corruption fight recently escalated when the KPK widened its bribery
investigation into Muhammad Nazaruddin, the former treasurer of the ruling
Democrat Party. The probe now spans the ministries of sport, health and
education and involves at least US$350 million in suspect transactions. The
investigation of Mr. Nazaruddin is the first time a sitting member of Mr. Susilo’s
political circle has been implicated in wrongdoing, but the case is far from
complete. There could be a backlash against the KPK that ultimately weakens its
power and hurts the reputation of Indonesia’s institutions, much as the recent
court verdict against an Ahmadiyah sect member who was defending himself
against Muslim hard-liners as they attacked his place of worship hurt the
reputations of the judicial system and the government’s ability to withstand
pressure by conservative Islamic groups.
Malaysia
6.25
The problem of corruption in Malaysia is not generally seen to be as bad as it is
in most other developing Asian countries, but it is a political hot button and has
the potential to destabilize the government and be the cause of national
demonstrations. For years the ruling coalition refused to admit that corruption
was a big problem, but when Abdullah Ahmad Badawi took office as prime
minister, his admission that graft was a problem paved the way for a more open
discussion. It soon became clear that this is an issue that many Malaysians care
deeply about. One of the big complaints that Malaysians had of Mr. Abdullah
was that he did not fight the problem of corruption in his own party or in the
country’s key institutions nearly as hard as he indicated he would. The baton has
now passed to his successor, Najib Razak, who is trying to convince the public
that he is indeed serious. To the extent that he succeeds or fails could be shown
by the next national elections, since corruption could be the main issue on which
the elections will hinge. The Opposition has been galvanized around a new label:
Bersih, or the Coalition for Clean and Fair Elections, which highlights concerns
over corruption and election fraud. These are complaints that could unite the
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Opposition in the next elections and generate enough public appeal to topple
the government.
Philippines
8.40
The sad fact is that there is a culture of corruption in the Philippines. It is
difficult for companies to deal with and is one of the main reasons that the
country is not getting more foreign direct investment than it is getting. Official
bodies that are supposed to fight corruption have limited resources. They do
score some victories, but these bodies are still overwhelmed by the sheer
magnitude of the problem they are up against. The problem affects the
perceived quality of institutions like the court system, the office of the
ombudsman, the tax authorities and Customs. The Philippine military also does
not escape the reputational damage. In addition to the actual problem of
corruption, the topic has been highly politicized. Public perceptions are
manipulated by politicians intent on undermining the credibility and reputation
of their rivals. In the coming year a lot of attention will be on how President
Aquino addresses allegations of corruption leveled against the previous Arroyo
administration. In the process, specific acts of corruption are likely to be
revealed that fortify perceptions of just how serious the problem of corruption
really is in the Philippines.
Thailand
8.00
Allegations of corruption have been used to remove most of the Thai
governments elected in the past 20 years. It is therefore a highly politicized
topic. Even today, those who staged the coup against former Prime Minister
Thaksin Shinawatra justify their actions on alleged corrupt practices by Mr.
Thaksin and his family, while supporters of Mr. Thaksin accused those who
replaced him of being corrupt. Now that Mr. Thaksin’s sister has become prime
minister, there could be a move to overturn his conviction and pave the way for
him to return to the country. If so, this will create more controversy, since it
would send out the message that the judiciary, in passing its verdict against Mr.
Thaksin, was not acting independently and was using charges of corruption to
achieve the political ends of a particular group of insiders. With as much finger
pointing as there is, it is not surprising that Thailand fairs as badly in corruption
surveys as it does. This does not mean, however, that it is a factor that foreign
investors encounter on a daily basis. Although foreign investors may see
corruption as rife in government, institutions like the police and military, and
state-owned companies, not many feel it is a handicap to doing business and
making profits in Thailand. They are much more concerned with ensuring that
there is a stable political and economic environment for doing business, that
Thailand’s economic dynamism is maintained and that there are clear-cut
regulations for firms operating in Thailand.
Vietnam
7.00
Corruption remains one of Vietnam’s biggest problems. From contractors
skimming funds off large-scale infrastructure projects to health care officials
getting kickbacks on equipment purchases, the problem is pervasive. Just as in
China, Vietnam’s leaders know that corruption could ultimately hurt the
Communist Party. However, also as in China, they know that much of the
problem is at the grassroots base of the Party itself and if the government were
to attack the problem comprehensively and systematically, it would risk hurting
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the very underpinning of the Party. Therefore, Hanoi is careful in selecting which
cases it wants to prosecute and which ones it wants to ignore. This approach is
unlikely to change. Moreover, there are almost as many reports of whistleblowers being jailed for making corruption public as there as cases of corruption
being prosecuted. This creates the impression that the authorities are more
interested in keeping the problem swept under the rug than they are in actually
cleaning it up.
2. Nationalism and other cultural risks
This variable refers to the risk that cultural values or prejudices in the country being analyzed will be
allowed to manifest themselves in ways that threaten to discriminate against foreign business or expatriates living
in the country. Racism, xenophobia, historical animosities based on national origin or religion are all examples of
the types of cultural risks that can create difficulties for foreign investors and traders in certain markets.
Country
Grade
Rationale
China
6.00
In the past, Beijing used anti-Japan nationalism as a “superglue” to hold society
together and distract it from domestic problems. China’s nationalism this past
year has been focused less on Japan and more on foreign groups supporting
uprisings by internal ethnic minorities like Uighurs and Tibetans. Key dates like
th
the 60 anniversary of the founding of the People’s Republic, and external
shocks like the financial sector meltdown in the US have also set the backdrop of
more nationalist rhetoric by those who feel China’s system and culture are
superior to others. To China’s credit, it did not allow nationalistic rhetoric get
out of hand. China can look and sound humble when it wants. Its leaders know
that if feelings of nationalism are too blatant, it could complicate relations with
neighbors by making China look like more of a threat than a strategic partner.
However, the Communist Party of China is repositioning itself less in terms of its
“communist” ideology and more as the party representing the interests of all
Chinese. In view of the increase in domestic demonstrations over a range of
local issues, it is very possible that the government will in the coming year once
again raise nationalistic issues in an attempt to distract the local population from
their grievances and to unify the population against perceived external threats.
India
7.25
Nationalism can be a major issue confronting foreign investors in India,
depending on the industry and location. Foreign investors that are seen as
threats to domestic companies can find themselves the target of nationalists,
who are frequently able to lobby for protection and adopt other tactics like
unsubstantiated rumors to hurt the reputation of the products of foreign
companies. However, the bigger problem with nationalism in India does not
have to do with anti-foreign sentiments but with religious nationalism that pits
one part of the population against another and can, at times, result in social
unrest.
Indonesia
6.75
Indonesia’s history as a Dutch colony is evident in the nationalism by political
leaders. This has diminished with time, and today under President Susilo
Indonesia is much less nationalistic than it was during the days of the late
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President Sukarno. Today nationalism is an excuse used by certain special
interest groups to protect their positions in the economy, particularly against
foreign competition. Even in industries where foreign investment is welcome,
there is an underlying desire to transfer ownership eventually to local interests,
and disagreements frequently emerge both with respect to the pricing of assets
being transferred and which Indonesian groups should be the beneficiaries of
such transactions. Cultural risks take a different form. In general, Indonesians
get along well with foreigners. However, there are serious internal divisions
between different ethnic groups, with perhaps the most prominent being
between native Indonesians and ethnic Chinese. So far these local differences
have not interfered with Indonesia’s business and diplomatic relations with
Mainland China, but that could change if Chinese investors in Indonesia clash
with either their local work forces or special interest groups with an anti-Chinese
bias.
Malaysia
6.00
A major challenge for Malaysia is managing its domestic cultural fault-lines. This
is a leading political issue that will affect the outcome of the next elections, since
a growing number of the country’s Chinese and Indian ethnic minorities have
been voting for the opposition, while many ethnic Malay’s could resist reforms
by the government that reduce entitlements for this group. There is a growing
recognition that Malaysia has to do more to regain its competitiveness or risk
losing ground, on the one hand, to low-cost producers like Vietnam, India and
China, and, on the other, to higher-tech producers like Singapore, Taiwan and
Korea. This means the government cannot use the nationalistic arguments is has
relied on in the past to protect such industries as automotive manufacturing,
banking and many services from foreign competition and it also has to do more
to attract foreign capital to the country’s stock market.
Philippines
5.00
Nationalism is not a major problem in the Philippines. It is a factor that Manila
and Washington need to be careful of as they cooperate on matters like using US
troops to help the Philippines fight insurgents. It is also a factor that could
complicate Philippine relations with China, since many Filipinos feel very strongly
about Chinese claims to territory the Philippines considers its own. Nationalism
is also a factor that affects the reception foreign investors get in some industries
like mining, agriculture and in takeovers of major local companies focusing on
the domestic market. However, it is not a major obstacle to most exportoriented manufacturing and service industries. Nationalism is not a feature that
is likely to differentiate the Aquino from the Arroyo government.
Thailand
4.00
Nationalism has not been a big obstacle to foreign investors in Thailand. It is
significant to note that there has not been an increase in rhetoric directed
against foreign companies during the past three years of political turmoil. To the
contrary, the falloff in new foreign direct investment and the fears that foreign
tourists might be scared away from the country have encouraged the Thai
authorities to step up their efforts to make Thailand appear as welcoming as
ever. The one place where nationalism is evident is in the way the Thai military
and certain political groups have tried to raise border disputes with Cambodia to
generate grassroots political support at home. Now that the elections are over
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and the Opposition has won, it is possible that these tactics will be abandoned or
at least not pushed as aggressively as before.
Vietnam
6.00
The government might want to use nationalism as a tool to unite the country. It
works for older Vietnamese who personally experienced the civil war and the
process of uniting the peninsula. However, it is much less of a motivating factor
for younger Vietnamese who lack this experience and are motivated much more
by economic growth opportunities, which involving inviting in more foreign
investment and globalizing the economy. This is why nationalism is decreasing
with time. Vietnam is growing more comfortable with its own place in the region
and the world.
3. Institutional weaknesses
This variable refers to the integrity and independence of national institutions, such as the judicial system,
the media, the financial system and local capital market, and different branches of government. More specifically,
it seeks to assess the ability of such institutions to function smoothly through changes in government, carrying out
their assigned functions in the face of pressure from such powers as political parties and vested-interest groups.
Country
Grade
Rationale
China
6.25
Many important institutions in China are weak. Most were set up to function in
a central-command economy, something they never did very well. As the
government has shifted to a more market-oriented economy, it has also had to
reform institutions so they can perform in the new environment. In almost all
cases – the judicial system, the financial system, and the media, for example –
this reform process is still a work in progress. In a few cases, like the national
welfare and social security/pension system, the reform process has barely
begun. In others, like institutions responsible for protecting the environment
and regulating the stock market, the quality of the institutions does not match
their rhetoric. In a few, like the military, the government has been investing so
much that their capabilities have been greatly enhanced. The major problem in
most cases is still a lack of institutional independence and governance standards.
The Communist Party is still the country’s No. One institution, and all others are
under it, making them overly vulnerable to political interference. The Party has
to police itself, which means the main “checks and balances” that exist are in the
form of different factions within the Party that jealously guard their own turf.
India
6.00
India takes great pride in the existence of institutions that would be typical in a
developed democracy. However, very few of its institutions work really
efficiently. They are underfinanced, poorly equipped, and frequently vulnerable
to political interference. Some institutions like the anti-corruption agency and
national security agencies are severely understaffed, but most institutions are
too bureaucratic. This applies to most regulatory bodies, the financial system,
and state-owned companies, especially in utilities and infrastructure. Private
companies are forced to spend large amounts of money and time dealing with
institutions, and the results are frequently unsatisfactory.
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Indonesia
7.50
Indonesia has weak institutions, which is one of the reasons many foreign
companies are reluctant to invest in the country. They lack confidence in the
judicial system and their ability to defend their interests when disputes arise.
The country’s biggest institution is the military, but its strength as a fighting force
is not as formidable as its reputation for protecting its political and business
interests. The second biggest institution is the civil service, which is a source of
policy inertia and excessive bureaucracy. That said, some institutions have
improved considerably since the days of the Suharto regime. The media is much
freer and quality of reporting has risen. The country’s financial system has been
strengthened through reforms and shake-ups initiated in the wake of the 199798 financial crisis. The national legislature is no longer a rubber-stamp body. It is
a power center in its own right and, for better or worse, is playing the role of a
check and balance on executive power. On the whole, however, Indonesia is a
very young democracy with a weak institutional structure.
Malaysia
5.00
Malaysia has better institutions than most of the region’s poorer developing
economies – and the gap has actually improved in Malaysia’s favor compared
with some countries like Thailand. However, its institutions are not regarded as
highly as those in places like Hong Kong and Singapore. Their reputation outside
Malaysia is also not as good as the image the government would like. The
perception is that they are more vulnerable to political interference and have
spotty governance practices. A large part of this image problem relates to the
Mahathir years, when the prime minister was so strong that he cast a shadow
over most major institutions, from the media to the judicial system. The
reputational damage done during those years will take time to repair, especially
now that the political opposition is in a stronger position and is freer to publicize
its criticisms of various institutional weaknesses. Some of these criticisms might
be exaggerated or even unjustified, but they are making it more difficult for the
government to convince the public that institutional quality is being improved.
Philippines
6.00
The quality of most Philippine institutions has improved a lot since the collapse
of the Marcos regime. Still, many are suffering from serious financial constraints,
which reduce their ability to carry out their functions. This applies to such
institutions as the educational system, health care industry, military, police, and
judiciary. Corruption is another problem detracting from the reputation of some
institutions like Customs and the Bureau of Internal Revenue, as well as the
legislative and executive branches of government. Economic institutions like the
stock market and the banking system are fairly well managed.
Thailand
6.50
It is tempting to say that the deterioration in Thai institutions began with the
coup that ousted former PM Thaksin Shinawatra in September 2006. However,
that is incorrect. Thai democratic institutions were never very mature, and when
Thaksin came to power he took steps that further weakened institutional checks
and balances. When Mr. Thaksin was ousted, the institutional deterioration
continued. The military and police became even more actively involved with
politics. The judiciary has been given too much power, with the result that it is
more politicized than before. Perhaps most importantly, the monarchy has been
weakened. Fears are growing that when the present king dies, his successor will
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not be held with the same sense of reverence and irreproachability and the
stature of the monarchy as an institution that can play a stabilizing role in
political fights is likely to diminish. Even the Thai constitution cannot be relied
upon as a durable framework. It is likely to be revised by the newly-elected
government.
Vietnam
7.00
With the exceptions of the Communist Party and the military, most institutions
in Vietnam are relatively weak. The state sector still dominates the economy
and many institutions are geared to support this sector rather than private
enterprise and foreign investment. This includes the banking system, stock
market, the health care industry and the media. All of these institutions are
vulnerable to political interference and corruption. The country has not
progressed nearly as far as China in reforming its legal system, which means not
only drafting new laws needed by a modern economy but also training the
lawyers and judges in how to apply these laws. Vietnam has extensive strategies
for legal and judicial reform. A National Bar Association has been established
and the Ministry of Justice is overseeing a program of legal training, with the aim
to triple the number of lawyers in Vietnam. The judicial strategy aims to improve
the system of judicial appointments and conduct. The challenge will be
implementing the reforms in practice and uniformly across the country. The
system is not very good at settling disputes or enforcing contracts.
4. Intellectual property rights risks
This variable refers to the extent that intellectual property piracy is rampant and the ability of a foreign
investor or other owner of the intellectual property to use the judicial system to fight abuses. Intellectual
property rights are the rights given to persons over the creations of their minds. Intellectual property rights are
customarily divided into two main areas: (1) the rights of authors of literary and artistic works (such as books and
other writings, musical compositions, paintings, sculpture, computer programs and films); and (2) industrial
property.
Country
Grade
Rationale
China
7.90
Other countries have higher piracy rates than China, but the volume of business
at stake is so large and China has a number of large companies that are capable
of using pirated technology to compete in foreign markets that IPR violations are
potentially a much bigger problem for foreign companies. Countries like
Vietnam, the Philippines and Indonesia do not have this same ability to inflict
global damage through IPR piracy as Chinese companies do. IPR theft is viewed
in some sectors of the economy as a legitimate strategy for Chinese
competitiveness. China has also emerged as the global epicenter for the
production and export of circumvention devices. Physical piracy also remains
problematic for the US book publishing and computer software industries.
India
6.50
India generally has a good copyright law, but enforcement is terrible and abuses
so widespread that the country ranks among the biggest violators of intellectual
property rights of any country in Asia, if not in terms of piracy rates than
certainly in terms of the dollar magnitude of the problem. The pirate retail trade
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is vast throughout all big cities in India. Factory-produced, imported and burned
discs are sold openly. The pirate book trade is also alive and doing well.
Software is still a thorny issue and one that has caused a lot of rifts with other
world economies that are major IT players. India might be a world leader in
backroom logistics, but corporate end-user piracy is a huge problem. The
International Intellectual Property Alliance estimates that trade losses to the
software industry from this and all other types of piracy increased in 2009 to an
estimated US$1.5 billion, while the piracy rate fell from 68% in 2008 to 66% in
2009. India is a signatory of most major IPR accords like the Agreement of Trade
Related Intellectual Property Rights - better known as TRIP's – but the country’s
criminal IPR enforcement regime remains weak. As a result of overly
burdensome court procedures, courts are severely backlogged and there are
major delays in bringing both criminal and civil cases to final judgment. Further
problems include the lack of deterrent penalties and the existence of procedural
barriers that impede remedies for legitimate rights holders.
Indonesia
8.50
Indonesia seems to have lost its momentum for cracking down on IPR abuses
and making the system more compliant with international standards. To be
sure, it has passed new laws that should improve protection of intellectual
property, but those rules are not enforced effectively at all, and piracy levels in
Indonesia remain among the highest in the world. Laws limiting market access
for many types of foreign intellectual property have helped to create market
conditions that make piracy extremely profitable – with limited downside risk.
One of the biggest problems with IPR violations in Indonesia is the inability of
victims to use the judicial system to fight abuses effectively. IPR cases move
slowly through the judicial process, few cases result in successful convictions,
and convictions often result in small fines that do not deter repeat infringers.
Malaysia
5.80
Malaysia’s system for protecting intellectual property is not perfect, but it is
better than any of the other emerging countries covered here. The government
has set up special courts to handle IPR cases. In the past two years there has
been a slowdown in the number of prosecutions, but there is a system in place
and it is being used with considerable effect. Malaysia is under some pressure to
update its IPR laws, including by acceding to and fully implementing the WIPO
Internet Treaties. The major complaints foreign pharmaceutical companies have
is that the government sometimes does not offer enough protection against
commercial use of undisclosed test or other data generated to obtain marketing
approval for pharmaceutical products and has issued marketing approvals for
some unauthorized copies of patented pharmaceutical products.
Philippines
6.85
The piracy rate for business software and other forms of intellectual property is
high in the Philippines even by regional standards. As in a number of other Asian
countries, the biggest problem with intellectual property rights in the Philippines
is the difficulties owners of property have in using the judicial system to
prosecute violators. Laws exist and there are a number of bodies charged with
policing against IPR violations, including an Intellectual Property Office, but the
court system does not enforce them consistently. Since 2002, there have only
been a handful of convictions under the Copyright Act, and penalties have been
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so light that they have been ineffective deterrents. Foreign governments like the
US are pressing the Philippines government to set up specialized IP courts.
Thailand
6.20
Copyright piracy in Thailand has grown worse over the past three years, and
piracy levels remain well above average for the Asia region. The on-going
political turmoil has distracted politicians from more routine matters like fighting
intellectual property abuses, and problems of piracy and counterfeiting remain
widespread. Some of the biggest problems involve entertainment and business
software piracy, cable and signal theft, and organized book piracy, as well as
actions to address delays in granting patents. The previous government also
stirred up a controversy among foreign pharmaceutical companies by unilaterally
issuing compulsory licenses on patented pharmaceutical products.
Vietnam
8.40
Vietnam is further behind than any of the other countries covered here in
passing legislation to protect IPR. In fact, the International Intellectual Property
Alliance is complaining that the country is going in the opposite direction, with
the National Assembly revising the Criminal Code at the start of this year in ways
that weakened criminal penalties for copyright violations. While intergovernmental discussions have ensued on judicial reforms, there still seems to
be reluctance to apply criminal remedies to even the most egregious cases
involving copyright infringement. No criminal case has ever been brought in
Vietnam for copyright infringement. Equally, there have to date been relatively
few civil court actions. Moreover, any gains being made in enforcement have, in
some areas, not kept pace with rising piracy levels. This is particularly true for
copyright enforcement regarding products in both physical and digital form.
Piracy rates remain high for business software and entertainment media, while
growing Internet penetration has been accompanied by greater online piracy.
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III.
August 2011
S.W.O.T. review
A. CHINA
China’s Business Environment
Economic dynamics
10
8
Systemic risks
6
Infrastructure
4
2
0
External political
risks
Social instability
risks
Ease of doing
business
Domestic political
risks
Grades are scaled from zero to 10, with zero being the best possible and 10 the worst.
Strengths:
1.
China’s strongest point is its large, dynamic economy complemented by the world’s largest population.
2.
The government has done a better job than most emerging markets in putting in physical infrastructure
required to support the rapid industrialization.
3.
China is already a powerhouse of manufactured exports and its domestic market is emerging as another
growth engine.
4.
There are a large number of highly educated workers, and even uneducated labor has a reputation for working
hard and being productive.
5.
There are advantages to China’s authoritarian system in terms of being able to make and implement decisions
quickly.
Weaknesses:
1.
Systemic risks like corruption are a major problem. Similarly, the quality of major institutions like the judiciary
is compromised by political interference.
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2.
Problems with the accuracy of official data are worrying. It is not just the quality of the data in China that is an
issue; it also is the transparency and clarity with which it is presented, as well as the legal risks that companies
are exposed to when they try to collect data independently.
3.
The lack of convertibility of the Chinese yuan is a drawback to doing business in and with the country.
4.
Negative side-effects of China’s scorching economic growth include severe air pollution, traffic gridlock, and
worsening income inequality.
5.
Local governments frequently pay lip-service to Beijing policy instructions if they are against their interests.
Opportunities:
1.
Some of the biggest opportunities in China involve providing solutions to the negative side-effects mentioned
above – specifically goods and services that clean up pollution and help protect the environment,
infrastructure to support the world’s largest car market, and new logistical systems that overcome gridlock
that can interfere with the distribution of goods and services.
2.
As China’s mass labor pool gains higher disposable income, a sizable number of households will cross the
income threshold at which the consumption of more diverse food categories, branded apparel, education and
entertainment as well as travel services becomes viable.
3.
The new emphasis of many state-owned companies is on purchasing foreign technology outright. The
opportunity is for foreign companies to sell China this technology and to help facilitate such transactions.
4.
Because of the economies of scale that exist and the extreme price sensitivity of the domestic market,
companies can use China to develop a whole range of new products and services that could also be well
received in other markets around the world.
5.
The internationalization of the renminbi is creating a whole new dimension to the global financial industry.
Threats:
1.
China is likely to experience more diplomatic strains with its neighbors, trading partners and governments of
countries in which Chinese companies have invested heavily
2.
As large as China’s labor force is, labor costs are rising rapidly and China is losing its competitive edge in many
industries.
3.
Enforcement of rules and regulations in China can vary widely by location and change without warning.
4.
China’s business environment is competitive in the extreme. New competitors can emerge and become major
threats almost overnight, and the rules by which these competitors play are frequently flexible in the extreme.
5.
Social unrest could increase. There could be many causes, including both economic growth that is too rapid
and unevenly distributed among the population and a slowdown in growth that frustrate the higher
aspirations of the general population. One form of social unrest will be greater labor militancy.
6.
Losing control of intellectual property is the concern that foreign high-tech manufacturers often express when
it comes to investing in China.
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B. INDIA
India’s Business Environment
Economic dynamics
10
8
Systemic risks
6
Infrastructure
4
2
0
External political
risks
Social instability
risks
Ease of doing
business
Domestic political
risks
Grades are scaled from zero to 10, with zero being the best possible and 10 the worst.
Strengths:
1.
India has developed a diversified industrial base and a relatively sophisticated financial sector.
2.
Like China, India’s biggest strength is the large size of its domestic market, especially the rapidly growing size
of its middle class.
3.
A large proportion of India's educated population is highly qualified, fluent in English and cheap to employ.
The number of Indian scientists and engineers is among the highest in the world,
4.
India’s democratic political system offers a large degree of stability and predictability. It is less rigid than
China’s authoritarian system and in a strong position to withstand shocks, including criticism.
Weaknesses:
1.
Corruption is a big problem and a potential source of social and political instability in the near term as a result
of the population’s growing frustration with graft and the government’s failure to tackle the problem.
2.
India’s development strategy for far too many years emphasized import substitution and government
intervention. This has created systemic weaknesses.
3.
The vast majority of public-sector enterprises are unproductive, massively overstaffed and debt-ridden. In
their struggle to protect their own interests, they can hurt or limit private sector opportunities.
4.
A high level of unionization (and political expediency) has restricted labor reforms and technological advances
that could threaten jobs -- and, has therefore deterred investors.
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5.
India's cities are beset by environmental hazards and sanitation problems due to years of under-investment
and inadequate budgets. Another growing problem is the regulatory hurdles companies face from the
environmental ministry.
6.
India’s physical infrastructure is very weak. In particular, there is a shortage of electric power and there is no
indication that new investments will be undertaken fast enough to reduce this problem.
7.
Fiscal populism has ensured that India’s public finances are wobbly.
8.
The country’s bureaucracy is so overbearing and the political system so vulnerable to special interest groups
that even key reforms and projects are implemented slowly. Foreign investors have to wade through more
red tape in India than in any other country covered by this report.
Opportunities:
1.
India’s rapid economic growth and low per capita penetration rates of many goods and services, from hotels
to telecommunications have created obvious investment opportunities.
2.
Areas that were previously the exclusive domain of the public sector -- heavy manufacturing, banking, civil
aviation, telecommunications, power generation and distribution, ports, and roads -- are now opening to the
private sector.
3.
Technology is opening up India’s borders and enabling it to develop globally competitive services, including in
the computer and other IT, legal, accounting, and medical service fields.
4.
Problems with investing in certain industries at home (such as mining) and a growing need for raw materials to
fuel industry are causing many Indian companies to step up their foreign investments. This is creating new
cross-border business opportunities linking India with a number of other countries, particularly in Southeast
Asia, Central Asia, and Africa.
Threats:
1.
India's weak power, transport and communications infrastructure is increasingly seen to be a constraint on
economic growth.
2.
Volatile capital flows threaten to increase pressure on the country’s balance of payments, which is recording
the widest current-account deficit among large emerging economies.
3.
Land acquisition is the bane of many Indian infrastructure and industrial problems.
4.
Poor policy co-ordination among different government agencies is hurting the developing of a number of
industries.
5.
Foreign buyers of Indian companies are vulnerable to tax surprises and other regulatory and judicial
challenges by different government bodies than those involved with the actual investment approval process.
The actual cost of investments can be much higher than originally thought and the time it takes to implement
investments can be much longer than originally anticipated.
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C. INDONESIA
Indonesia’s Business Environment
Economic dynamics
10
8
Systemic risks
6
Infrastructure
4
2
0
External political
risks
Social instability
risks
Ease of doing
business
Domestic political
risks
Grades are scaled from zero to 10, with zero being the best possible and 10 the worst.
Strengths:
1.
Real economic growth is sustainable at 4% to 6% in the medium term thanks mainly to remarkably stable
domestic consumer demand. With over 220 million consumers, Indonesia represents Southeast Asia’s largest
potential market. Two thirds of GDP is generated by domestic consumption.
2.
Indonesia has a wealth of natural resources and the capability to step up development of these resources
quite quickly if the government really wants to.
3.
Indonesia’s democratic system is still young, with weak institutions, but it has survived its start-up years and
has resulted in better overall political stability, including better checks and balances, a process that enhances
the likelihood of smooth political transitions, and better, more active support from the general population.
4.
With continued progress of the Aceh Peace Accords and significant success in counter-terrorism operations,
Indonesia has made great strides in reducing regional security risks. The vast majority of Indonesia’s 200
million Muslims practice a moderate form of the faith, reject violence, and favor a secular government.
5.
Indonesia is such a strategically important country that it can count on considerable foreign government and
multilateral support – more so than any other emerging country in Southeast Asia. The US, Australia, the EU
and Japan all have strong economic and political interests in seeing Indonesia staying on its present
development course, while the country is also getting more assistance from China, India and Korea.
Weaknesses:
1.
Logistical shortcomings make it difficult moving goods into and out of the country as well as internally.
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2.
Corruption, excessive bureaucracy, and inadequate physical infrastructure make Indonesia a very difficult
place to do business and add significantly to operating costs. The legal environment is uncertain and the court
system cannot be relied upon. While policing is weak, enforcement is even weaker.
3.
There is more policy indecision today than was the case during the Suharto years, and special interest groups
can and do slow down reforms that are needed to improve the environment for foreign investors.
4.
Investment in many sectors, from mining, oil and gas to pharmaceuticals and security services provide
examples where investment is blocked or hindered by bad policy, often with nationalist overtones.
5.
The local education system is weak. This affects the quality of labor available and the ability of government
officials to respond to challenges, particularly at the local level.
Opportunities:
1.
Investors consider natural resources, banks, infrastructure and consumer goods industries to offer some of the
biggest opportunities. Education and health care will be huge growth opportunities as more foreign
involvement is allowed.
2.
The head of the Jakarta stock exchange has set a goal of taking 75 companies public by the end of 2012 and to
boost the market capitalization to US$300 billion from slightly more than US$250 billion. This should
stimuluate still more capital inflow.
3.
Foreign companies selling to the private sector generally have a more straight-forward time than those selling
to the government or state sector.
4.
Indonesia has very large geothermal resources that it is just starting to develop. This is creating opportunities
for banks and investment houses helping the country to raise the funds needed to pay for these investments.
There will also be a big market for alternative energy technology and equipment.
5.
Badly needed infrastructure investment, stalled for years by government indecision and infighting, is now
moving ahead, albeit slowly. Jakarta is getting ready to launch a massive mass transit development program
that will create major opportunities for financial firms, construction companies and equipment providers.
Threats:
1.
Corruption, bureaucratic inertia, and inconsistent and unclear regulations are three of the biggest threats
foreign investors face in Indonesia. Rules can change on very short notice.
2.
Labor unions can be unreasonable in their demands, and the legal structure does not offer employers much
protection.
3.
Weak infrastructure such as a deficient healthcare system adds to complications and risks for expatriates living
in Indonesia.
4.
Security threats, including both terrorism and crimes against persons and property, are relatively high.
5.
There is a cultural predisposition among some indigenous groups that considers foreign direct investment
exploitive. These groups frequently lobby for legislation during good times that restricts or caps foreign
ownership and, during bad times, makes it difficult for foreign companies to exit Indonesia with their capital.
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D. MALAYSIA
Malaysia’s Business Environment
Economic dynamics
10
8
Systemic risks
6
Infrastructure
4
2
0
External political
risks
Social instability
risks
Ease of doing
business
Domestic political
risks
Grades are scaled from zero to 10, with zero being the best possible and 10 the worst.
Strengths:
1.
Malaysia offers investors an educated workforce that, although on the high-cost side, is still competitive with other
countries in Asia provided the emphasis is more on skills than on a large supply of cheap, unskilled labor.
In
particular, Malaysia has good technicians. English is widely spoken, as are a number of other key languages,
which makes it relatively easy to interface Malaysian managers with other Asian operations.
2.
Malaysia’s physical infrastructure is good. Peninsula Malaysia has an excellent system of well-maintained
highways, and its sea ports and main airport are also high quality.
3.
Malaysia is well-endowed with natural resources in areas such as agriculture, forestry and minerals. This
wealth of resources, together with the relatively small size of the population, underpins Malaysia’s economy
and provides for higher per capita incomes than is the case in the other countries covered by this report.
4.
Industrial relations in the country are harmonious with minimal trade disputes that result in strikes.
5.
Living conditions for expatriates are comfortable. In particular, quality housing is available at a relatively low
cost, and supporting infrastructure from schools to health and recreation facilities are superior to most of the
other countries covered here, with the main exception of Thailand, which rivals Malaysia for these facilities.
Weaknesses:
1.
Race relations are a cause of social and political problems. They complicate policy formulation.
2.
The political system has been unchanged for so long, with a coalition headed by UMNO heading the
government, that there is much more uncertainty than would normally be the case in a democratic country
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about what would happen if the parties in power were to be voted out of office. This uncertainty hurts
foreign investor confidence.
3.
The government has wasted so much time trying to groom national champion local companies like the Proton
car that it has missed the boat in terms of attracting a critical mass of foreign investment in these industries,
which will make it difficult to catch up with countries like Thailand in developing these industries.
4.
Corruption within UMNO and other parties in the ruling coalition is both a real and perceived problem. In
view of the rising strength of the opposition, it could be more difficult dealing with perceptions than the actual
problem, since it is in the opposition’s self-interest to publicize and even exaggerate government corruption.
Opportunities:
1.
Malaysia is moving up the value chain of industries and is currently focusing on attracting high-technology,
high value-added, knowledge-based and skill-intensive industries, incorporating activities such as design,
research and development.
2.
Some of the biggest opportunities could lie in the provision of services like healthcare, eco-tourism, and
education. Prime Minister Najib is liberalizing a number of service sectors and reducing affirmative action
policies in ways that should create more opportunities for foreign investors and also reduce red tape. The
government is also pushing to develop the local capital market. Malaysia is already the world’s largest market
for sukuk, the Islamic equivalent of bonds.
3.
As a member of ASEAN and a country that has signed a free-trade pact with China, Malaysia has the potential
to be used as a base to produce goods and services sold in other, larger but more difficult markets in the
region. If Kuala Lumpur can also sign free-trade pacts with India and Muslim countries in the Middle East, its
potential role as a base to promote certain kinds of business would be even larger.
4.
The recent push to cooperate more with Singapore economically could create new business opportunities in
both countries, especially if there is a better interfacing of key institutions in the two countries..
Threats:
1.
There is a risk that hard-line elements in the dominant political party, UMNO, might instigate or trigger a
political crisis if they lose at the next general election. This would have negative economic implications.
2.
Religious and ethnic tensions have the potential to cause social and political instability. Advocates of Malay
entitlements also have the potential to slow government reform policies by threatening a Malay backlash.
3.
Government-linked entities and local companies with strong political connections can crowd out other private
sector players, including foreign investors, and have advantages in how big government contracts are awarded
and development plans are focused.
4.
The political opposition, if it were to win the next general elections, might be unable to stay united or to
implement social and economic policies that enable Malaysia to progress on to developed-country status. The
main policy uniting the opposition is their desire to topple the existing government. The actual governing
capabilities of the opposition are untested and therefore a cause of uncertainty.
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E. PHILIPPINES
The Philippines’ Business Environment
Economic dynamics
10
8
Systemic risks
Infrastructure
6
4
2
0
External political
risks
Social instability
risks
Ease of doing
business
Domestic political
risks
Grades are scaled from zero to 10, with zero being the best possible and 10 the worst.
Strengths:
1.
The economy is likely to weather the downturn in the global economy in the coming year due to lower
dependence on exports than most other Asian countries, relatively resilient domestic consumption, and strong
growth of remittances by overseas Filipino workers.
2.
A large, low-cost labor force that is moderately fluent in English,
3.
The large number of Filipinos working abroad reduce the risk of balance of payments problems and help to
finance relatively buoyant levels of domestic consumer demand.
4.
The current government has done a good job of portraying itself as being “cleaner” than at least the two
preceding governments.
5.
Economic managers have a good track-record of managing the country’s external debt. International credit
rating agencies have responded by recently upgrading the country’s rating.
Weaknesses:
1.
High corruption levels, closely related to weak rule of law and justice system. The political system is based
more on personalities than ideologies, fostering an environment that weakens the ability of institutions to do
their job and stimulating problems like patronage and nepotism.
2.
The problem of the large fiscal deficit is compounded by weaknesses in collecting taxes that are due.
3.
Although the Philippines has a high literacy rate, there are weaknesses in the education system that are being
aggravated by a lack of resources, funding and emigration of some of the country’s best talent.
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4.
Poor social safety net programs. High poverty incidence: The Philippines has one of the worst poverty
percentage rates in East Asia, with 32% of the population earning less than US$$1 a day.
5.
Negative international perceptions relating to political instability, personal security, red tape/bureaucracy,
unclear policies on labor and land ownership.
6.
The Philippines has had much less success as an exporter compared with any of the other countries covered
here.
7.
The quality of the Philippines’ physical infrastructure is poor and likely to remain so.
8.
Failure to attract enough foreign investments and tourists to boost jobs and incomes in the poor.
Opportunities:
1.
On the services side, business process out-sourcing is growing rapidly. This industry’s potential is not as great
as many in the Philippines are forecasting but it should help provide new jobs and act as an alternative to
seeking work overseas, thereby helping to slow the brain drain.
2.
Catering to overseas Filipinos is a growing source of business for a range of industries ranging from real estate
development/management to wealth management.
3.
Domestic consumption is stable and businesses focusing on local consumers offer good potential.
4.
At a time when US interest rates are as low as they are, Philippine sovereign and private bonds offer attractive
returns for investors. Sovereign risks are not as high as many people think.
Threats:
1.
Of all the countries covered in this report, the Philippines is the most susceptible to having factory work
disrupted by natural disasters like typhoons and earthquakes. The quality of physical infrastructure is poor
and breakdowns can be very disruptive for business, as well as add to costs because of the need to invest in
back-up systems.
2.
Brain drain arising from increasing emigration abroad due to poor job opportunities at home.
3.
Security threats. Communist and Islamic insurrection movements will remain problematic, as will the
relatively high level of crimes against persons and property. Police are seen by many as being more a part of
the problem than of the solution.
4.
Inconsistent application of laws and regulations and difficulties in maintaining good relations with officials at
the local level can add to costs and result in surprises that complicate the management of labor problems,
local logistics, and expansion plans.
5.
Major policy flip-flops from one government to the next can quickly change the reception that major deals
involving foreign companies receive and undermine confidence in contract durability. The present
government might be doing a good job of winning back confidence, but there is no guarantee that the next
government will continue with these policies.
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F. THAILAND
Thailand’s Business Environment
Economic dynamics
10
8
Systemic risks
6
Infrastructure
4
2
0
External political
risks
Social instability
risks
Ease of doing
business
Domestic political
risks
Grades are scaled from zero to 10, with zero being the best possible and 10 the worst.
Strengths:
1.
The Thai economy is resilient and has weathered years of political turmoil much better than most economists
were anticipating. Overall GDP growth, exports, foreign direct investment inflow and tourism have all
outperformed most forecasters in the public and private sectors.
2.
Thailand is far ahead of other ASEAN countries in attracting foreign direct investment into the automotive
sector and supporting industries. It also has a good reputation for attracting foreign investment in other
export-oriented manufacturing industries, from consumer electronics to sporting goods to processed foods.
3.
Thailand has a particularly strong medical industry that is turning into a major foreign exchange earner for the
country and a generator of “medical tourism”.
4.
There are some weak points like power generation, but Thailand has relatively good physical infrastructure
and is also more internationally connected than most other developing Asian countries.
5.
There is a large supply of operator-level labor at a relatively low price. It is also easier and less expensive to
hire expatriate managers in Thailand than it is in most emerging markets of Asia.
6.
The agricultural sector is a strong contributor to the economy in its own right and a buffer that can absorb
surplus labor from urban areas during cyclical downturns.
Weaknesses:
1.
Political risks are likely to stay high until the new government demonstrates it can withstand challenges from
special interest groups, including the military. Uncertainties will also stay high until the country demonstrates
it can manage a succession in the monarchy without experiencing political turmoil or social unrest.
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2.
One of the casualties of the political turmoil and increase in the military’s role in politics is that Thailand has
changed from having one of the freest media’s in Asia to having one of the most censored. The crackdown on
on-line political discussion over the Internet has been especially severe. The reputations of other institutions
like the judiciary have also be damaged.
3.
Energy costs in Thailand are relatively high, and the country is lagging behind others in Asia in putting in the
latest telecommunications technology.
4.
The supply of skilled technical labor is less than in other countries covered here with the exception of
Indonesia and the standards of spoken English are the worst of any country covered here. It can be difficult to
recruit and retain experienced, skilled Thai labor.
5.
One of the biggest drawbacks to Thailand is its bureaucracy. It can also be difficult getting cooperation
between different government departments.
Opportunities:
1.
Following chronic shortages in recent years and an import-driven power economy, Thai utility Electricity
Generating Public Company EGCO announced plans to invest US$1 billion in expanding its power generation
capacity through 2014. Industry experts say Thailand has huge potential for solar power and other “green”
power technologies, which can be used to address rising power demand.
2.
The recent increase in labor unrest and rising wages in China will give Thailand a chance to market itself more
as an alternative investment site for foreign companies.
3.
Most of the policies reforms the new government has announced should put more money in the hands of
average Thais and help stimulate consumer spending, which has depressed in recent years by social turmoil
and political uncertainty. The new government’s policies could create new local market opportunities at a
time when export prospects have been damped by adverse global developments.
4.
Recently announced measures to improve agricultural productivity should, if implemented, will bring new
skills, investment and other resources into neglected areas raising local incomes and business activities.
5.
Under China-ASEAN free trade agreements, China is required to open up wide areas of the services sector to
Thailand and other ASEAN members. That will provide fresh opportunities to Thai firms in several sectors such
as legal services, finance and accounting, telecommunications, education, tourism and logistics.
Threats:
1.
Political risk is the dark spot in Thailand’s otherwise stable business environment. With it comes a string of
other issues, such as the reliability of policy continuity, especially concerning infrastructure investments, and
excessive military spending that is diverting financial resources away from what should be higher priorities.
2.
The size of the public debt could become a bigger problem if the new government is as aggressive in in
spending policies as it has indicated it wants to be.
3.
Terrorism threats are increasing in the south of the country.
4.
Problems in the US, Japan and the EU could hurt the growth of Thai exports and cause some foreign investors
to have second thoughts about going ahead with planned disbursements in Thai projects.
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G. VIETNAM
Vietnam’s Business Environment
Economic dynamics
10
8
Systemic risks
6
Infrastructure
4
2
0
External political
risks
Social instability
risks
Ease of doing
business
Domestic political
risks
Grades are scaled from zero to 10, with zero being the best possible and 10 the worst.
Strengths:
1.
A stable political regime with leadership committed to achieving socio-economic development.
2.
Labor costs are relatively slow and skill levels are improving.
3.
Reasonably well-endowed with natural resources – oil and natural gas, forests, marine and agricultural
commodities.
4.
Novelty as an attractive tourist destination in Southeast Asia.
5.
Vietnam has already brought down its foreign debt substantially and has the potential to exploit oil and other
resources more effectively than it is now doing.
6.
Vietnam is growing as an exporter. As incomes rise, domestic market opportunities are also growing. Vietnam
is also becoming a major source of tourists to neighboring countries like Cambodia.
Weaknesses:
1.
Shortcomings in economic policies have resulted in major imbalances that need to be addressed urgently. The
biggest problems include high inflation, a surging trade deficit, and a lack of local confidence in the currency.
The government so far has failed to reassure Vietnamese citizens and international investors that it has a
coherent approach to dealing with these mounting problems. Official signals have been mixed.
2.
The dominate role played by the state sector remains a major problem since the SOEs lack focus, management
skills, and profit motivation. They account for a majority of the country’s non-performing assets and have a
poor track record of channeling capital into priority investments.
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3.
The government is limited in the amount of financial support it can extend troubled state-owned companies.
4.
Growing rural-urban income split.
5.
Technological stock is largely obsolete, managerial skill is limited, and corruption is widespread -- all of which
contribute to inefficiencies.
6.
Under-developed capital markets and nonbank financial services.
7.
Governance and public administration reform implementation is shallow and slow.
Opportunities:
1.
Projects related to infrastructure development currently provide some of the most promising areas for
exporters to Vietnam.
2.
Domestic demand and export growth have been the major sources of growth in recent years. The biggest
opportunities are in low-skilled and cheap labor-based goods. Garments, footwear, furniture and processed
foods have emerged as successful nontraditional exports. Vietnam is in a strong position to attract foreign
business that is starting to find China too expensive.
3.
Prospects for foreign firms in the financial services sector should improve over the next few years. Vietnam
will need additional resources to finance its policy and institutional reform agenda, and infrastructure
development. About half of the capital resources are expected to come from the non-state sector.
4.
The rapid increase in consumer spending power is turning private consumption into a stronger engine of
growth, creating more opportunities for industries selling to individual Vietnamese. This includes marketing
gaming and other entertainment services to Vietnamese in neighboring countries like Cambodia.
Threats:
1.
International credit rating agencies have become more critical of Vietnam. The country could be in for further
downgrades if the government does not get inflation under better control soon.
2.
Rapid economic growth may result in unsustainable use of natural resources and unintended environment
implications.
3.
If the government does not simplify and improve its project processing and implementation procedures, the
planned investments may not materialize on time. Unemployment could emerge as a bigger problem.
4.
Relations with China could deteriorate over disputed territory in the South China Sea and prevent smooth
economic interfacing between the two countries.
5.
The economy is heavily dependent on the flow and quality of water flowing through the Mekong River. If this
waterway were to be hurt by other countries through which it flows first, it could seriously hurt Vietnam.
Some such projects are being discussed in Laos.
6.
The government continues to favor administrative controls to deal with problems like inflation and shortages
of foreign exchange. These controls could result in major regulation changes that interfere with the
operations of foreign investors and make planning difficult.
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Appendix 1: Formula for Calculating the Business Environment Index
A. Economic dynamics
B. Infrastructure
C. Ease of doing business
D. Domestic political risks
E. Social instability risks
F. External political risks
G. Systemic risks
TOTAL RISKS
Grade (0-10)
Weight (%)
Grade (0-10)
Weight (%)
Grade (0-10)
Weight (%)
China
India
Indonesia
Malaysia
Philippines
Thailand
Vietnam
2.40
14.29%
4.50
14.29%
4.00
14.29%
5.57
14.29%
5.13
14.29%
7.44
14.29%
5.42
14.29%
7.88
14.29%
7.00
14.29%
4.53
14.29%
3.50
14.29%
3.78
14.29%
6.82
14.29%
6.38
14.29%
7.00
14.29%
4.88
14.29%
4.63
14.29%
3.56
14.29%
6.70
14.29%
7.38
14.29%
6.00
14.29%
Grade (0-10)
4.69
4.50
4.75
5.75
4.63
6.81
5.00
Weight (%)
14.29%
14.29%
14.29%
14.29%
14.29%
14.29%
14.29%
Grade (0-10)
4.40
6.88
6.39
5.45
6.06
6.00
3.75
Weight (%)
14.29%
14.29%
14.29%
14.29%
14.29%
14.29%
14.29%
Grade (0-10)
5.27
6.33
4.00
3.92
4.33
4.08
4.67
Weight (%)
14.29%
14.29%
14.29%
14.29%
14.29%
14.29%
14.29%
Grade (0-10)
6.79
6.94
7.81
5.76
6.56
6.18
7.10
Weight (%)
14.29%
14.29%
14.29%
14.29%
14.29%
14.29%
14.29%
Grade (0-10)
4.58
6.11
6.18
4.67
5.97
5.16
5.80
Weight (%)
100%
100%
100%
100%
100%
100%
100%
The overall index score for each section is calculated by adding the products of the individual grades for the
specific variables multiplied by their specific weights in percentage terms. The overall business environment model
has seven major categories of variables. We have treated each major category as having equal importance, i.e., we
have weighted each major category of variables the same. Thus, each of the five major variable categories has a
weight of 100 divided by 7 or roughly 14.29%.
In each section, the maximum possible risk rating is 10 (the average grade had every variable been graded 10, or
the worst possible), while the minimum is zero (the average grade had every variable been graded a zero, or the
best possible).
Therefore, the formula for calculating the risk rating for China is:
(0.1429 x 2.40) + (0.1429 x 4.50) + (0.1429 x 4.00) + (0.1429 x 4.69) + (0.1429 x 4.40) + (0.1429 x 5.27) + (0.1429 x 6.79)
or
4.58 = the overall business environment risk rating for China
Political & Economic Risk Consultancy, Ltd.
Page 82
A S.W.O.T. Study of Asia’s Emerging Countries
August 2011
Appendix 2: All grades used to assess the business environment
A. Economic dynamics
China
India
Indo.
Mal.
Phil.
Thai.
Viet.
1. Growth prospects
2. Market size
3. Wealth
4. Inflation
5. Public debt
6. Balance of payments
7. Foreign debt
8. Foreign investment success
9. Export dynamism
10. Import dynamism
Economic dynamism score
1.00
0.00
5.00
3.00
2.00
3.00
1.00
4.00
2.33
2.67
2.40
3.00
2.00
9.00
6.00
8.00
7.00
3.00
7.00
6.00
4.67
5.57
5.00
4.00
7.00
6.00
4.00
5.00
5.00
6.50
6.33
5.33
5.42
8.00
8.50
0.00
2.00
8.00
1.00
6.00
3.50
4.00
4.33
4.53
7.00
6.50
8.00
4.00
8.00
3.00
6.00
9.00
8.33
8.33
6.82
8.00
6.00
4.00
3.00
7.00
3.00
5.00
3.50
4.67
4.67
4.88
5.00
7.00
9.00
8.00
8.00
8.00
6.00
5.00
5.67
5.33
6.70
China
India
Indo.
Mal.
Phil.
Thai.
Viet.
5.00
10.00
8.00
4.00
9.00
3.00
9.00
3.00
9.00
8.00
4.00
8.00
3.00
9.00
9.00
2.00
1.00
9.00
1.00
1.00
7.00
8.00
9.00
5.00
3.00
4.00
6.00
5.00
5.00
4.00
7.00
6.00
6.00
7.00
7.00
4.00
1.00
7.00
2.00
2.00
8.00
6.00
5.00
3.00
8.00
3.00
7.00
1.00
8.00
7.00
7.00
8.00
3.00
9.00
5.00
7.00
4.50
5.13
7.88
3.50
6.38
4.63
7.38
C. Ease of Doing Business
China
India
Indo.
Mal.
Phil.
Thai.
Viet.
1. Starting a Business
2. Dealing with Construction Permits
3. Registering Property
4. Getting Credit
5. Protecting Investors
6. Paying Taxes
7. Trading Across Borders
8. Enforcing Contracts
9. Closing a Business
Ease of doing business score
3.00
3.00
3.00
4.00
6.00
7.00
3.00
3.00
4.00
4.00
9.00
10.00
6.00
3.00
6.00
9.00
8.00
9.00
7.00
7.44
8.00
5.00
6.00
6.00
8.00
7.00
7.00
8.00
8.00
7.00
5.00
5.00
5.00
2.00
4.00
2.00
3.00
4.00
4.00
3.78
8.00
6.00
6.00
7.00
7.00
8.00
7.00
7.00
7.00
7.00
3.00
2.00
3.00
4.00
5.00
5.00
3.00
3.00
4.00
3.56
7.00
4.00
4.00
7.00
8.00
8.00
5.00
5.00
6.00
6.00
B. Human and physical infrastructure
support
1. Physical infrastructure/utilities for
domestic market
2. International infrastructure links
(ports, airports, communications,
etc.)
3. Pollution
4. Technical labor pool depth
5. Depth of higher education
6. English speaking / comprehension
proficiency
7. Health facilities
8. Natural disaster disruption
potential
Human and physical infrastructure score
Political & Economic Risk Consultancy, Ltd.
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A S.W.O.T. Study of Asia’s Emerging Countries
D. Domestic political risks
August 2011
China
India
Indo.
Malaysia
Phil.
Thailand
Vietnam
6.75
4.00
4.00
7.00
3.00
7.00
4.00
4.00
3.00
3.50
7.00
5.00
8.00
3.00
4.00
5.50
5.50
4.00
5.00
5.50
6.50
4.00
5.50
6.00
5.00
5.50
6.75
6.50
4.69
4.50
4.75
5.75
4.63
6.81
5.00
E. Social instability risks
1. Labor activism
2. Social activism/unrest
3. Terrorism and personal security
risks
4. Extent that regionalism is a
problem
Average score for social instability risks
China
5.60
4.00
India
7.00
6.00
Indo.
5.25
6.50
Mal.
4.00
6.30
Phil.
4.50
6.50
Thai.
4.00
7.00
Viet.
4.00
3.50
3.00
7.00
7.00
5.00
7.00
6.00
3.00
5.00
7.50
6.80
6.50
6.25
7.00
4.50
4.40
6.88
6.39
5.45
6.06
6.00
3.75
F. External political risks
1. Direct military threats
2. Vulnerability to fallout from sociopolitical instability in other
countries
3. Vulnerability to policy changes by
governments in other countries
Average score for external political risks
China
6.00
India
7.50
Indo.
4.00
Mal.
3.50
Phil.
3.50
Thai.
3.50
Viet.
5.00
4.50
7.00
4.00
4.25
4.50
4.25
4.00
5.30
4.50
4.00
4.00
5.00
4.50
5.00
5.27
6.33
4.00
3.92
4.33
4.08
4.67
G. Systemic risks
1. Extent that corruption is a problem
2. Nationalism and other cultural risks
3. Institutional weaknesses
4. Intellectual property rights risks
Average score for systemic risks
China
7.00
6.00
6.25
7.90
6.79
India
8.00
7.25
6.00
6.50
6.94
Indo.
8.50
6.75
7.50
8.50
7.81
Mal.
6.25
6.00
5.00
5.80
5.76
Phil.
8.40
5.00
6.00
6.85
6.56
Thai.
8.00
4.00
6.50
6.20
6.18
Viet.
7.00
6.00
7.00
8.40
7.10
TOTAL BUSINESS ENVIRONMENT SCORE
China
4.58
India
6.11
Indo.
6.18
Mal.
4.67
Phil.
5.97
Thai.
5.16
Viet.
5.80
1. The risk of a change of government
and key leaders in coming year
2. The risk of a disruptive political
transition
3. Quality of the government's
policies
4. Ineffectiveness of the government
in implementing its policies
Average score for domestic political risks
Political & Economic Risk Consultancy, Ltd.
Page 84
A S.W.O.T. Study of Asia’s Emerging Countries
August 2011
Appendix 3. About Political & Economic Risk Consultancy, Ltd.
Robert Broadfoot researched and wrote this report. Mr. Broadfoot is the founder and Managing Director
of Political & Economic Risk Consultancy, Ltd. (PERC). Established in 1976, PERC is headquartered in Hong Kong.
From this base PERC manages a team of researchers and analysts in the ASEAN countries, the Greater China region
and South Korea.
PERC helps companies understand how politics and other subjective variables are shaping the business
environment. Such variables may be difficult to quantify, but nevertheless can have a critical impact on
investment performance and therefore have to be factored into the decision-making process, which is the function
of PERC's services. PERC's value lies in the organization's experience, its Asian network of seasoned analysts, its
emphasis on primary research, its complete independence from any vested interest groups, its pioneering work in
the technical aspects of country risk research, its discretion, and its integrated, regional approach to analysis.
Surveying businesspersons in all Southeast and East Asian countries is one of the main ways that PERC
conducts primary research. Some of the indices PERC has developed over the years through its surveys have
become the standard reference for monitoring such variables in Asia. For example, for over a decade now, PERC
has been surveying business-persons’ perceptions of corruption in all major Asian countries. Transparency
International, the organization that works with the United Nations and looks at corruption on a global basis,
incorporates PERC's index on Asian countries into its own index, and these figures in turn are used as the standard
reference for corruption by such bodies as the World Bank and the UN, as well as by OECD governments.
Mr. Broadfoot is frequently quoted by such publications as the Wall Street Journal and the South China
Morning Post, by wire services like Reuters, Bloomberg and Dow Jones, as well as by CNN, the BBC, CNBC and
other broadcast media. He has lectured at the Pacific Rim Banker’s Program of the University of Washington in
Seattle, where he has taught skills for analyzing country risk. He also conducts scenario planning workshops for
individual companies and government organizations. He is the publisher of PERC’s Asian Intelligence newsletter
and its Monthly Country Risk Monitoring Service. He is a contributing author to a book called China Into the Future
– Making Sense of the World’s Most Dynamic Economy, which was published in 2008 by John Wiley & Sons.
Political & Economic Risk Consultancy, Ltd.
Page 85
Published by:
Political & Economic Risk Consultancy, Ltd.
20th Floor, Central Tower
28 Queen’s Road, Central, Hong Kong
Mailing address: G.P.O. Box 1342, Hong Kong
Tel: (852) 2541 4088
Fax: (852) 2815-5032
E-Mail: info@asiarisk.com
Web site: http://www.asiarisk.com
The material in this report may not be reproduced in whole or in part without permission in writing from the publisher.
While every effort has been made to collate, check and present without ambiguity all data contained herein, the variety of
sources from which they have been assembled and differing methods of reporting render verification oftentimes
impossible. Thus, they are published without warranty.