Hafiz Mirza Investment and Enterprise Division UNCTAD ASEAN Investment Report 2015 Infrastructure Investment and Productivity.

Hafiz MirzaInvestment and

Enterprise DivisionUNCTAD

ASEAN Investment Report 2015Infrastructure Investment and Productivity

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INVESTMENT TRENDS

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ASEAN Largest Recipient Region in Developing World

On the back of a 16% rise in FDI inflows to $136 billion in 2014

Source : ASEAN Secretariat, ASEAN FDI database (accessed 1 July 2015).

0

20000

40000

60000

80000

100000

120000

140000

160000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

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Strong expansion by both foreign and local MNEs

Favourable perceptions of the region, strong fundamentals

US$ millions

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Intra-ASEAN Investment Robust (Rise by 23% to $24 billion in 2014)

Source : ASEAN Secretariat, ASEAN FDI database (accessed 1 July 2015).

0

5'000

10'000

15'000

20'000

25'000

30'000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

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Deepening regional production networks, including with CMLV

countries

Influence of impending AEC, improving investment climate

US$ millions

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Rapid Growth in Outward FDI from ASEAN (Especially to Developing Countries)

• FDI from ASEAN greater than that from France and Spain combined– Rise of 19 per cent to $80 billion (in 2014)– Main orientation towards ASEAN and other East Asian

economies

• Key factors: ASEAN companies have strong assets and cash reserves

• ASEAN companies are internationalising through both greenfield investments and cross-border M&As

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The top 100 ASEAN companies have strong assets and significant cash holdings

Company Country IndustryUS$ millions

Net income Total assetsMarket

capitalizationCash or near cash holding

Singapore Telecommunications Singapore Telecommunication 2,901 31,249 46,219 410

PTT Thailand Oil, gas and consumable fuels 1,718 54,062 28,120 6,199Bank Central Asia Indonesia Banks 1,391 44,443 26,034 4,710Malayan Banking Malaysia Banks 2,053 182,864 24,405 18,858Bank Rakyat Indonesia Indonesia Banks 2,045 64,518 23,121 5,935

Advanced Info Service Thailand Telecommunication (wireless) 1,110 3,839 22,675 434Telekomunikasi Indonesia Indonesia Telecommunication 1,235 11,335 22,629 1,424Tenaga Nasional Malaysia Electric utilities 2,000 34,993 22,093 2,565Avago Technologies Singapore Semiconductors 263 10,491 21,936 1,604Bank Mandiri Indonesia Banks 1,676 68,788 20,227 5,746Public Bank Malaysia Banks 1,381 98,735 20,181 3,220Siam Commercial Bank Thailand Banks 1,642 82,033 18,771 1,282Sime Darby Malaysia Industrial conglomerates 1,034 15,871 18,271 ..

Axiata Group Malaysia Telecommunication (wireless) 718 14,030 17,279 1,457Kasikornbank Thailand Banks 1,421 72,596 16,653 1,764Siam Cement Thailand Construction materials 1,035 14,154 16,335 579Wilmar International Singapore Food products 1,156 43,558 15,642 3,127

Maxis Malaysia Telecommunication (wireless) 525 5,172 14,685 437SM Investments Corp Philippines Industrial conglomerates 640 15,912 14,506 1,546

Philippine Long Distance Tel Philippines Telecommunication (wireless) 768 9,752 14,030 596

Genting Malaysia Hotels, restaurants and leisure 553 20,932 9,419 4,681Petrovietnam Gas Joint Stock Viet Nam Gas utilities 667 2,516 6,249 1,126TOTAL 70,553 2,928,468 1,131,906 228,137

Source: UNCTAD

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ASEAN companies cross- border M&A acquisitions rose by 5% to $43.1 billion in 2014

Target economy 2010 2011 2012 2013 2014World 26 117 31 990 31 357 41 112 43 109

Developed economies 9 749 16 249 16 752 6 061 14 800European Union 2 937 3 962 5 970 1 769 3 385

Germany 95 39 190 .. 516United Kingdom 238 3 446 5 225 1 337 2 230

North America 906 8 807 6 786 2 075 4 186Canada 609 3 481 5 430 183 1 433United States 297 5 326 1 356 1 892 2 753

Other developed countries 5 374 3 070 3 787 2 014 7 181Australia 5 017 2 738 3 033 1 491 3 779Japan 282 225 724 523 2 599

Developing economies 16 368 15 741 14 604 35 048 28 309Brazil 2 250 .. 66 .. 1 285United Republic of Tanzania .. .. 18 .. 1 293China 1 413 2 386 1 594 10 544 5 299Hong Kong, China 2 733 3 156 3 402 976 10 934ASEAN 9 237 9 646 8 460 20 339 7 436Cambodia 5 .. 101 166 40Indonesia 2 461 2 222 1 493 2 705 2 508Malaysia 1 300 792 1 402 3 249 1 463Philippines 45 418 425 94 455Singapore 5 077 5 803 4 196 7 748 1 594Thailand 192 362 457 6 232 1 363Viet Nam 158 49 387 146 12

Source: UNCTAD M&A DatabaseNote: gross basis.

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INFRASTRUCTURE INVESTMENTAND CONNECTIVITY

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Source of connectivity

Physical

Institutional

Economic

People-to-people

Key Elements(examples)

Infrastructure

Frameworks, agreements, institutional

development

AEC, Sectoral cooperation programmes

Movement of people

Role in connectivity(examples)

Power grid interconnection, ICT

connectivity

Set framework and direction for regional

integration

Regional division of labour; Intra-regional trade,

investment and services; business-to-business

connectivity

ASEAN identity, tourism, intra-firm

movement of people

Key players(examples)

Public sector, Private sector, MDBs, ODA,

SWFs

Public sector, ASEAN bodies

Private sector (including GLCs and

SWFs)

Transport and ICT facilities; educational

institutions, companies

4Foreign and ASEAN MNEs

are important players in the

ASEAN connectivity story

Four key sources of connectivity are in play in ASEAN

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Private sector participation in infrastructure investment takes many forms:

• …through equity iInvestment/ FDI• …through greenfield investment and M&As• …through concessionary arrangements (e.g.

BOO, BOT, Turnkey arrangements etc.) • …through management contracts,

subcontracting etc.

Different types of Investor or Financer• Public vs private sector; • local vs foreign MNEs; • developed vs developing economies; • ODA donors; • different types of financiers

Examples:Raw materials:Siam Cement (Thailand), Tata Steel (India), Holcim (Switzerland)Energy sources:Banpu (Thailand), Adaro Energy (Indonesia), Petronas Gas (Malaysia), PTT (Thailand), Bukit Asam (Indonesia),

Raw materials and primary resources

Engineering companies and engineering solutions entities.Some companies operating as technology and solution providers, such as GE (United States), Siemens (Germany) and ABB (Switzerland).

DesignExamples:Power:GE (United States), Siemens (Germany), ABB (Switzerland), Fuji Electric (Japan), Toshiba (Japan), Alstom (France)Urban mass transport:Marubeni and Hitachi (Japan)

Specialised equipment or solution providers

Examples:Power:Marubeni (Japan), GDF Suez (France), APR Energy (United States), Siemens (Germany), Mitsui (Japan), Vestas (Denmark), Electricité de France, EGCO (Thailand)Ports: PSA (Singapore), DP World (United Arab Emirates), Hutchinson Ports Holding (Hong Kong, China)

Development, construction

Examples:First Balfour (Philippines),Black & Veatch (United States),Yokogawa Electric (Japan), Antara Koh (Singapore)

SubcontractingCompanies that operate and maintain infrastructure assets. They can include companies that build the assets and companies appointed specifically to operate and maintain the assets under concessions and/or long-term service contract.

Operation and maintenance

Government agencies, households, public users, business and industrial users (e.g.industrial estates).

End users, purchasers

The private sector, including MNEs, plays an essential role in each segment

of all infrastructure value chains

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Infrastructure and economic connectivity are already burgeoning in ASEAN – and much is underway

(for example in the road transport network)6

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But much more investment in infrastructure and connectivity is needed

ASEAN needs to spend at least $110 billion annually in infrastructure investment through to 2025

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ADB-ADBI (2009) McKinsey (2013) KPMG (2014) Bhattacharayay

et al. (2012)Goldman

Sachs (2013)UNCTAD

estimate (2015)Estimated annual investment needs

60 133 146 100 69 110

Sectors coveredPower, transport,

telecommunications, WSS

Power, transport, telecommunications,

WSS..

Power, transport, telecommunications,

WSSPower, transport

Power, transport, telecommunications,

WSS

Period covered 2010–2020 2013–2030mainly 2013–

2020 2010–2020 2013–2020 2015–2025

Countries coveredAll Member states,

except Brunei Darussalam and

Singapore

All ASEAN Member States

All Member states, except

Brunei Darussalam and

Lao PDR

All Member states, except Brunei

Darussalam and Singapore

Only Indonesia, Malaysia,

Philippines and Thailand

All ASEAN Member States

Source: UNCTAD

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BUT the necessary additional resources are available in the region…

• Financial assets/resources of more than $10 trillion, mainly in the hand of the private sector, are potentially available across the region

• These need to be mobilised and channelled into infrastructure

• Perforce, the private sector must play a bigger role in infrastructure development in ASEAN

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RVCs connect companies and countries in the region(in multiple ways)9

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Players in regional value chains

Intra-firm relationships

EXAMPLEIntegrated business models pursued by Wilmar (Singapore),

Sime Darby (Malaysia) and other agribusiness

MNEs in ASEAN

Inter-firm relationships

EXAMPLEStrong interfirm

connections between major auto part

manufacturers and automotive MNEs in

ASEAN

MNE and local firm contract relationships

EXAMPLELocal garment

suppliers and contract manufacturers for

major brand names such as Adidas, H&M

and Nike

Different tiers of contract

manufacturer relationship

EXAMPLEThird-tier suppliers

producing for second-tier manufacturers supplying parts and components to first-tier manufacturers…

Arm's-length suppliers

EXAMPLESuppliers attracted by

industrial agglomeration,

increased demand and production activities.

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Some other key elements in the ASEAN Investment Report 2015

• Documents the activities of players in all segments of ASEAN infrastructure value chains – e.g. in electricity, ICT, road and bridges, airports, ports and

rail – Company cases are provided

• Examines the role and impact of MNEs' in infrastructural development and regional connectivity

• Explains the drivers and motivations of infrastructure investors– Industry case studies are provided

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