Australia is generally welcoming to foreign investment, which is widely considered to be an essential contributor to Australia’s economic growth and productivity. The United States is by far the largest source of foreign direct investment (FDI) for Australia. According to the U.S. Bureau of Economic Analysis, the stock of U.S. FDI totaled USD 162 billion in January 2020. The Australia-United States Free Trade Agreement, which entered into force in 2005, establishes higher thresholds for screening U.S. investment for most classes of direct investment.
While welcoming toward FDI, Australia does apply a “national interest” test to qualifying investment through its Foreign Investment Review Board screening process. Various changes to Australia’s foreign investment rules, primarily aimed at strengthening national security, have been made in recent years. This continued in 2020 with the passage of the Foreign Investment Reform (Protecting Australia’s National Security) Act 2020, which broadens the classes of foreign investments that require screening, with a particular focus on defense and national security supply chains. All foreign investments in these industries will now require screening, regardless of their value or national origin. The legislation also provides the Treasurer with new powers to require certain investments to be scrutinized even if they do not fall within existing guidelines. Additionally, in March 2020 the Australian government announced all foreign direct investment would be reviewed over the course of the COVID-19 crisis, a period which ceased when the Foreign Investment Reform legislation commenced in January 2021. Despite the increased focus on foreign investment screening, the rejection rate for proposed investments has remained low and there have been no cases of investment from the United States having been rejected in recent years.
In response to a perceived lack of fairness, the Australian government has tightened anti-tax avoidance legislation targeting multi-national corporations with operations in multiple tax jurisdictions. While some laws have been complementary to international efforts to address tax avoidance schemes and the use of low-tax countries or tax havens, Australia has also gone further than the international community in some areas.
Australia has a strong legal system grounded in procedural fairness, judicial precedent, and the independence of the judiciary. Property rights are well established and enforceable. The establishment of government regulations typically requires consultation with impacted stakeholders and requires approval by a central regulatory oversight body before progressing to the legislative phase. Anti-bribery and anti-corruption laws exist, and Australia performs well in measures of transparency. Australia’s business environment is generally conducive to foreign companies operating in the country, and the country ranks fourteenth overall in the World Bank’s Ease of Doing Business Index.
The Australian government is strongly focused on economic recovery from the COVID-driven recession Australia experienced in 2020, the country’s first in three decades. In addition to direct stimulus and business investment incentives, it has announced investment attraction incentives across a range of priority industries, including food and beverage manufacturing, medical products, clean energy, defense, space, and critical minerals processing. U.S. involvement and investment in these fields is welcomed.
Brunei is a small, energy-rich Sultanate on the northern coast of Borneo in Southeast Asia. Brunei boasts a well-educated, largely English-speaking population, excellent infrastructure, and a government intent on attracting foreign investment and projects. In parallel with Brunei’s efforts to attract foreign investment and create an open and transparent investment regime, the country has taken steps to streamline the process for entrepreneurs and investors to establish businesses and has improved its protections for Intellectual Property Rights (IPR).
Despite senior Bruneian leaders’ repeated calls for diversification, Brunei’s economy remains dependent on the income derived from sales of oil and gas, contributing about 50 percent to the country’s GDP. Substantial revenue from overseas investment supplements income from domestic hydrocarbon production. These two revenue streams provide a comfortable quality of life for Bruneians by regional standards. Citizens are not required to pay taxes and have access to free education through the university level, free medical care, and subsidized housing and car fuel.
Brunei has a stable political climate and is generally sheltered from natural disasters. Brunei’s central location in Southeast Asia, with good telecommunications and airline connections, business tax credits in specified sectors, and no income, sales, or export taxes, offers a welcoming climate for potential investors. Sectors offering U.S. business opportunities in Brunei include aerospace and defense, agribusiness, construction, petrochemicals, energy and mining, environmental technologies, food processing and packaging, franchising, health technologies, information and communication, digital finance, and services.
In 2014, Brunei began implementing sections of its Sharia Penal Code (SPC) that expanded preexisting restrictions on activities such as alcohol consumption, eating in public during the fasting hours in the month of Ramadan, and indecent behavior, with possible punishments including fines and imprisonment. The SPC functions in parallel with Brunei’s common law-based civil penal code. The government commenced full implementation of the SPC in 2019, introducing the possibility of corporal and capital punishments including, under certain evidentiary circumstances, amputation for theft and death by stoning for offenses including sodomy, adultery, and blasphemy. Government officials emphasize that sentencing to the most severe punishments is highly improbable due to the very high standard of proof required for conviction under the SPC. While the SPC does not specifically address business-related matters, potential investors should be aware that the SPC generated global controversy when it was implemented due to its draconian punishments and inherent discrimination toward LGBT communities. The sultan declared a moratorium on the death penalty for sharia crimes in response to the outcry and there have been no recorded incidents of U.S. citizens or U.S. investments directly affected by sharia law.
On February 1, the Burmese military seized power in a coup d’état that reversed much of the economic progress of recent years. The military’s incompetence in addition to a brutal crackdown on peaceful protests that destabilized the country’s security situation created a sharp deterioration in the investment climate. The economy is projected to contract by at least 10 percent, according to the World Bank. The civil disobedience movement and general strikes organized across the country to oppose the military coup and protest the increasing violence have significantly reduced Burma’s commercial activity. Many routine services that businesses require like customs, ports, and banks were not fully operational as of April 2021. Access to U.S. dollars is limited. The military regime’s suspensions of internet and other telecommunications service have curtailed access to information and also seriously hindered routine business operations. Commercial international flights remain banned, ostensibly due to the COVID-19 pandemic. Some foreign companies have temporarily suspended operations, invoked force majeure to exit existing investments, and evacuated foreign national staff. There is a lack of rule of law, random violence by regime forces, and arbitrary detentions of businesspersons without charges. Companies invested in the market face a heightened reputational risk. There is also the potential for the military regime to expropriate property or nationalize private companies particularly in the financial and telecommunication sectors. In response to the coup, the U.S. government has imposed targeted sanctions, suspended our Trade and Investment Framework Agreement, and instituted more stringent export controls. Investors should exercise extreme caution and conduct heightened due diligence when considering new investments in this market.
Like in most other countries, the COVID-19 pandemic has had a significant adverse impact on Cambodia’s economy. Annual gross domestic product (GDP) contracted by 3.1 percent and per capita GDP fell 10 percent to USD1,519 in 2020. Prior to the pandemic, Cambodia had experienced an extended period of strong economic growth, with average GDP growth of nearly 7 percent over the last two decades, driven by growing exports (particularly in garment and footwear products), increased investment, and domestic consumption. Tourism has been another large contributor to growth, with tourist arrivals reaching 6.61 million in 2019. The World Bank predicts that Cambodia’s economy will begin recovering and grow by 4 percent in 2021, though a COVID outbreak that started in February 2021 has already cost the economy an estimated USD250 million and could prolong the country’s recession.
The government has made it a priority to attract investment from abroad. Foreign direct investment (FDI) incentives available to investors include 100 percent foreign ownership of companies, corporate tax holidays of up to eight years, a 20 percent corporate tax rate after the incentive period ends, duty-free import of capital goods, and no restrictions on capital repatriation. In response to COVID-19, the government enacted additional measures to boost competitiveness and support the economy, including a long-awaited consumer protection law, additional tax breaks to the hardest hit businesses (such as those in the tourism and restaurant sectors), and direct aid to people employed in the informal sector. The government also delayed the implementation of a capital gains tax, which was due to go into effect in 2021. A newly established SME Bank of Cambodia will financially support small- and medium-sized enterprises.
Despite these incentives, Cambodia has not attracted significant U.S. investment. Apart from the country’s relatively small market size, other factors dissuading U.S. investors include: systemic corruption, a limited supply of skilled labor, inadequate infrastructure (including high energy costs), a lack of transparency in some government approval processes, and preferential treatment given to companies from certain countries, namely China. Foreign and local investors alike lament the government’s failure to consult the business community on new economic policies and regulations. Notwithstanding these challenges, a number of American companies maintain investments in the country. For example, in December 2016, Coca-Cola officially opened a USD100 million bottling plant in Phnom Penh.
In recent years, Chinese FDI — largely from state-run or associated firms — has surged and has become a significant driver of growth. The rise in FDI highlights China’s desire for influence in Cambodia, and Southeast Asia more broadly. Chinese businesses, many of which are state-owned enterprises, may not assess the challenges in Cambodia’s business environment in the same manner as U.S. businesses. In 2019, FDI hit USD3.6 billion – a record – with 43 percent reportedly coming from China. In 2020, Cambodia signed a Free Trade Agreement (FTA) with China and joined the Regional Comprehensive Economic Partnership (RCEP) agreement, though neither agreement has been implemented yet.
Physical infrastructure projects, including commercial and residential real estate developments, continue to attract the bulk of FDI. However, there has been some increased investment in manufacturing, including garment and travel goods factories, as well as agro-processing.
In 2020, the People’s Republic of China (PRC) became the top global Foreign Direct Investment (FDI) destination. As the world’s second-largest economy, with a large consumer base and integrated supply chains, China’s economic recovery following COVID-19 reassured investors and contributed to higher FDI and portfolio investments. In 2020, China took significant steps toward implementing commitments made to the United States on a wide range of IP issues and made some modest openings in its financial sector. China also concluded key trade agreements and implemented important legislation, including the Foreign Investment Law (FIL).
China remains, however, a relatively restrictive investment environment for foreign investors due to restrictions in key economic sectors. Obstacles to investment include ownership caps and requirements to form joint venture partnerships with local Chinese firms, industrial policies such as Made in China 2025 (MIC 2025) that target development of indigenous capacity, as well as pressure on U.S. firms to transfer technology as a prerequisite to gaining market access. PRC COVID-19 visa and travel restrictions significantly affected foreign businesses operations increasing their labor and input costs. Moreover, an increasingly assertive Chinese Communist Party (CCP) and emphasis on national companies and self-reliance has heightened foreign investors’ concerns about the pace of economic reforms.
Key investment announcements and new developments in 2020 included:
On January 1, the FIL went into effect and effectively replaced previous laws governing foreign investment.
On January 15, the U.S. and China concluded the Economic and Trade Agreement between the Government of the United States of America and the Government of the People’s Republic of China (the Phase One agreement). Under the agreement, China committed to reforms in its intellectual property regime, prohibit forced transfer technology as a condition for market access, and made some openings in the financial and energy sector. China also concluded the Regional Comprehensive Economic Partnership (RCEP) agreement on November 15 and reached a political agreement with the EU on the China-EU Comprehensive Agreement on Investment (CAI) on December 30.
In mid-May, PRC leader Xi Jinping announced China’s “dual circulation” strategy, intended to make China less export-oriented and more focused on the domestic market.
On June 23, the National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM) announced new investment “negative lists” to guide foreign FDI.
Market openings were coupled, however, with restrictions on investment, such as the Rules on Security Reviews on Foreign Investments – China’s revised investment screening mechanism.
While Chinese pronouncements of greater market access and fair treatment of foreign investment are welcome, details and effective implementation are still needed to ensure foreign investors truly experience equitable treatment.
The Republic of Fiji has traditionally been the economic, transportation, and academic hub of the South Pacific islands, with trade and investment potential in infrastructure development, energy, mining, health, and agriculture. The impact, however, of the COVID-19 pandemic and restrictions on international travel in 2020 plunged the tourism-reliant country into its largest ever economic contraction. The government’s latest forecast estimates the economy contracted by 19.0 percent in 2020. Recovery of the economy is contingent on the resumption international travel in 2021 along with continued government borrowing to sustain public expenditures.
The government declared Fiji “COVID-19 contained” in 2020 with strict limits on international visitors and a mandatory 14-day quarantine period under strict supervision for all arrivals. These COVID-19 Safe Economic Recovery Framework rules create significant hurdles for foreign investors who intend to travel to Fiji.
Since March 2020, tourist arrivals declined 83.6 percent. Labor market conditions in 2020 deteriorated resulting in an estimated 115,00 out of the 360,000-person workforce losing their jobs. The Reserve Bank of Fiji estimates that remittances from Fijians working abroad will overtake tourism as the largest foreign exchange earner in 2020, growing about six percent to more than USD 320 million (FJD 652 million). Government revenues are estimated to decline by 50 percent, and total exports in 2020 are expected to fall by 23.9 percent.
Hong Kong became a Special Administrative Region (SAR) of the People’s Republic of China (PRC) on July 1, 1997, with its status defined in the Sino-British Joint Declaration and the Basic Law. Under the concept of “one country, two systems,” the PRC government promised that Hong Kong will retain its political, economic, and judicial systems for 50 years after reversion. The PRC’s imposition of the National Security Law (NSL) on June 30, 2020 undermined Hong Kong’s autonomy and introduced heightened uncertainty for foreign and local firms operating in Hong Kong. As a result, the U.S. Government has taken measures to eliminate or suspend Hong Kong’s preferential treatment and special trade status, including suspension of most export control waivers, revocation of reciprocal shipping income tax exemption treatments, establishment of a new marking rule requiring goods made in Hong Kong to be labeled “Made in China,” and imposition of sanctions against former and current Hong Kong government officials.
On July 16, 2021, the Department of State, along with the Department of the Treasury, the Department of Commerce, and the Department of Homeland Security, issued an advisory to U.S. businesses regarding potential risks to their operations and activities in Hong Kong.
Since the enactment of the NSL in Hong Kong, U.S. citizens traveling or residing in Hong Kong may be subject to increased levels of surveillance, as well as arbitrary enforcement of laws and detention for purposes other than maintaining law and order.
On economic issues, Hong Kong generally pursues a free market philosophy with minimal government intervention. The Hong Kong government (HKG) generally welcomes foreign investment, neither offering special incentives nor imposing disincentives for foreign investors.
Hong Kong provides for no distinction in law or practice between investments by foreign-controlled companies and those controlled by local interests. Foreign firms and individuals are able to incorporate their operations in Hong Kong, register branches of foreign operations, and set up representative offices without encountering discrimination or undue regulation. There is no restriction on the ownership of such operations. Company directors are not required to be citizens of, or resident in, Hong Kong. Reporting requirements are straightforward and are not onerous.
Despite the imposition of the NSL by Beijing, significant curtailments in individual freedoms, and the end of Hong Kong’s ability to exercise the degree of autonomy it enjoyed in the past, Hong Kong remains a popular destination for U.S. investment and trade. Even with a population of less than eight million, Hong Kong is the United States’ twelfth-largest export market, thirteenth largest for total agricultural products, and sixth-largest for high-value consumer food and beverage products. Hong Kong’s economy, with world-class institutions and regulatory systems, is bolstered by its competitive financial and professional services, trading, logistics, and tourism sectors, although tourism suffered steep drops in 2020 due to COVID-19. The service sector accounted for more than 90 percent of Hong Kong’s nearly USD 348 billion gross domestic product (GDP) in 2020. Hong Kong hosts a large number of regional headquarters and regional offices. Approximately 1,300 U.S. companies are based in Hong Kong, according to Hong Kong’s 2020 census data, with more than half regional in scope. Finance and related services companies, such as banks, law firms, and accountancies, dominate the pack. Seventy of the world’s 100 largest banks have operations in Hong Kong.
Indonesia’s population of 270 million, Gross Domestic Product (GDP) over USD 1 trillion, growing middle class, abundant natural resources, and stable economy all serve as very attractive features to U.S. investors; however, a range of stakeholders note that investing in Indonesia remains challenging. Since 2014, the Indonesian government under President Joko (“Jokowi”) Widodo, now in his second and final five-year term, has prioritized boosting infrastructure investment and human capital development to support Indonesia’s economic growth goals. The COVID-19 pandemic has accelerated the Indonesian government’s efforts to pursue major economic reforms through the issuance of the 2020 Omnibus Law on Job Creation (Omnibus Law). The law and its implementing regulations aim to improve Indonesia’s economic competitiveness and accelerate economic recovery by lowering corporate taxes, reforming rigid labor laws, simplifying business licenses, and reducing bureaucratic and regulatory barriers to investment. The regulations also provide a basis to liberalize hundreds of sectors, including healthcare services, insurance, power generation, and oil and gas. Sectoral or technical regulations may still present obstacles. Regardless of the outcome of these positive reforms and their implementation, factors such as a decentralized decision-making process, legal and regulatory uncertainty, economic nationalism, trade protectionism, and powerful domestic vested interests in both the private and public sectors can contribute to a complex investment climate. Other factors relevant to investors include: government requirements, both formal and informal, to partner with Indonesian companies, and to manufacture or purchase goods and services locally; restrictions on some imports and exports; and pressure to make substantial, long-term investment commitments. Despite recent limits placed on its authority, the Indonesian Corruption Eradication Commission (KPK) continues to investigate and prosecute corruption cases. However, investors still cite corruption as an obstacle to pursuing opportunities in Indonesia.
Other barriers to foreign investment that have been reported include difficulties in government coordination, the slow rate of land acquisition for infrastructure projects, weak enforcement of contracts, bureaucratic inefficiency, and delays in receiving refunds for advance corporate tax overpayments from tax authorities. Businesses also face difficulty from changes to rules at government discretion with little or no notice and opportunity for comment, and lack of stakeholder consultation in the development of laws and regulations at various levels. Investors have noted that many new regulations are difficult to understand and often not properly communicated, including internally. The Indonesian government is seeking to streamline the business license and import permit process, which has been plagued by complex inter-ministerial coordination in the past, through the establishment of a “one stop shop” for risk-based licenses and permits via an online single submission (OSS) system at the Indonesia Investment Coordinating Board (BKPM).
In February 2021, Indonesia introduced a priority list consisting of sectors that are open for foreign investment and eligible for investment incentives to replace the 2016 Negative Investment List. All sectors are at least partially open to foreign investment, with the exception of seven closed sectors and sectors that are reserved for the central government. Companies have reported that energy and mining still face significant foreign investment barriers.
Indonesia established the Indonesian Investment Authority (INA), also known as the sovereign wealth fund, upon the enactment of the Omnibus Law, aiming to attract foreign equity and long-term investment to finance infrastructure projects in sectors such as transportation, oil and gas, health, tourism, and digital technologies.
Indonesia began to abrogate its more than 60 existing Bilateral Investment Treaties (BITs) in 2014, allowing some of the agreements to expire in order to be renegotiated, including through ongoing negotiations of bilateral trade agreements. In March 2021, Indonesia and Singapore ratified a new BIT, the first since 2014. The United States does not have a BIT with Indonesia.
Despite the challenges that industry has reported, Indonesia continues to attract significant foreign investment. Singapore, the Netherlands, the United States, Japan, and Malaysia were among the top sources of foreign investment in the country in 2019 (latest available full-year data). Private consumption is the backbone of Indonesia’s economy, the largest in ASEAN, making it a promising destination for a wide range of companies, ranging from consumer products and financial services, to digital start-ups and franchisors. Indonesia has ambitious plans to continue to improve its infrastructure with a focus on expanding access to energy, strengthening its maritime transport corridors, which includes building roads, ports, railways and airports, as well as improving agricultural production, telecommunications, and broadband networks throughout the country. Indonesia continues to attract U.S. franchises and consumer product manufacturers. UN agencies and the World Bank have recommended that Indonesia do more to grow financial and investor support for women-owned businesses, noting obstacles that women-owned business sometimes face in early-stage financing.
Japan is the world’s third largest economy, the United States’ fourth largest trading partner, and, as of 2019, the top provider of foreign direct investment (FDI) in the United States. The Japanese government actively welcomes and solicits inward foreign investment and has set ambitious goals for increasing inbound FDI. Despite Japan’s wealth, high level of development, and general acceptance of foreign investment, however, inbound FDI stocks, as a share of GDP, are the lowest in the OECD.
Japan’s legal and regulatory climate is highly supportive of investors in many respects. Courts are independent, but attorney-client privilege does not exist in civil, criminal or administrative matters, with the exception of limited application in cartel anti-trust investigations. There is no right to have counsel present during criminal or administrative interviews. The country’s regulatory system is improving transparency and developing new regulations in line with international norms. Capital markets are deep and broadly available to foreign investors. Japan maintains strong protections for intellectual property rights with generally robust enforcement. The country remains a large, wealthy, and sophisticated market with world-class corporations, research facilities, and technologies. Nearly all foreign exchange transactions, including transfers of profits, dividends, royalties, repatriation of capital, and repayment of principal, are freely permitted. The sectors that have historically attracted the largest foreign direct investment in Japan are electrical machinery, finance, and insurance.
On the other hand, foreign investors in the Japanese market continue to face numerous challenges. A traditional aversion towards mergers and acquisitions within corporate Japan has inhibited foreign investment, and weak corporate governance, among other factors, has led to low returns on equity and cash hoarding among Japanese firms, although business practices are improving in both areas. Investors and business owners must also grapple with inflexible labor laws and a highly regimented labor recruitment system that can significantly increase the cost and difficulty of managing human resources. The Japanese government has recognized many of these challenges and is pursuing initiatives to improve investment conditions.
Levels of corruption in Japan are low, but deep relationships between firms and suppliers may limit competition in certain sectors and inhibit the entry of foreign firms into local markets.
Future improvement in Japan’s investment climate is largely contingent on the success of structural reforms to raise economic growth, and, in the near term, the implementation of COVID-19 recovery measures.
Laos, officially the Lao People’s Democratic Republic (Lao PDR), is a rapidly growing developing economy at the heart of Southeast Asia, bordered by Burma, Cambodia, China, Thailand, and Vietnam. Laos’ economic growth over the last decade averaged just below eight percent, placing Laos amongst the fastest growing economies in the world. Over the last 30 years, Laos has made slow but steady progress in implementing reforms and building the institutions necessary for a market economy, culminating in accession to the World Trade Organization (WTO) in February 2013. The Lao government’s commitment to WTO accession and the creation of the ASEAN Economic Community (AEC) in 2015 led to major reforms of economic policies and regulations aimed at improving the business and investment environment. Nonetheless, within ASEAN Laos ranks only ahead of Burma in the World Bank’s “Ease of Doing Business’ rankings. The Lao government is increasingly tying its economic fortunes to the economic integration of ASEAN and export-led development and is seeking to move toward green growth and sustainable development.
According to the World Bank, Lao PDR’s economic growth rate dramatically declined from 4.7 percent in 2019 to –0.6 percent in 2020 due to the COVID-19 pandemic coupled with a global economic slowdown. Limited fiscal and foreign currency buffers pose challenges to
the abilities of the government to mitigate the pandemic’s impacts. This results in an intensification of the country’s macroeconomic vulnerabilities. When compared to other countries in the region, foreign direct investment (FDI) inflows to Laos have been stable and driven by construction of infrastructure and power projects. In 2021, if the pandemic is brought under control with the effective implementation of fiscal support measures, the GDP growth is projected to rise to 4.9 percent.
The exploitation of natural resources and development of hydropower has driven the rapid economic growth over the last decade, with both sectors largely led by foreign investors. However, the Lao government recognizes that growth opportunities in these industries are finite and employ few people, and has therefore recently began prioritizing and expanding the development of high-value agriculture, light manufacturing, and tourism, while continuing to develop energy resources and related electrical transmission capacity for export to neighboring countries.
The Lao government hopes to leverage its lengthy land borders with Burma, China, Thailand, and Vietnam to transform Laos from “land-locked” to “land-linked,” thereby further integrating the Lao economy with the larger economies of the countries along its borders. The government hopes to increase exports of agriculture, manufactured goods, and electricity to its more industrialized neighbors, and sees significant growth opportunities resulting from the China-Laos Railway, which will connect Kunming in Yunnan Province with Vientiane, Laos. The railway is expected to be completed and operational by late 2021. Some businesses and international investors are beginning to use Laos as a low-cost export base to sell goods within the region and to the United States and Europe. The emergence of light manufacturing has begun to help Laos integrate into regional supply chains, and improving infrastructure should facilitate this process, making Laos a legitimate locale for regional manufacturers seeking to diversify from existing production bases in Thailand, Vietnam, and China. New Special Economic Zones (SEZs) in Vientiane and Savannakhet have attracted major manufacturers from Europe, North America, and Japan. Chinese and Thai interests have plans for significant new SEZ projects.
Economic progress and trade expansion in Laos remain hampered by a shortage of workers with technical skills, weak education and health care systems, and poor—although improving—transportation infrastructure. Institutions, especially in the justice sector, remain highly underdeveloped and regulatory capacity is low. Despite recent efforts and some improvements, corruption is rampant and is a major obstacle for foreign investors.
Corruption, policy and regulatory ambiguity, and the uneven application of laws remain disincentives to further foreign investment in the country. The Lao government, under the administration of Prime Minister Thongloun Sisoulith has made efforts to improve the business environment. Its 8th five-year National Socio-Economic Development Plan (NSEDP) (2016 – 2020) directs the government to formulate “policies that would attract investments” and to “begin to implement public investment and investment promotion laws.” The Prime Minister’s publicly-stated goal is to see Laos improve its World Bank Ease of Doing Business ranking (Laos is currently ranked #154), and in February 2018 and January 2020, he issued a Prime Minister Order laying out specific steps ministries were to take in order to improve the business environment. These efforts are having some impact – for example, it now takes to less than 17 days to obtain a business license, whereas just a few years ago it took 174 days, as other nonessential steps were eliminated. The current administration remains active in firing or disciplining corrupt officials, with the government and National Assembly in 2019 disciplining hundreds of officials for corruption-related offenses. Despite these efforts, the Laos’ Ease of Doing Business ranking fell from 139 in 2016 to 154 in 2020. Furthermore, the multiple ministries, laws, and regulations affecting foreign investment into Laos create confusion, and thus, require many potential investors to engage either local partners or law firms to navigate the confusing bureaucracy, or turn their efforts entirely toward other countries in the region.
In 2021, Laos’ national administration will change due to government restructuring. The new development plan, the 9th NSEDP (2021-2025), will be published later this year with a focus on utilization of the country’s potential aiming to strive for LDC graduation in 2026 and become an upper-middle income country. One of the government’s priorities is to diversify the economy and improve the investment climate encouraging both domestic and foreign investment to accelerate socio-economic growth. Therefore, investment-related policies and other regulations can be expected from the new government.
Macau became a Special Administrative Region (SAR) of the People’s Republic of China (PRC) on December 20, 1999. Macau’s status since reverting to Chinese sovereignty is defined in the Sino-Portuguese Joint Declaration (1987) and the Basic Law. Under the concept of “one country, two systems” articulated in these documents, Macau enjoys a high degree of autonomy in economic matters, and its economic system is to remain unchanged for 50 years following the 1999 reversion to Chinese sovereignty. Macau, a separate customs territory, describes itself as a liberal economy and a free port. Tourism is the basis of the Macau economy.
The Government of Macau (GOM) maintains a transparent, non-discriminatory, and free-market economy. The GOM is committed to maintaining an investor-friendly environment.
In 2002, the GOM ended a long-standing gaming monopoly, awarding two gaming concessions and one sub-concession to consortia with U.S. interests. This opening encouraged substantial U.S. investment in casinos and hotels and has spurred rapid economic growth in the tourism, gaming, and entertainment sector, in which the gaming industry constitutes the most important pillar of Macau economy. In 2019, gaming taxes accounted for 86 percent of all tax revenue collected.
Macau is today the biggest gaming center in the world, having far surpassed Las Vegas in gambling revenue. However, Macau has been hit worse by the pandemic than Las Vegas as inbound travel restrictions mandated by the Macau government in January 2020 drastically reduced the number of travelers from mainland China, who account for the vast majority of Macau’s tourists entering Macau. Macau recorded the lowest monthly gaming revenue on record in June 2020, earning USD 89.7 million. U.S. investment over the past decade is estimated to exceed USD 23.8 billion. In addition to gaming, Macau aspires to position itself as a regional center for incentive travel, conventions, and tourism, though to date it has experienced limited success in diversifying its economy. In 2007, business leaders founded the American Chamber of Commerce of Macau.
Macau also seeks to become a “commercial and trade cooperation service platform” between mainland China and Portuguese-speaking countries. The GOM has various policies to promote these efforts and to create business opportunities for domestic and foreign investors. Many infrastructure projects are currently underway, such as new casinos, hotels, subways, airport extension, and the Macau-Taipa 4th vehicular harbor crossing that started construction in August 2020.
Malaysia continues to focus on economic recovery following its deepest recession in 20 years, brought on by the COVID-19 pandemic and restrictions on domestic travel and business operations intended to curb the spread of the virus. Under Prime Minister Muhyiddin Yassin, the government has spent an estimated USD 82 billion in stimulus measures since the start of the pandemic. Despite these setbacks, Malaysia’s economy is expected to rebound in 2021, buoyed by manufacturing export sector growth and public initiatives to increase digital investments and construction activity. Malaysia’s finance ministry and central bank have noted the pace of the recovery will also be impacted by the government’s vaccine rollout, which has experienced delays.
On April 21, the government announced the National Investment Aspirations, a framework intended to reform Malaysia’s investment policies. Among the goals of the new investment framework are to expand and integrate Malaysia’s linkages with regional and global supply chains and further develop economic clusters tied to key sectors, including advanced manufacturing and technology (broadly referred to in Malaysia as the electrical and electronics, or E&E, sector). On February 19, the government announced the MyDigital initiative, intended to add 500,000 jobs and grow Malaysia’s digital economy to nearly one-quarter of GDP by 2030.
On January 12, Prime Minister Muhyiddin announced a six-month state of emergency intended to strengthen the government’s ability to respond to the pandemic. However, the resulting suspension of parliament has also contributed to political uncertainty in Malaysia since a change in government in March 2020, the second in a two-year period.
The Malaysian government has traditionally encouraged foreign direct investment (FDI), and the Prime Minister and other cabinet ministers have signaled their openness to foreign investment since taking office. In its 2021 budget, the government proposed tax incentives which include extensions of existing relocation incentives for the manufacturing sector (including a zero-percent tax rate for new companies or a 100-percent investment tax allowance for five years) and extensions of existing tax incentives for certain industrial sectors.
The business climate in Malaysia is generally conducive to U.S. investment. Increased transparency and structural reforms that will prevent future corrupt practices could make Malaysia a more attractive destination for FDI in the long run. The largest U.S. investments are in the oil and gas sector, manufacturing, technology, and financial services. Firms with significant investment in Malaysia’s oil and gas and petrochemical sectors include ExxonMobil, Caltex, ConocoPhillips, Hess Oil, Halliburton, Dow Chemical, and Eastman Chemicals. Major semiconductor manufacturers, including ON Semiconductor, Texas Instruments, Intel, and others have substantial operations in Malaysia, as do electronics manufacturers Western Digital, Honeywell, and Motorola.
With a total population of approximately 55,000 people (11,465 in the labor force) spread out over 1,200 small islands and islets across 750,000 square miles of ocean but just 70 square miles of total land mass, the Republic of the Marshall Islands (RMI) has a tiny economy with an annual GDP of around USD 221 million, per capita GDP of USD 3,983 and a 3.6 percent real growth rate. The remoteness of the RMI from major markets (2,300 miles from Honolulu, 1,900 miles from Guam, and 2,800 miles from Tokyo) severely impacts the economy. The Marshallese economy combines a small subsistence sector in the outer islands with a modest urban sector in Majuro and Kwajalein. The RMI government is the country’s largest employer, employing approximately 46 percent of the salaried work force. The U.S. Army Garrison – Kwajalein Atoll (USAG-KA) is the second largest employer. A semi-modern service-oriented economy is located in Majuro and Ebeye, on Kwajalein Atoll, and is largely sustained by government expenditures and by USAG-KA. Primary commercial industries include wholesale/retail trade, business services, commercial fisheries, construction, and tourism. Fish, coconuts, breadfruit, bananas, taro, and pandanus cultivation constitute the subsistence sector. However, as the land in RMI is not very nutrient rich, the agricultural base is limited. The RMI has a narrow export base and limited production capacity and is therefore vulnerable to external shocks. Primary export products include frozen fish (tuna), tropical aquarium fish, ornamental clams and corals, coconut oil and copra cake, and handicrafts. The RMI continues to rely heavily on imports and continues to run trade deficits (USD 45.8 million in 2018).
The Marshallese economy remains dependent on donor funding. The RMI is part of the former US-administered Trust Territory of the Pacific Islands that gained independence in 1986 and continues to use the U.S. dollar as its currency. Since independence it has operated under a Compact of Free Association with the United States. Since 2004, the U.S. has provided nearly USD one billion in direct assistance, subsidies, and financial support to the Marshall Islands, equivalent to approximately 70 percent of the country’s total GDP during the same period. The Marshall Islands has received additional aid from Australia, Japan, Taiwan, the United Arab Emirates (UAE), Thailand, the European Union, and organizations such as the World Bank, Asian Development Bank, and UN Development Programme.
The U.S., China, South Korea, Japan, Germany, and the Philippines are the Marshall Islands’ major trading partners. Top U.S. exports to RMI include food products, prefabricated buildings, recreational boats, excavation machinery, aircraft parts, tobacco, and wood/paper products.
With the renegotiation of the Compact’s expiring provisions approaching in 2023, the Government of the Marshall Islands is increasing its efforts to attract foreign investment and recognizes its important role in growing private sector development. Most local government officials encourage foreign investment, though attitudes may differ from island to island. The government particularly encourages foreign investment in fisheries, aquaculture, deep-sea mining, manufacturing, tourism, renewable energy, and agriculture and provides certain investment incentives for foreign investors.
Foreign investment in the Marshall Islands is complicated, however, by laws that prevent non-Marshallese from purchasing land. There is no public land in the country and foreign businesses must lease land from private landowners in order to operate in the country. The high cost of doing business due to the country’s remoteness, its dependence on imported materials and services, and its limited infrastructure, especially transportation links, create additional challenges. Finally, due to the RMI’s very low elevation, the potential threats of climate change and sea level rise make attracting FDI to the Marshall Islands even more difficult.
The major foreign direct investments are concentrated in the fisheries sector, including a tuna loining plant and a tuna processing plant along with several fishing purse seiners, the majority of which are owned by investors from China and Taiwan. There has been no significant foreign investment over the past year.
The Federated States of Micronesia (FSM) is a lower middle income island nation of 113,815 (2019) people on 607 islands with a total land area of 271 square miles and an exclusive economic zone (EEZ) of over one million square miles (2.6 million square km) in a remote area of the Western Pacific Ocean. The nation is composed of formerly unrelated cultures and languages organized into four states under a weak national government. The FSM is part of the former U.S.-administered Trust Territory of the Pacific Islands, gaining independence in 1986. Since independence, the United States has provided over USD 100 million annually to the FSM under a Compact of Free Association (Compact) with the United States. FSM uses the funds for development under the administration of the U.S. Department of Interior Office of Insular Affairs (DOI). The World Bank estimates FSM’s 2018 Gross Domestic Income (GDI) at $3,568 per person, a trend reflecting no growth over the previous 10 years. The national currency of exchange is the U.S. dollar.
Commercial fishing remains the key economic sector in the FSM. The country’s primary sources of income are the sale of fishing rights (USD 72.3 million in 2018), corporate income taxes, mainly from offshore corporate registrations for captive insurance (USD 84.5 million in 2018), and grants (USD 26.5 million in 2018). It continues largely as a subsistence economy, except in larger towns where the economy is centered on government employment and a small commercial sector. The cash economy is primarily fueled by government salaries paid by Compact funds (70 percent of employed adults work in the public sector) and, to a much lesser degree, by family remittances and Social Security benefits paid to FSM citizens who previously worked in the United States or who are the surviving spouse of an American citizen. (The World Bank predicts a 3.3 percent drop in overall remittances in 2020 due to COVID-19.)
Compact funding will change in 2023 from direct funding in the form of sector grants, to the use by the FSM of proceeds derived from a trust fund developed from U.S. contributions over 20 years. As of September 2020, the balance of the Compact Fund stood at USD 783.9 million. FSM has also created its own trust fund, contributing USD 17.3 million in FY2020, raising its overall balance to USD 307.3 million.
The FSM GDP for 2018 was USD 402 million, a 19.5 percent increase from 2017 at constant prices. The economy recorded a trade deficit of USD 125 million in goods and services for the same year. FSM government debt at USD 83.2 million was low, giving FSM a low 23.7 debt/GDP ratio, one of the lowest in the Pacific. Major creditors are the Asian Development Bank (52.5 percent of debt) and the U.S. Rural Utility Services (20.7 percent of debt). Despite the low levels of debt in absolute terms, the International Monetary Fund deemed FSM to be at a high level of debt stress due to the uncertainty created by looming Compact Funding reductions in 2023 and the possible need to borrow to maintain operations of state governments.
Foreign direct investment (FDI) is almost nonexistent due to prohibitions on foreign ownership of land and businesses (in specified industries), difficulties in registering companies (the process requires approvals from the state governments as well as the national government), poor private sector contract enforcement, poor protection of minority (foreign) investors’ rights, weak courts, and weak bankruptcy settlement management. In addition, lack of infrastructure, poor health and education systems, the scarcity of commercial flights, and high costs of imported goods and various business services also contribute to the lack of FDI.
Pohnpei State’s Legislature amended its laws September 2018 to reduce requirements on foreign investment. The law specified the business sectors that permit FDI, with the remaining sectors available for Pohnpei citizens only. Domestic capital formation is very low. Commercial banks are classified as foreign entities and their ability to provide commercial loans, especially secured by real estate, is very limited. Banks view all credit to FSM borrowers as essentially unsecured.
Most national political power is delegated to the four states by the FSM constitution, including regulation of foreign investment and restrictions on leases. This means that investors have to navigate between five different sets of regulations and licenses. U.S. citizens are able to live and work in the FSM indefinitely without visas under the Compact but cannot own property on most FSM islands. FSM voters select national legislators (senators). The national senators then caucus to select the president and vice-president from among the four at-large senators. There are no political parties. On May 11, 2019, Senators selected David Panuelo and Yosiwo George as president and vice president, respectively, for a four-year term. The most recent elections for Congress were held March 1, 2021.
Mongolia’s frontier market and vast mineral reserves represent potentially lucrative opportunities for investors but an undercapitalized banking sector and lack of input from stakeholders during rulemaking warrant caution. Mongolia imposes few market-access barriers, and investors face few investment restrictions, enjoying mostly unfettered access to the market. Franchises such as gyms, fast food, and convenience stores have outperformed expectations, suggesting investors can bring successful international business models to Mongolia’s services sector. Mongolia’s cashmere-apparel and agricultural sectors also show strong promise. However, investing into politically sensitive sectors of the Mongolian economy – such as mining – carries higher risk.
Economists’ average 2021 GDP growth forecast is 6.1 percent, but this figure understates the impact COVID-19 has had on the economy in 2021. Despite experiencing declines, mining and agriculture have been relatively resilient in the face of the pandemic, meaning Mongolia’s broader economy may emerge less damaged than some of its peers. Balance-of-payments concerns in 2020 have substantially abated in 2021, with central bank foreign-exchange reserves buoyed by increased minerals exports and higher commodity prices. Continued economic growth will also in part depend on the resolution of a dispute over the Oyu Tolgoi mine without disruption to its underground operations. If global interest rates rise, Mongolia could face the foreign-exchange pressures characteristic of comparable emerging markets.
Mongolia has committed to implementing the U.S.-Mongolia Agreement on Transparency in Matters Related to International Trade and Investment (known as the Transparency Agreement), which requires a public-comment period before new regulations become final. It also requires ministries to respond to public comments or factor them into final rules. Mongolia is four years behind implementing its Transparency Agreement public-notice and comment commitments but has formally reiterated its intention to make progress.
The government has taken steps to address growing concerns in recent years about threats to judicial independence, including by adopting constitutional amendments in 2019 and judicial reforms in 2020 and 2021 that improve transparency and reduce political influence in the appointment and removal of jurists. Investors, however, continue to cite long delays in reaching court judgments in business disputes, followed by similarly long delays in enforcing these decisions, as well as reports that administrative inspection bodies, such as the tax authority, will fail to act on politically sensitive decisions. Businesses note a substantial regulatory burden at the regional level as well, although the government’s “One-Stop-Shop for Investors” has helped investors navigate this process.
The New Zealand economy has weathered the pandemic better than most countries, entering the pandemic with an enviable debt to GDP rate of 19.5 percent, which only increased to 27 percent by the end of the third quarter 2020, well below expectations. A swift border closure and the imposition of a seven-week nationwide lockdown helped stamp out community transmission cases and significantly reduced potential pandemic related health expenses. New Zealand maintained strong border restrictions through 2020, but economic border exemptions (requiring a 14-day quarantine) were granted for large-scale projects which helped boost investment and employment. The tourism sector suffered due to the border closure, but other aspects of the economic were strong including primary exports. Workers also benefited from of a sustained wage stimulus package and unemployment was 4.9 percent for the December 2020 quarter. The real estate sector also remained strong, fueled by low interest rates and a lack of supply, as prices nationally rose 19.8 percent from 2019 to 2020.
New Zealand has an international reputation for an open and transparent economy where businesses and investors can make commercial transactions with ease. Major political parties are committed to an open trading regime and sound rule of law practices. This is regularly reflected in high global rankings in the World Bank’s Ease of Doing Business report and Transparency International’s Perceptions of Corruption index.
Successive governments accept that foreign investment is an important source of financing for New Zealand and a means to gain access to foreign technology, expertise, and global markets. Some restrictions do apply in a few areas of critical interest including certain types of land, significant business assets, and fishing quotas. These restrictions are facilitated by a screening process conducted by the Overseas Investment Office (OIO).
The current Labour led government welcomes productive, sustainable, and inclusive foreign investment, but since being elected in October 2017 and reelected in October 2020, there has been a modest shift in economic priorities to social initiatives while continuing to acknowledge New Zealand’s dependence on trade and foreign investment. Current focus is on securing foreign capital for investment in forestry and infrastructure, as well as securing multilateral agreements and rules for e-commerce in the evolving digital economy.
The Government aims to align its Overseas Investment regime with international best practice by introducing a National Interest and Public Order test to certain assets of strategic and critical importance to New Zealand. The Government was quick to recognize the risks posed by a COVID-19 recession and fast-tracked implementation of Overseas Investment Act (OIA) Phase 2 reforms, which went into effect on June 16. These reforms grant the government increased oversight and approval authority for foreign investments, which may have fallen in value during the pandemic, to protect critical infrastructure such as telecoms, ports, airports, and dual use/military related sensitive technology, as well as media.
The implementation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and imminent ratification of an upgrade to the New Zealand-China FTA has given those countries an advantage over those with which New Zealand does not have an agreement. The ten CPTPP countries, and in the future China, will not need to seek OIO approval for investments less than NZD 200 million (USD 130 million). However, these investments are still subject to a National Interest and Public Order test. For other countries, the default threshold is NZD 100 million (USD 65 million). CPTPP has triggered most-favored nation obligations New Zealand has under some agreements in addition to China, including bilateral FTAs with Australia and Singapore whose citizens are not subject to screening of residential property purchase or investment.
The Government has introduced a new infrastructure agency to administer a significant number of large projects following the announcement funding equal to 5 percent of New Zealand’s GDP. While it has an established history of non-discriminatory practice in awarding contracts for procurement, it has embarked on a reform of its public-private partnership (PPP) scheme.
The Government has sought to level the playing field for New Zealand business by requiring online businesses selling to New Zealanders to charge and submit the New Zealand 15 percent Goods and Services Tax (GST). In a similar populist move, the Government continues to hint at the introduction of a digital services tax (DST) on the revenues earned by large multinational companies although still participating in the OECD’s DST process.
The OIO approved many overseas applications, due in part to incentivized investment in the forestry sector and the requirement for foreign buyers of residential property. In 2019 New Zealand successfully made their first conviction of an offence under the Overseas Investment Act in the 14 years the law has been in effect.
COVID-19 has and will continue to have a major impact on the Government’s approach and it has moved quickly to enhance businesses’ access to credit, to accelerate some legislation including overseas investment and privacy law, and to suspend provisions in other law such as business insolvency. New Zealand also closed its borders in March due to COVID-19 and as of early April 2021 was looking to reopen travel in a Trans Tasman bubble with Australia and son after direct flights to the Cook Islands. Such travel will be restricted again in the event of sustained community transmission cases. Non-citizens/residents must apply for a waiver to enter and the “significant economic value” waivers are being issued, but are limited, and most businesses requiring travel to New Zealand must anticipate reduced access. Anyone entering New Zealand at this current time is subject to a mandatory 14-day self-quarantine at the expense of the New Zealand government.
The 2021 Investment Climate Statement for New Zealand uses the exchange rate of NZD 1 = USD 0.65
Papua New Guinea (PNG) is the largest economy among the Pacific Islands and offers enormous trade and investment potential. Key investment prospects are in infrastructure development, a growing urban-based middle-class market, abundant natural resources in mining, oil and gas, forestry, and fisheries.
Under the banner of “Take-Back PNG,” Prime Minister James Marape’s government endorsed a fair, open, and collective approach in its decision-making processes, especially decisions concerning the proper management of the country’s resources and investment returns.
Under Marape, Papua New Guinea (PNG) reaffirmed its openness to trade and investment, is stepping up reforms to recover from high debt levels and seeks to attract more foreign direct investment (FDI) to stimulate its economy. However, the Marape Administration’s inability to reach agreement with multinational companies on key energy and mining projects created a shadow over this strategy.
Since taking office, the Marape Administration– although comprised of many of the same officials as the prior O’Neill Administration – blamed the O’Neill Government for the country’s poor fiscal regime, lack of infrastructure development, the high cost of logistical services, the breakdown of law and order, a cumbersome public sector, and poorly performing state-owned enterprises. To address these problems, the government regularly reaffirmed its need for foreign investment to stimulate its economy, particularly as the COVID-19 pandemic affects the PNG economy.
The PNG Electrification Project (PEP), signed during the PNG-hosted Asia Pacific Economic Cooperation (APEC) conference in 2018, is an ambitious five-nation program to bring electricity to 70 percent of PNG. In 2020, the country faces a severe economic downturn, related to both a massive government budget shortfall and the COVID-19 pandemic. Foreign direct investment will play a significant role in PNG’s recovery and economic future, but at present has many barriers to overcome.
Despite challenges posed by the COVID-19 pandemic, the Philippines is committed to improving its overall investment climate. Sovereign credit ratings remain at investment grade based on the country’s sound macroeconomic fundamentals. Foreign direct investment (FDI), however, still remains relatively low when compared to the Association of Southeast Asian Nations (ASEAN) figures; the Philippines ranks sixth out of ten ASEAN countries for total FDI in 2020. FDI declined by almost 25 percent in 2020 to USD 6.5 billion from USD 8.7 billion in 2019, according to the Bangko Sentral ng Pilipinas (the Philippine’s Central Bank), mainly due to the disruptive impact of the pandemic on global supply chains and weak business outlook that affected investors’ decisions. The majority of FDI investments included manufacturing, real estate, and financial/insurance activities. (https://www.bsp.gov.ph/SitePages/MediaAndResearch/MediaDisp.aspx?ItemId=5704)
Foreign ownership limitations in many sectors of the economy constrain investments. Poor infrastructure, high power costs, slow broadband connections, regulatory inconsistencies, and corruption are major disincentives to investment. The Philippines’ complex, slow, and sometimes corrupt judicial system inhibits the timely and fair resolution of commercial disputes. Traffic in major cities and congestion in the ports remain a regular cost of business. Recently passed tax reform legislation (Corporate Recovery and Tax Incentives for Enterprises — CREATE) will reduce the corporate income tax from ASEAN’s highest rate of 30 percent to 25 percent in 2020 and eventually to 20 percent by 2025. CREATE could be positive for business investment, although some foreign investors have concerns about the performance-based and time-bound nature of the incentives scheme adopted in the measure.
The Philippines continues to address investment constraints. In late 2018, President Rodrigo Duterte updated the Foreign Investment Negative List (FINL), which enumerates investment areas where foreign ownership or investment is banned or limited. The latest FINL allows 40 percent foreign participation in construction and repair of locally funded public works, up from 25 percent. The FINL, however, is limited in scope since it cannot change prior laws relating to foreign investments, such as Constitutional provisions which bar investment in mass media, utilities, and natural resource extraction.
There are currently several pending pieces of legislation, such as amendments to the Public Service Act, the Retail Trade Liberalization Act, and the Foreign Investment Act, all of which would have a large impact on investment within the country. The Public Service Act would provide a clearer definition of “public utility” companies, in which foreign investment is limited to 40 percent according to the 1987 Constitution. This amendment would lift foreign ownership restrictions in key areas such as telecommunications and energy, leaving restrictions only on distribution and transmission of electricity, and maintenance of waterworks and sewerage systems. The Retail Trade Liberalization Act aims to boost foreign direct investment in the retail sector by changing capital thresholds to reduce the minimum investment per store requirement for foreign-owned retail trade businesses from USD 830,000 to USD 200,000. It also would reduce the quantity of locally manufactured products foreign-owned stores are required to carry. The Foreign Investment Act would ease restrictions on foreigners practicing their professions in the Philippines and give them better access to investment areas that are currently reserved primarily for Philippine nationals, particularly in sectors within education, technology, and retail.
While the Philippine bureaucracy can be slow and opaque in its processes, the business environment is notably better within the special economic zones, particularly those available for export businesses operated by the Philippine Economic Zone Authority (PEZA), known for its regulatory transparency, no red-tape policy, and one-stop shop services for investors. Finally, the Philippines plans to spend more than USD 82.6 billion through 2022 to upgrade its infrastructure with the Administration’s aggressive Build, Build, Build program; many projects are already underway.
The Independent State of Samoa is a peaceful parliamentary democracy within the Commonwealth of Nations. It has a population of approximately 215,000 and a nominal GDP of USD 824 million. Samoa became the 155th member of the WTO in May 2012 and graduated from least developed country (LDC) status in January 2014.
Samoa is one of the most politically and economically stable democratic island countries in the Pacific, featuring a history of strong sociocultural structures and values. The country has been governed by the Human Rights Protectorate Party (HRPP) since 1982, and Prime Minister Tuilaepa Sailele Malielegaoi has been in power since 1998.
Samoa is located south of the equator, about halfway between Hawaii and New Zealand in the Polynesian region of the Pacific Ocean. The total land area is 1,097 square miles, consisting of the two main islands of Upolu and Savai’i, which account for 99 percent of the total land area, and eight small islets. About 80 percent of land is customary land, owned by villages, with the remainder either freehold or government-owned. Customary land can be leased, but not sold.
In the past decade, Samoa has taken steps to more closely align its systems with nations in the Southern Hemisphere and Asia. Until 2009, Samoa drove on the right side of the road (U.S.), but now drives on the left side (Australia, New Zealand, and Japan). Until 2011, Samoa was located east of the international dateline in the same time zone as Hawaii, but is now one of the first countries in the world to start each day.
The small island country has experienced catastrophic natural disasters, including a 2009 earthquake and tsunami that killed hundreds, and severe cyclones in 2012 and 2018. These calamities have inflicted damage equivalent to a quarter of Samoa’s GDP, representing significant setbacks to the economy.
In February 2021, the Central Bank of Samoa stated that the country’s economy was now in full recession as the impact of COVID-19 global pandemic affected all sectors. The latest national accounts figures from the Samoa Bureau of Statistics indicated that the real gross domestic product (RGDP) in the last quarter of 2020 dropped by 2.3 percent when compared to the previous quarter and was 16.3 per cent lower than that of the same quarter in 2019. The drop over the previous quarter was accounted for by reductions in business services, transport, and the communications sector.
The service sector accounts for nearly three-quarters of GDP and employs approximately 65 percent of the formally employed labor force (roughly 30 percent of the population). Tourism is the largest single activity, with visitor numbers and revenue more than doubling over the last decade.
Singapore maintains an open, heavily trade-dependent economy. The economy is supported through unprecedented government spending and strong supply chains in key sectors, despite the COVID-19 pandemic. The government’s predominantly open investment policies support a free market economy while actively managing and sustaining Singapore’s economic development. U.S. companies regularly cite transparency, business-friendly laws, tax structure, customs facilitation, intellectual property protection, and well-developed infrastructure as attractive investment climate features. The World Bank’s Doing Business 2020 report ranked Singapore second overall in “ease of doing business,” while the World Economic Forum ranked Singapore as the most competitive economy globally. Singapore actively enforces its robust anti-corruption laws and typically ranks as the least corrupt country in Asia. In addition, Transparency International’s 2020 Corruption Perception Index placed Singapore as the third-least corrupt nation globally. The U.S.-Singapore Free Trade Agreement (USSFTA), which came into force in 2004, expanded U.S. market access in goods, services, investment, and government procurement, enhanced intellectual property protection, and provided for cooperation in promoting labor rights and environmental protections.
Singapore has a diversified economy that attracts substantial foreign investment in manufacturing (petrochemical, electronics, pharmaceuticals, machinery, and equipment) and services (financial, trade, and business). The government actively promotes the country as a research and development (R&D) and innovation center for businesses by offering tax incentives, research grants, and partnership opportunities with domestic research agencies. U.S. direct investment in Singapore in 2019 totaled USD 288 billion, primarily in non-bank holding companies, manufacturing, finance, and insurance. Singapore received more than double the U.S. FDI invested in any other Asian nation. The investment outlook was positive due to Singapore’s proximity to Southeast Asia’s developing economies. Singapore remains a regional hub for thousands of multinational companies and continues to maintain its reputation as a world leader in dispute resolution, financing, and project facilitation for regional infrastructure development. In 2020, U.S. companies pledged USD 6.9 billion in future investments (over half of all-investment commitments) in the country’s manufacturing and services sectors.
Singapore is poised to attract future foreign investments in digital innovation, pharmaceutical manufacturing, sustainable development, and cybersecurity. The Government of Singapore (hereafter, “the government”) is investing heavily in automation, artificial intelligence, and integrated systems under its Smart Nation banner and seeks to establish itself as a regional hub for these technologies. Singapore is also a well-established hub for medical research and device manufacturing.
Singapore relies heavily on foreign workers who make up more than 20 percent of the workforce. The COVID-19 pandemic was initially concentrated in dormitories for low-wage foreign workers in the construction and marine industries, which resulted in strict quarantine measures that brought the construction sector to a near standstill. The government tightened foreign labor policies in 2020 to encourage firms to improve productivity and employ more Singaporean workers, and lowered most companies’ quotas for mid- and low-skilled foreign workers. Cuts, which primarily target the service sector and foreign workers’ dependents, were taken despite industry concerns about skills gaps. During the COVID-19 pandemic, the government has introduced more programs to partially subsidize wages and the cost to firms of recruiting, hiring, and training local workers
The Republic of Korea (ROK) offers foreign investors political stability, public safety, world-class infrastructure, a highly skilled workforce, and a dynamic private sector. Following market liberalization measures in the 1990s, foreign portfolio investment has grown steadily, exceeding 36 percent of the Korea Composite Stock Price Index (KOSPI) total market capitalization as of February 2021.
Studies by the Korea International Trade Association, however, have shown that the ROK underperforms in attracting FDI relative to the size and sophistication of its economy due to a complicated, opaque, and country-specific regulatory framework, even as low-cost producers, most notably China, have eroded the ROK’s competitiveness in the manufacturing sector. A more benign regulatory environment will be crucial to foster innovations such as fifth generation (5G) mobile communications that enable smart manufacturing, autonomous vehicles, cloud computing, and the Internet of Things – technologies that could fail to mature under restrictive regulations that do not align with global standards. The ROK government has taken steps to address regulatory issues over the last decade, notably with the establishment of a Foreign Investment Ombudsman to address the concerns of foreign investors. In 2019, the ROK government created a “regulatory sandbox” program to spur creation of new products in the financial services, energy, and tech sectors. Industry observers recommend additional procedural steps to improve the investment climate, including Regulatory Impact Analyses (RIAs) and wide solicitation of substantive feedback from foreign investors and other stakeholders.
The revised U.S.-Korea Free Trade Agreement (KORUS) entered into force January 1, 2019, and helps secure U.S. investors broad access to the ROK market. Types of investment assets protected under KORUS include equity, debt, concessions, and intellectual property rights. With a few exceptions, U.S. investors are treated the same as ROK investors in the establishment, acquisition, and operation of investments in the ROK. Investors may elect to bring claims against the government for alleged breaches of trade rules under a transparent international arbitration mechanism.
The ROK’s COVID-19 response has been exemplary, serving as a global role model. It has been science-driven, with the Korea Disease Control and Prevention Agency leading from day one; transparent, with public health experts briefing the public almost every day; and trusted, with public compliance on social distancing guidelines, including universal mask-wearing. Largely due to successful handling of COVID-19, including through sound fiscal and monetary responses, the ROK was able to manage the pandemic without shutting down the economy, and GDP dropped a mere one percent in 2020. The ROK government was also aggressive in pursuing economic stimulus, devoting more than USD 220 billion to stimulus in 2020. As a result, the Korean domestic economy fared better than nearly all its OECD peers. The risk of a COVID resurgence still looms, and Korea’s export-oriented economy remains vulnerable to external shocks, including supply chain disruptions, going forward. The attention of the public, the government, and the health establishment has now turned to the task and logistics of mass vaccination. In late February, the Moon administration launched the vaccination program nationwide, with the goal of achieving herd immunity by November. President Moon has promised to inoculate all residents for free in 2021, beginning with front-line healthcare workers.
Taiwan is an important market in regional and global trade and investment. It is one of the world’s top 25 economies in terms of gross domestic product (GDP) and was the United States’ 9th largest trading partner in 2020. An export-dependent economy of 23 million people with a highly skilled workforce, Taiwan is also a critical link in global supply chains, a central hub for shipments and transshipments in East Asia, and a major center for advanced research and development (R&D).
Taiwan welcomes and actively courts foreign direct investment (FDI) and partnerships with U.S. and other foreign firms. The administration of President Tsai Ing-wen aims to promote economic growth in part by increasing domestic investment and FDI. Taiwan authorities offer investment incentives and seek to leverage Taiwan’s strengths in advanced technology, manufacturing, and R&D. Expanded investment by the central authorities in physical and digital infrastructure across Taiwan complements this investment promotion strategy. The authorities convene a monthly interagency meeting to address common investment issues, such as land scarcity. Some Taiwan and foreign investors regard Taiwan as a strategic relocation alternative to insulate themselves against potential supply chain disruptions resulting from regional trade frictions. In January 2019, the Taiwan authorities launched a reshoring initiative to lure Taiwanese companies to shift production back to Taiwan from the People’s Republic of China (PRC) in response to rising tariffs on Taiwan’s critical electronics manufacturing industry and to diversify risks.
Taiwan’s finance, wholesale and retail, and electronics sectors remain top targets of inward FDI. Taiwan attracts a wide range of U.S. investors, including in advanced technology, digital, traditional manufacturing, and services sectors. The United States is Taiwan’s second-largest single source of FDI after the Netherlands, through which some U.S. firms choose to invest. In 2019, according to U.S. Department of Commerce data, the total stock of U.S. FDI in Taiwan reached USD 17.3 billion. U.S. services exports to Taiwan totaled USD 8.9 billion in 2020. Leading services exports from the United States to Taiwan were intellectual property, transport, and financial services.
Structural impediments in Taiwan’s investment environment include: excessive or inconsistent regulation; market influence exerted by domestic and state-owned enterprises (SOEs) in the utilities, energy, postal, transportation, financial, and real estate sectors; foreign ownership limits in sectors deemed sensitive; and regulatory scrutiny over the possible participation of PRC-sourced capital. Taiwan has among the lowest levels of private equity investment in Asia, although private equity firms are increasingly pursuing opportunities in the market. Foreign private equity firms have expressed concern about a lack of transparency and predictability in the investment approvals and exit processes, and regulators’ reliance on administrative discretion in rejecting some transactions. These challenges are especially apparent in sectors deemed sensitive for national security reasons, but that allow foreign ownership. Businesses have questioned the feasibility of Taiwan’s long-term energy policy in light of plans to phase out nuclear power by 2025 and increase the use of Liquified Natural Gas (LNG) and renewables.
Taiwan is at the center of regional high-technology supply chains due to its dominant role in the international technology supply chain with its advanced R&D capability in developing products for emerging technologies such as semiconductor, 5G telecommunication, AI, and the Internet of Things (IoT.) Taiwan authorities have been actively launching initiatives for partnerships with foreign investors in fostering a resilient production network in the region. Taiwan in late 2016 implemented new rules mandating a 60-day public comment period for draft laws and regulations emanating from regulatory agencies, but the new rules have not been consistently applied. Proposed amendments to foreign investment regulations, if passed, would help promote inward investment through streamlined reporting and approval procedures.
Thailand is an upper middle-income country with a half-trillion-dollar economy, pro-investment policies, and well-developed infrastructure. General Prayut Chan-o-cha was elected by Parliament as Prime Minister on June 5, 2019. Thailand celebrated the coronation of King Maha Vajiralongkorn May 4-6, 2019, formally returning a King to the Head of State of Thailand’s constitutional monarchy. Despite some political uncertainty, Thailand continues to encourage foreign direct investment as a means of promoting economic development, employment, and technology transfer. In recent decades, Thailand has been a major destination for foreign direct investment, and hundreds of U.S. companies have invested in Thailand successfully. Thailand continues to encourage investment from all countries and seeks to avoid dependence on any one country as a source of investment.
The Foreign Business Act (FBA) of 1999 governs most investment activity by non-Thai nationals. Many U.S. businesses also enjoy investment benefits through the U.S.-Thai Treaty of Amity and Economic Relations, signed in 1833 and updated in 1966. The Treaty allows U.S. citizens and U.S. majority-owned businesses incorporated in the United States or Thailand to maintain a majority shareholding or to wholly own a company, branch office, or representative office located in Thailand, and engage in business on the same basis as Thai companies (national treatment). The Treaty exempts such U.S.-owned businesses from most FBA restrictions on foreign investment, although the Treaty excludes some types of businesses. Notwithstanding their Treaty rights, many U.S. investors choose to form joint ventures with Thai partners who hold a majority stake in the company, leveraging their partner’s knowledge of the Thai economy and local regulations.
The Thai government maintains a regulatory framework that broadly encourages investment. Some investors have nonetheless expressed views that the framework is overly restrictive, with a lack of consistency and transparency in rulemaking and interpretation of law and regulations.
The Board of Investment (BOI), Thailand’s principal investment promotion authority, acts as a primary conduit for investors. BOI offers businesses assistance in navigating Thai regulations and provides investment incentives to qualified domestic and foreign investors through straightforward application procedures. Investment incentives include both tax and non-tax privileges.
The government passed laws on cybersecurity and personal data protection in 2019; as of April 2021, they are still in the process of drafting implementing regulations. The government unveiled in January 2021 a Made In Thailand initiative that will set aside 60 percent of state projects for locally made products.
Gratuity payments to civil servants responsible for regulatory oversight and enforcement remain a common practice, though some government agencies enforce strict “gift” bans. Firms that refuse to make such payments can be placed at a competitive disadvantage to other firms that do engage in such practices. The government launched its Eastern Economic Corridor (EEC) development plan in 2017. The EEC is a part of the “Thailand 4.0” economic development strategy introduced in 2016. Many planned infrastructure projects, including a high-speed train linking three airports, U-Tapao Airport commercialization, and Laem Chabang Port expansion, could provide opportunities for investments and sales of U.S. goods and services. In support of its “Thailand 4.0” strategy, the government offers incentives for investments in twelve targeted industries: next-generation automotive vehicles; intelligent electronics; advanced agriculture and biotechnology; food processing; tourism; advanced robotics and automation; digital technology; integrated aviation; medical hub and total healthcare services; biofuels/biochemical; defense manufacturing; and human resource development.
Vietnam continues to welcome foreign direct investment (FDI), and the government has policies in place that are broadly conducive to U.S. investment. Factors that attract foreign investment include recently-signed free trade agreements, political stability, ongoing economic reforms, a young and increasingly urbanized population, and competitive labor costs. Vietnam has received USD 231 billion in FDI from 1988 through 2020, per the Ministry of Public Affairs (MPI), which oversees foreign investments.
Vietnam’s exceptional handling of the COVID-19 pandemic, which has included proactive management of health policy, fiscal stimulus, and monetary policy, combined with supply chain shifts, contributed to Vietnam receiving USD 19.9 billion in FDI in 2020 – almost as much as the USD 20.3 billion received in 2019. Of the 2020 investments, 48 percent went into manufacturing – especially in the electronics, textiles, footwear, and automobile parts industries; 18 percent in utilities and energy; 15 percent in real estate; and smaller percentages in assorted industries. The government approved the following significant FDI projects in 2020: Delta Offshore’s USD 4 billion investment in the Bac Lieu liquified natural gas (LNG) power plant; Siam Cement Group’s (SCG) USD 1.8 billion investment in the Long Son Integrated Petrochemicals Complex; a Daewoo-led, South Korean consortium’s USD 774 million investment in the West Lake Capital Township real estate development in Hanoi; and Taiwan-based Pegatron’s USD 481 million investment in electronics production.
Vietnam recently moved forward on free trade agreements that will likely make it easier to attract future FDI by providing better market access for Vietnamese exports and encouraging investor-friendly reforms. The EU-Vietnam Free Trade Agreement (EVFTA) came into force August 1, 2020. Vietnam signed the UK-Vietnam Free Trade Agreement on December 31, 2020, which will come into effect May 1, 2021. On November 15, 2020, Vietnam signed the Regional Comprehensive Economic Partnership (RCEP). While these agreements lower certain trade and investment barriers for companies from participating countries, U.S. companies may find it more difficult to compete without similar advantages.
In February 2021, the 13th Party Congress of the Communist Party approved a ten-year economic strategy that calls for shifting foreign investments to high-tech industries and ensuring those investments include provisions relating to environmental protection. On January 1, 2021, Vietnam’s Securities Law and new Labor Code Law, which the National Assembly originally approved in 2019, came into force. The Securities Law formally states the government’s intention to remove foreign ownership limits for investments in most industries, and the new Labor Code provides more contract flexibility – including provisions that make it easier for an employer to dismiss an employee and allow workers to join independent trade unions – although no such independent trade unions yet exist in Vietnam. On June 17, 2020, Vietnam passed a revised Investment Law and a new Public Private Partnership Law, both designed to encourage foreign investment into large infrastructure projects, reduce the burden on the government to finance such projects, and increase linkages between foreign investors and the Vietnamese private sector.
Despite a comparatively high level of FDI inflow as a percentage of GDP – 7.3 percent in 2020 – significant challenges remain in Vietnam’s investment climate. These include corruption, weak legal infrastructure, poor enforcement of intellectual property rights (IPR), a shortage of skilled labor, restrictive labor practices, and the government’s slow decision-making process.