AN unpredictable legal environment in Southeast Asia is the top concern
of investors, according to an Economist Corporate Network survey, highlighting
the challenge the region faces as it seeks to integrate by 2015 in an effort to
boost growth and attract more investments.
Governments change their minds
about important legislation with little warning, according to a report based on
a survey of 147 companies, including Unilever and General Electric Co.,
released on Friday. “Even when laws remain unchanged, court decisions and
interpretations of the laws can be highly arbitrary,” the report said.
While China remains the
manufacturing capital of the world, companies including Nissan Motor Co. and
Google Inc. are expanding in Southeast Asia, lured by the prospect of a
$2.2-trillion market. Nations including the Philippines are stepping up efforts
to regain investor confidence after regulatory reversals and contract disputes
in the past prompted Frankfurt, Germany-based Fraport AG to leave the country.
“The region’s diversity and
uncertain legal environment remain major challenges for many multinationals,”
said Clive Cook, a senior consultant at law firm Baker & McKenzie Llp. that
commissioned the report. Companies are looking for legal advisers with expertise
across different Association of Southeast Asian Nations (Asean) markets, he
added in a statement.
Economic expansions in the
Philippines, Indonesia, Thailand and Malaysia exceeded 6 percent last quarter,
compared with 1.5 percent for South Korea and 3.4 percent for Taiwan. Foreign
direct investments to the 10-member Asean rose to $116.54 billion in 2011,
nearly equal to China’s $123.99 billion, according to the United Nations
Conference on Trade and Development.
“Huge swathes of Asean’s
population stand on the threshold of middle-class status,” the Economist
Corporate Network said in its report, forecasting the number of households with
an annual income of at least $5,000 to more than double to 85 million by 2017
from 40 million in 2010.
Unilever, the world’s
third-largest consumer-goods maker by market value, is extremely bullish in the
region, according to the report.
“The populations are young and
growing,” Peter Ter Kulve, chief executive officer of Unilever in the Asean,
said in the report. “Incomes are rising rapidly. The cities are doing very
well, but the rural story is just as strong. Given increasing demand for food
globally, agricultural wages on the plantations across the region are rising.”
Southeast Asian nations already
enjoy a demographic dividend, with the Philippine labor force expanding by
almost 18 million, or 31 percent, to 75 million by 2020 compared with 2010,
Bank of America Merrill Lynch projected in April. Malaysia will grow by 19
percent, to 22 million. Indonesia will see a gain of more than 18 million, to
180 million.
Still, resistance by domestic
companies to open up markets remains strong with Myanmar and Indonesia
identified as the two most protected markets, according to the survey.
“Another issue that companies
have to contend with is protectionism,” the report said. “Despite ongoing
efforts at integration and opening up of Asean’s internal market, resistance
remains strong from local players in many markets.”
Indonesia will limit restaurant
franchise holders to 250 outlets, with some exceptions, to protect small- and
medium-size businesses, Trade Minister Gita Wirjawan said last week.
The regulation affects companies
such as PT Fastfood Indonesia, which operates more than 400 Yum! Brands Inc.
KFC restaurants. Yum also owns the Pizza Hut dining chain. The rule applies to
all food-mart franchisers and franchisees, including public companies, Wirjawan
said.
Bloomberg News
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