FOREIGN DIRECT

INVESTMENTFDI IN BRUNEI DARUSSALAM

PRESENTED BY:

SYAFIQAHLINA

HIDAYAH

HNDBM/11/02(G1)

CONTENTS: Introduction to FDI Types & Method of FDI Importance & Barriers to FDI Advantages & Disadvantages FDI How Brunei attract FDI World’s FDI incentives that Brunei can

adopt Latest news of Brunei attracting FDI

It is a direct investment into production/ business by company of country A into country B either by:

Buying a companyExpanding operations in exiting business operations

Simply defines as an investment made by a company in one country, into a company of the another country.Usually involves participation in management, joint-venture, transfer of technology and expertise.

International Business 5e

Growth of World FDI vs. GDP

International Business 5e

Reasons for FDI Growth

Increasingglobalization

International mergersand acquisitions

Entrepreneurshipand small firms

STRATEGIC ASSETS SEEKING

Inward InvestmentInward (inflow) is when the foreign

capital are invested in local resources.

The inflow of foreign capital into Brunei

For example : General Motors decides to open a factory in Brunei. They are going to need some human capital. That human capital is inward FDI for Brunei.

Inward FDI is encouraged by Tax breaks, subsidies, low

interest loans, grants.

Inward FDI is restricted by Ownership restraints or limits,

differential performance requirements

Outward Direction Outward (outflow) is when the local resources are

invested to another country

The outflow of Brunei capital to other country

For example: Brunei invest in Dorchester Hotel

Outward FDI is encouraged by Government-backed insurance to cover risk

Outward FDI is restricted by Tax incentives or disincentives on firms that invest outside of the domestic country.

Greenfield Target

An investment involve the flow of FDI by building up New production capacities Expansion of the existing production

Greenfield Investing is offered as an alternative to another types of investment, for example as mergers and acquisitions, joint ventures, or licensing agreements.

Foreign Horizontal Direct Investme

nt

An investment made by a multinational company in different nations.

It is the investment made for conducting similar business operations.

For example: Apple Inc. factory in Brunei

Horizontal FDI results in expansion of the parent company and brings FDI in the other economy

Vertical Foreign Direct

Investment

Backward Vertical = It is when an industry abroad provides inputs for a firm's domestic production process

For example: Brunei Shell Petroleum with Royal Dutch Shell

Forward Vertical = industry abroad sells the outputs of a firm's domestic production process.

For example: when Volkswagen entered the United States market it acquired a large number of dealers rather than distribute its cars through independent United States dealers

Resource SeekingThis investment

aimed to get production factor supplies at low

cost. The investment is

seeking access to existing resourcesFor e.g. : China low labour cost

The most important among these are:

1. Raw materials, 2. Labour, 3. Public incentives4. The chance to restrain logistic costs

MARKET SEEKING

Its aim is to realize a direct presence in the foreign market to quickly develop sales revenue and control

the marketing mix policy.

It allows firms to pursue strategic goals such as threatening competitors by entering their home

market.

An example is General Motors’ investment in China which is

market seeking because the cars built in China are sold in China.

Strategic asset seeking It is an investment led to increase self-competitiveness through

the acquisition of strategic assets such as technologies not available in the home market, or rather links with global value-chains.

This kind of investment typically regards firms located in emerging or developing countries (particularly China), and are often undertaken for various reasons such as to lower costs of production or the will to expand on overseas markets. Similarly to the efficiency seeking firms, the strategic asset seekers aim to capitalise on the advantages of the common ownership of a network of activities and capabilities in diverse environments.

For example: China low labour cost so the Apple Inc. built its factory there.

METHODS OF FDI

by incorporating a completely owned subsidiary or company anywhere

by acquiring shares in an associated enterprise

through a merger or an acquisition of an unrelated enterprise

participating in an fairness joint venture with another investor or enterprise

IMPORTANCE OF FDI

Resource for economic growth

Money inflow from overseas

Business grows in several countries

FDI & Economic development

Opportunities Competitive requirement Corporative Activities Branch plant or subsidiary

company operations Rise in National Income

BARRIERS TO FDI Formal restrictions on FDI include limits

on foreign ownership Screening and approval procedures Informal barriers may also be important Barriers to investment access,

operations, areas, products, ownership and land use

Barriers on labour, policy, institutional and control variables

Political controversial

ADVANTAGES OF FDI New jobs are created New technology are implemented Availability of scarce of factory of productions,

products and raw materials Improving the balance of payment though import

and export substitution Revenue to the government through taxation Improved political relations To get additional expertise Increase in the number of competition Expand local business Stimulate the local economy and thus increasing in

GDP

DISADVANTAGES OF FDI

Political changes leads to “Expropriation” Cultural and political indifference Investing is more expansive than exporting FDI always at risk Threat to local product Takes away employment opportunities It brings harm to the environment Foreign market recession Inequality of income distribution

HOW CAN BRUNEI ATTRACT FDI?

Improving its domestic infrastructure

Improving logistic and transportation

Stable legal and financial framework

Providing fiscal incentives

Increase awareness

Remove the difficult regulations

Reduce corruption and encourage transparency

Enact policies to provide training and skills upgrading to develop their workforce

Incentives that Brunei can adopt Low corporate tax 

Tax holidays

Preferential tariffs

Special economic zones

EPZ - Export Processing Zones

• Bonded Warehouses

• Loan guarantees

• free land or land subsidies

• job training & employment subsidies

• infrastructure subsidies

• R&D support

• derogation from regulations (usually for very large projects)

Incentives to further attract FDI

Incentives to further attract FDI

Borneo Bulletin – Thursday 22 November 2012

The study has also identified several land zones along the coastal corridor suitable for industrial and commercial

use –

Telisai Energy Park for petrochemicals and heavy industries;

Panaga for general industries, warehouses and assembly;

Anduki for logistics and warehouse uses; Keriam for light manufacturing, processing

and distribution; Brunei Creative & Knowledge Industries Precinct located around the Agrotechnology Park

Universiti Brunei Darussalam (UBD) for knowledge-based industries, research and education, high tech business and creative industries;

Brunei Aerotech Precinct located around the Brunei International Airport, for business, retail, leisure and entertainment services, as well as storage and 'distribution network facilities

Pulau Muara Besar for petrochemicals and logistics.

The key actions are –

To ensure the incentives offered by Brunei are competitive

The process of creating special purpose zones can respond to new investment proposals;

To review the mechanisms for investment attraction and facilitation, and ensure decision-making is expedited within stated timelines;

To adopt the recommended sustainable urban development areas (SUDAs), ie Telisai Energy Park, Brunei Creative & Knowledge Industries Precinct and Brunei Aerotech Precinct, and establish a development authority for each SUDA;

To give statutory effect to the plans recommended in this study;

To ensure the private sector can take a lead role in future urban development including the release of registered title land for purchase, and foreign investors are offered secure long-term leasehold of required land for economic development and to prepare a State Land Management Plan where ministries will be required to prepare a business case to identify future land requirements and the government to prepare a strategic infrastructure development strategy with funding provided to enable a continuous rollout of infrastructure to support the local construction industry.

Borneo Bulletin – Thursday 22 November 2012

THE END