TA-9271 REG: Facilitating Small and Medium-Sized Enterprises Foreign Direct Investment Flows: An ASEAN+6 Case Study

ADB’s regional technical assistance (TA) on Facilitating Small and Medium-Sized Enterprises Foreign Direct Investment Flows: An ASEAN+6 Case Study will (i) assess the likely impact of investment and other FDI-related provisions in the draft RCEP agreement for enhanced FDI flows in ASEAN+6; (ii) identify barriers to enhanced SMEs’ FDI flows between ASEAN+6 countries; and (iii) propose policy reforms, capacity development programs, and private sector transactional support to translate likely RCEP provisions and the potential internationalization of SMEs into enhanced FDI flows in the ASEAN+6 countries, particularly SME-driven FDI for agriculture, manufacturing, and services. The expected key outputs of this TA are: (i) Output 1: RCEP agreement impact analysis (ii) Output 2: SME foreign investor surveys and analysis and facilitation; and (iii) Output 3: sectoral FDI facilitation papers. A. Scope of Consultant’s Work The TA requires the services of a firm for approximately 5 person months to prepare outputs 2 and 3. The firm, whether an academic institution, research center, or consulting company, will make available (a) a team leader to provide overall guidance and coordination; (b) an international expert with experience in designing, conducting, and analyzing results of enterprise surveys; (c) sector specialists or economists with at least 5 years of relevant experience working on RCI projects and FDI particularly of SMEs in agriculture, manufacturing, and services; and (d) a private sector structuring specialist and/or specialist on public-private partnerships. In collaboration with the project team leader and other team members, the firm will undertake a firm level survey in three source countries, prepare a report on the results of the surveys, and provide recommendations to enhance outward FDI from source countries and FDI facilitation program for each of the destination countries. The selection of the source countries, which will be done by ADB, will be based on a number of criteria, including structural and policy changes such as domestic skill shortages, rising domestic wages for low skilled workers, and ageing population. They should also be ADB developing members representing a range of low-income and middle-income countries and should have a readily available list of SME firms within the country. Output 2: The firm will undertake an enterprise level survey in each of the three selected source countries. The main purpose of the survey is to determine the drivers and motives as well as key barriers and challenges specific to SMEs in agriculture, manufacturing, and services that are investing or contemplating to invest specifically in other countries in the RCEP region. The survey results will also be used as a basis for determining possible three destination countries of outward FDI from the selected source countries. The survey will aim to provide responses to the following questions, among others: (i) What are the common characteristics among SMEs able to participate in global and regional value chains and characteristics of SMEs that seek to internationalize on their own? (ii) What are the push/pull factors leading SMEs into outward FDI? (iii) What are the characteristics of SMEs that tend to participate in global value chains and SMEs that tend to internationalize on their own (iv) What are some of the perceived potential sectors / subsectors and destination countries in the RCEP region for these source countries for SME driven FDI? (v) How can e-commerce serve as a key tool for SMEs to act as drivers of outward FDI? What are the potential prospects and constraints of e-commerce/digital trade powered by SME FDI under RCEP? (vi) What are the expected domestic and regional impacts of the firms’ outward FDI? (vii) Given potential outward FDI promoting provisions in RCEP, what are the key issues or barriers to SMEs undertaking outward FDI? (viii) What specific support do SMEs investing or contemplating to invest in the three sectors need from their governments, governments of possible host countries, and other institutions to push them to undertake or increase outward FDI? (ix) What specific transactional support do these SMEs need? The firm is expected to undertake the following tasks: (i) identify existing enterprise-level surveys in the source countries with similar objectives, summarize the findings of these surveys, and identify gaps to enable streamlined questionnaires to be prepared; (ii) design the enterprise-level surveys, including determining the sample and preparing the questionnaires for the selected source countries; (iii) identify local collection firms to subcontract the survey work in each of the selected countries; (iv) prepare field manual and other training materials for enumerators who will collect the data; (v) through the local collection firms, conduct interviews; (vi) transfer the collected data in a digital format, clean the data for any inconsistencies, and provide a final dataset for each country with proper labels and other documentation; and (vii) analyze and summarize the results of the survey in a paper. Output 3: Based on output 1 (being prepared by other consultants) and output 2, the firm will (i) identify three destination countries in consultation with ADB; (ii) provide recommendations for facilitating outward SME FDI from the source countries (support needed by SME investors); and (iii) prepare FDI facilitation papers for each of the three destination countries. All of these recommendations will aim to enhance outward FDI driven by SMEs in agriculture, manufacturing, and services in one or more of the identified source countries and inward FDI to one or more of the identified destination countries in the RCEP region. The recommendations will include: (i) reforms related to liberalization of FDI policies, foreign exchange controls, and other related issues; (ii) investments for trade supporting infrastructure; (iii) capacity development programs; and (iv) private sector transactional support in the form of private sector investment, loans, and/or guarantees. The firm will also prepare a proof of concept for a nonsovereign RCI project involving ASEAN+6 countries (for any of the ADB DMCs) to be considered for possible financing. The three outputs will be used to (i) identify RCEP provisions that need to be amended either at the conceptual level or during implementation, (ii) help effectively translate the broad guidelines, rules, and regulations at the RCEP level into workable, effective domestic level laws, regulations and guidelines within individual member states, and (iii) recommend specific support from government, the private sector, and other institutions needed to help SMEs address barriers to FDI and maximize the effectiveness of investment facilitation strategies in destination countries. These outputs will serve as a basis for recommendations to be made by ADB at national and regional policy dialogues and a guide for prioritizing programs and projects to enhance FDI flows in the ASEAN+6 region.