ASIA’S TIGER ECONOMIES

A white paper released by the International Monetary Fund last month reported that Japan’s government debt will reach 250 percent of its GDP by 2015. Coupled with a slipping stock market, Japan’s financial woes seem to be the only thing stockpiling. This is coming off a decade where Japan’s long-term youth unemployment rate hit a 20-year high, and regulatory barriers for foreign direct investment (FDI) continue to be some of the most restrictive in the world.

While the OECD (Organization for Economic Cooperation and Development) remains cautiously optimistic about a 2010 rebound, Japan must take its future into its own hands to ensure that its economy remains competitive and attractive for foreign investment. Japan needn’t look far to find lessons regarding economic growth; neighbors such as Singapore, Hong Kong, and Malaysia continue to attract FDI due to low business start-up costs, low tax rates, and a generally business-friendly environment. However, the consistency in this FDI influx runs deeper than these surface issues.

For example, the Singapore Economic Development Board (EDB) was established by the Singapore government to encourage and assist foreign investment into Singapore. It is generally regarded as being a highly effective organization and a model that other countries could emulate. The EDB has promoted immigration regulations that facilitate the entry of talented entrepreneurs. In addition, Singapore has sophisticated programs in place that encourage multinational corporations to establish regional headquarters there. As a byproduct, new immigrants account for more of Singapore’s population growth than the birthrate. Contrast this to Japan’s declining population and the flight of many foreign companies to more attractive jurisdictions.

A 2010 report by Doing Business crowned Singapore as the easiest place in the world to do business. Establishing a business is significantly less burdensome than doing so in Japan, which ranked 91st in start-up procedures in the same report, and 123rd most favorable with regard to tax payments for medium-sized companies. Given Malaysia’s top-5 ranking in attaining credit and protection of investors, it becomes apparent Japan cannot afford to fall further behind in the Asia-Pacific region.

“For years, Japan failed to recognize the need to catalyze its economic growth by making the regulatory environment more favorable to foreign companies,” said Chris Alderson, Chief Operations Officer of Accounting Asia. “They took an isolationist approach in technology particularly, and their failure to adjust and adapt to global growth, referred to by some as a ‘Galapagos effect,’ is being reflected in the surge of rival Asian economies at such an exponential rate.”

Japan should take steps to ensure FDI remains a priority by taking steps to rationalize immigration and business registration procedures. There are signs of recovery after Japan’s economic free-fall in early 2009, but with the growth of regional competitors showing no signs of slowing down, more dynamic measures are needed to ensure a prosperous future.

Dean Page is CEO of Accounting Asia. He is qualified as both an attorney and as a CPA and was formerly a partner with Ernst & Young. Dean.Page@Accounting.Asia

Paul Petrequin is an associate at Foreya Partners and is currently completing his legal studies at the University of Miami in Florida. Paul.Petrequin@VentureCapital.Asia