AT A GLANCE Health Systems The Cambodian government launched a new ...
AT A GLANCE
The Cambodian government launched a new civil service pay scheme on 12 July. Development organisations are now re-
quired to obtain permission to supplement the salaries of public sector workers, including frontline health workers who
are typically paid US$40 a month. Uncertainty over the scheme has affected health programmes like the Methodone
WHO project for heroin users. On the plus side, the new scheme could even out salary supplements across the health
Health ministers from ASEAN, China, Japan and the Republic of Korea met in Singapore from 22-23 July to discuss
critical issues including pandemic alerts, infectious disease management and health reform models. Rising dengue
rates prompted them to declare the first ASEAN dengue day on June 15, 2011 to raise awareness of the disease.
Other proposals included an ASEAN+3 fellowships where health policymakers are attached to other health minstries
to share knowledge onhealthreforms.
Indonesian experts have warned that the future of the country will be determined by how well parents feed their
children. Indonesia is experiencing the double burden of malnutrition and obesity of children, which implies fewer
Diabetes levels are soaring in Southeast Asia due to western dietary habits and availability of fast food, according to
Vietnamese and Australian researchers. The study in Ho Chi Minh City found that 11% of men and 12% of women had
developed Type 2 diabetes, but were unaware so the disease went untreated, echoing results of a similar study in
Thailand. Under-diagnosis is a serious problem in health systems, which lack the diagnostic tools to identify diabetes
patients. Researchers proposed a low-tech but accurate diagnostic tool that require a patient’s’ blood pressure to be
Thai doctors are protesting against the medical malpractice bill which will make it easier for patients to bring lawsuits
against doctors. The bill is scheduled for consideration by parliament next month. Under the law, hospitals and clinics
will be obligedtomakefinancial contributionstoafundforpatientswhoare victimsof medicalmalpractice.
The Indonesian government approved a decree enabling electric utility company PLN to raise electricity rates by anav-
erage of 10%, effective 1 July. Sharp criticism from businesses who claimed rate hikes in excess of 70% prompted the
governmenttoissue arate hike capof 19%on19 July.
The World Bank approved more than US$450 million of interest-free credits to support anti-poverty programmes in Vi-
etnam. Of the total, US$26.5 millionwill be used to help in the financing of the System Efficiency Improvement, Equitisa-
The Ninth Malaysia Plan had targeted the installation of 350-MW of renewable power, but as of December 2009
only 54.5-MW had beenachieved.
The First Asia Solar Energy Forum, organised by ADB, IEA, and UNIDO, was held in Manila. The forum sought to
bring together policymakers and professionalsfrom the solar energy industry.
Vietnam hosted the 28th ASEAN Energy Ministers’ Meeting with the theme of “Energy and Climate Change.”
In early July, ground was broken for the construction of Vietnam’s 600-MW Nghi Son 1 coal-powered plant. The
plantisexpectedtobe operational by2014.
A report published by EarthRights alleged that the Myanmar government is funneling oil and gas revenues to
fund a nuclear weapons programme.
PetroVietnam Exploration Production Corporation entered an official agreement with the Venezuela Petroleum
Corporation. The joint-venture will be based in the Junin 2 bloc of the Orinoco oil belt.
The Philippines’ Energy Regulatory Commission (ERC) issued rules governing the forthcoming feed-in tariff (FIT) sys-
tem and opted to extend FIT allowances to 20 years. The July 23rd resolution states that “all eligible renewable en-
ergy plants shall enjoy priority connection to the transmission or distribution system.” Tariffs will differ by energy
source, with solar anticipated to attract the highest, though final values will not be released until later this year after
ERC and National RenewableEnergyBoardreview.
Trade & InvestmentFacilitation
The Vietnamese government has agreed to build a business centre in the heart of Phnom Penh to further encourage
trade and investment with Cambodia. Trade facilitation and business cooperation will form the focus of the capital’s
The New Zealand–Malaysia Free Trade Agreement came into effect on 1 August, 2010. It eliminates tariffs on 99.5% of
New Zealand's current exports to Malaysia within seven years — five years earlier than provided for under the existing
ASEAN FTA. The FTA also provides new and enhanced market access for New Zealand's service exporters to Malaysia, in-
A Rp900 billion (US$100 million) loan agreement has been signed between Export-Import Financing Agency and Tex-
tile and Footwear Association in Jakarta. The Export-Import Bank of China provided these loans for small and medi-
um enterprises on low interest rates and to compensate businesses negatively affected by the China-ASEAN free
The free trade agreement covering services between India and ASEAN is struggling to get a final conclusion after In-
donesiaexpressedworriesoverIndia'sdemandof greaterliberalisationof movementof people asservice providers.
Singapore's Ambassador to the US, Chan Heng Chee, says strong momentum is underway to establish new Trans-Pacific
Partnership Agreement between the United States, Singapore, Peru, Chile, Brunei, New Zealand and Australia. Issues dis-
The World Trade Organisation's Dispute Settlement Body established a panel on 20 July, 2010 to decide whether a
US ban on clove (flavoured) cigarettes violates WTO rules. The ban on flavoured cigarettes is under the Family
Smoking Prevention and Tobacco Control Act of 2009, while menthol cigarettes (manufactured primarily in the
United States) are not restricted. Indonesia is the lead supplier to the US of clove cigarettes and is mounting the
Overview: Small-Scale Hydropower, Foreign Direct Investment and
Medical Tourism:Helping or Hurting the Poor?
If you’ve ever wanted to watch soap operas on a television powered by a micro-hydro system in Laos, invest in textiles in Indo-
nesia,or receive a sex change operation in Thailand,this issueof the Asian Trends MonitoringBulletin is for you.
Our first section explores the rise of medical tourism in Southeast Asia, a US$3 billion business for Thailand, Malaysia and Sin-
gapore alone. Like other markets in South America and Eastern Europe, Southeast Asia is witnessing the creation of medical
centers with niches intended to serve foreign visitors. Thailand specialises in sex changes, Singapore in joint replacements and
liver transplants, Malaysia in cardiac surgery. But when public hospitals offer these services in separate private wings to r ich
foreign clients,resources may be wasted or at leastmisdirected.
Regional economic collaborations such as the
ASEAN Free Trade Area (AFTA) and the Asia-Pacific
Economic Community (APEC) are fast-developing to
increase the region’s competitive advantage as a
production base geared towards the world market.
This means that healthcare will also be a priority
sector for region-wide integration. From a trade
perspective, opening healthcare markets in medical
tourismpromises substantial economic gains.
At the same time however, it may also intensify
existing challenges in promoting equitable access
to healthcare within countries. It may also lead to
undesirable outcomes whereby only the better-off
will receive benefits from the liberalisation of
trade policy in health. With globalisation,
healthcare in Southeast Asia is fast becoming an
industry in the world market. The private sectors
in Singapore, Thailand and Malaysia have capitalised on their comparative advantage to promote medical tourism, combining
health services for wealthy foreigners with travel packages to boost consumption of such health services. Patients from
elsewhere, including the developed countries, are choosing to travel for medical treatment, which is perceived to be of high
quality or value for money.
Due to poor economic conditions on the domestic front, the Philippines export human resources for health to richer countries
throughout the world and increasingly in the region as an income-generating mechanism. While the immediate financial returns
seem promising, equity issues have surfaced concerning the negative effects of international trade in health services and workforce
migration on national health systems, especially in widening disparities in the public-private mix or in rural-urban differentials of
Medical tourism may well drive up the costs of health services for local consumers. Re-distributive financing mechanisms can offset
these increases and safeguard equity for poor patients. Policy options include taxing medical tourist revenues to be re-invested in
the public health system and expanding financing instruments that do not tie access to ability to pay (such as social health insur-
ance) to incentivise private providers to treat the local population. Private providers can be regulated to provide discounted ser-
vices to locals in need of essential services. The importing of medical workers enables richer countries to meet their human re-
source requirements without financial and institutional investments in education, but destination countries should also protect
immigrantlabourfromunethical and exploitativemalpractices.
Itisinherently unfair for rich countries to capture educational subsidies frompoorer countries,and therefore thereare proposals fordue
compensation to be paid by importingcountries. Alternatively, richer countries can launch a re-investment fund to build urgently human
resources and infrastructure in poorer countries. Destination countries can promote official exchanges for health professionals with
source countries rather than leave this to poaching practices in an unbridled free market. This form of regulated migration is mutually
beneficial as sourcecountries benefit from returnee remittances and savings, and their national health system benefits from returnees’
improved skills and experiences. Better governance and more integrated policies on the regional and global levels are desired in the
overlappingareasof tradein healthservices and migration of thehealth workforce.
We follow up by looking at a special type of energy supply, small-scale hydropower. With 30,000 megawatts of hydroelectric
capacity installed globally in 2009, more countries are embracing dams of all shapes and sizes as a way to meet energy demand .
This section discusses some of the smallest hydroelectric facilities in Asia known as “pico-hydro” systems. Rather than serve na-
tional grids, these “family hydro” units deliver electricity at the scale of households and small communities, and can become an
essential tool for expandingenergy access for the 800 million peoplein Asia without electricity.
We specifically investigate the performance of
pico-hydro systems in Laos, where such tech-
nologies meet the needs of about 90,000
households and could serve 200,000 to
250,000 more. But to reach these customers,
challenges related to education, maintenance,
changing river flows, training, and applicability
will haveto be overcome.
Micro-hydropower promises to remain a salient
issue well into the future for two reasons. The
firstis size. Bigscaledams bring bigscaleimpacts.
Total installed capacity and investments in hy-
dropower have dwarfed that of all other major
renewable sources of energy. China roughly
doubled its hydroelectric capacity from 2004 to
2009 and significant expansion is expected in
Brazil, India, Russia, Turkey and Vietnam. Yet
every year about four million people are displaced by activities relating to hydroelectricity construction or operation, and 80 million
have been displaced in the past 50 years from the construction of 300 large dams. Smaller, more efficient, environmentally friendly
hydropower systems bring many of the benefits of hydroelectricity — reliability,simplicity,less maintenance, low operating expenses
— withouttheir immensecosts.
The second is energy poverty. As of 2010, today, three billion people still rely on traditional biomass fuels for cooking and heat-
ing, 1.5 billion have no access to electricity, and one additional billion have access to only unreliable electricity networks. In 2030,
according to projections from the nonpartisan International Energy Agency, one-third of world population will still be reliant on
traditional biomass for cooking, 1.3 billion people will lack high quality electricity access, and more than two-thirds of them will
be in sub-Saharan Africa and Asia. Supplying these communities and homes with electricity promises to be one of the most sig-
nificant engineering and development exercises ever taken. Small-scale hydropower systems, which displace the need to build
intensive electricity grids, and are much less susceptible to cost overruns, can literally change the game in how electricity is pro-
vided in some of the world’s poorest areas.
We conclude this issue with an examination of Foreign Direct Investment (FDI) and investment facilitation in the Philippines and
Indonesia. Impeded by a lack of infrastructure and electricity, popular tales of corruption, and infamous bureaucracy, global in-
vestors have historically shunned some Southeast Asian markets. That, however, is beginning to change, especially given the rise
of Investment Promotion Agencies (IPAs). Our third section investigates who these IPAs truly try to help: people or profiteer ing
Looking in-depth at Indonesia and the Philippines, we detail how IPAs can facilitate investment through site visits, marketing and
seminars, and identification of local partners as well as tax holidays and preferential service agreements. But to ensure these
activities do not harm the poor and raise the price of local goods and services, care is needed to determine their economic im-
pact, develop shared performance incentives,and ensure improved coordination.
Investment and trade facilitation through the use of investment promotion agencies and the development of export processing
zones (EPZs) have been the cornerstone of Asia’s success at bolstering foreign investment and expanding rapid exports as a tool for
economic growth and development. This trend has become near ubiquitous among the economies of Asia. The short and interme-
diate term impact of such initiatives have clearly been beneficial. Longer term, however, the ability of such policy tools to deepen
trade and investment or realise the type of economic gains thus far enjoyed, appear problematic. A number of factors are converg-
First, Indonesia, Thailand, the Philippines and, increas-
ingly, Vietnam, occupy similar developmental niches in
terms of low-value added manufacturing, particularly in
the electronic component sector, but also in the areas of
bio-fuels (palm oil in Malaysia and Indonesia; automo-
bile parts manufacture and assembly in Thailand and
Malaysia; and textiles and footwear in Indonesia, Vi-
etnam and Thailand). Not only does this create competi-
tive rather than cooperative regional dynamics, it also
tends to bolster fiercely protectionist domestic political
constituencies and competitive bidding wars through
the provision of costly incentive systems for attracting
and maintaining FDI. Competition for extra-regional FDI
in ASEAN, for example, has witnessed what the OECD recently described as a ‘proliferation of incentives’ which national gov-
ernments use as a means of driving their development and offering competitive advantages to encourage investors to locate in
their jurisdictions. Rather than seeing these abate or migrate to regional incentive schemes as one might expect if ASEAN was
maturing toward a regional investment bloc, they appear to be deepening. Indonesia, for example, re-instated its incentive
structures for FDI in the mid 1990s and has continually intensified them, particularly after the Asian financial crisis. So extensive
have these competitive incentive structures become that the OECD now estimates that the cost to ASEAN governments consti-
tutes a significant proportion of their GDP. The estimated cost of Vietnam’s incentives, for example, now runs to 0.7% of GDP or
some 5% of non-oil revenues; for the Philippines some 1% of GDP or US$2.5 billion of forgone taxation revenues year -on-year;
and as much as 1.7% of GDP for Malaysia. Perhaps more obviously, these incentives are likely to persist as the competition not
only exists between ASEAN states but continues to deepen between ASEAN states and China for extra -regional FDI.
Second, the costs associated with deepening incentives to attract investment and facilitate trade growth will expand but
likely produce diminishing returns. Longer term, we can thus expect to see that the return per additional dollar spend on
such policy incentives will produce only marginal trade and investment enhancement, reducing the policy utility of such tools
and forcing governments to explore alternative policy options.
Third,in theshort to medium term policymakers will need to consider alternative tools that focus on diversifying their economies and the
trade and investment niches they have traditionally occupied. Thus far, it is notapparent that governments are actively exploring these
policyoptionsor implementingeffectivestrategiesto avoidintra-regional tradeand investmentcompetition.
As always,wehopeyou enjoy this issueof theAsian TrendsMonitoringBulletin andwelcomeyour comments and concerns.
Benjamin K. Sovacool
Lee Kuan Yew School of Public Policy
National University of Singapore
Phua Kai Hong
Lee Kuan Yew School of Public Policy
National University of Singapore
Darryl S.L. Jarvis
Lee Kuan Yew School of Public Policy
National University of Singapore
Travelling from developed to developing countries for medical intervention is becoming the norm globally.
In Southeast Asia, medical tourism is hot stuff right now. Driven by the private sector but emerging in the public,
Thailand, Malaysia and Singapore are already established medical hubs, earning an estimated US$3 billion in revenue
from foreign patients in 2007 alone. Thailand is forecast to have the highest number of medical tourists in Asia by
2013. Governments and major industry players in the Philippines, Indonesia, and Vietnam have recently announced
theirintentionstowoomedical touristsfromthe USA,UK, Middle Eastand otherASEAN countries.
Regional medical travel within ASEAN is a key feature, rather than global medical travel, with patients travellingfrom
Cambodia to Vietnam, Indonesia to Singapore, for treatment. The new medical tourists are middle class with pur-
chasing power, typically “pulled” by cheaper treatment costs, high quality standards, high patient mobility, and the
possibility of combining medical intervention with vacation packages in the region. They are “pushed” by high
treatment costs at home, lack of or under-insurance, long waiting lists or unavailability of services at home.
Healthcare is becoming a commodity to be purchased, with the market emerging as the organising mechanism to
deliver services, not governments. Increasingly, patients are recast as consumers, shopping for surgery using the in-
ternetto make cost comparisonsandfindreputabledoctorsacrossthe world.
In general, we see that healthcare consumers everywhere are becoming more individually responsible for their own
health behaviours and treatment decisions, aided by new information sources like the internet. For governments
concerned with spiralling healthcare costs, individual responsibility would seem to be the ticket. But, will access to
specialised surgery become accessible only to those who can afford to pay? What about the impact of medical tour-
ism on local, especially poorer, consumers of healthcare? This bulletin seeks to profile this emerging industry andits
implicationsforaccessto servicesbythe poorinSoutheastAsia.
Thailand, Singapore and Malaysia: comparative advantages in the medical tourist market
Southeast Asia is a microcosm of what we see happening globally in the medical tourist market.
Countries are establishing comparative advantages by carving niches for themselves in certain spe-
cialist areas e.g. Thailand is known for sex change and cosmetic surgery, whilst Singapore is popular
for high-endprocedureslike neurosurgery.
Private hospitals and governments are promoting the industry to different market segments of cus-
tomers, most obviously on price (certain surgeries are cheaper in Thailand). Malaysia and India are lower cost desti-
nations, whilst the price difference between Thailand and Singapore is reducing. Singapore markets itself as a high
technology destination, boasting a health system that ranks among the best in the world. As Figure 1 shows, Thai-
land, Malaysia and the Philippines receive more “tourism” motivated visits, being well known holiday destinations.
Industry players and governments are targeting overseas patients in line with cultural and even religious affinities.
Malaysia is seeking to maximise its popularity as a holiday destination with Middle Eastern tourists by marketing it-
self as a health tourism destination at roadshows across the UAE. Whilst Malaysia sees Middle Easterners coming in
droves for vacations (147,646 in 2008), most look to the US for treatment.1
As more private hospitals in Malaysia
seek Joint Commission International accreditation, the quality hallmark of hospitals treating foreign patients, the
health minister has expressed hopes that consumers will acknowledge the high quality standards of the country’s
health services. Industry players in Cebu, Philippines are eyeing the lucrative Canadian medical tourist market due to
the large presence of overseas Filipino workers there. Carving market niches with certain populations or certain sur-
geries is all well and good for income generation, but the private sector’s push for medical tourism generates con-
cernsabout howmedical tourismcanbenefitlowerincome populations.
A greater concern is the public sector push for medical tourism in some countries: in Malaysia and Thailand, some
public hospitals are allowing their surgeons to operate a private wing for fee paying patients, including medical tour-
ists. Given that public health resources are already constrained in most countries, it is questionable whether medical
tourism could further skew incentives to treat foreigners over locals. But, if profits are reinvested back into the pub-
lichealthsystem,thiscouldbalance outthe wideninggapininvestmentbetween the publicandprivate sectors.
Private ownershipand medical tourism: what doesit mean for the poor?
Medical tourism is being driven by the private sector in all countries. Here, profits accrued from the industry are of
benefit to shareholders and investors, not the general population of the destination country, least of all the poor. The
higher profits derived from private foreign and local patients are clear; Parkway Holdings Ltd, an investment holding
company in Singapore that owns and manages hospitals in Singapore, Malaysia, Brunei, China, India and the UAE, re-
ported a net profit rise of 10% to S$25.8 million in the first quarter of 2010 alone.2
Theyprovide services for an average
of 60% Singaporean and 40% foreign patients. Singaporeans can use their medical savings account (Medisave) to partly
pay the cost of services, and are covered by their health insurance scheme, Medishield. Medifund provides additional
funds for the poorest in Singapore, but this is an exception in Southeast Asia. In general, private hospitals prefer pay-
ment mechanisms like out-of-pocket payments that increase their profit margins, depending on market position. For
example, the Bangkok Chain of Hospitals (BCH) owns six general hospitals under the Kasemrad brand, catering to mid-
dle income groups and also servicing patients on the universal coverage scheme, until last month.7
The Universal Cov-
erage (UC) scheme operates a payments system based on capitation (fixed amount paid to hospitals per patient). This
translates to a lower profit margin from treating patients on the UC scheme as opposed to (wealthier) patients paying
in cash. But these hospitals will still service UC patients for cardiac procedures, as the BCH is still a mass market player.
BCH has also announced its intention to diversify its patient base by courting higher end (wealthier) locals and foreign
patients under a new brand. Even as BCH’s departure from the UC scheme may not be profit motivated, if corporate
social responsibility (CSR) doesn’t prevail and unless incentivised to do so, private medical tourist hospitals generally
Specialistsurgery:not veryaccessible to the poor
Medical tourists visit foreign hospitals for specialist surgery, prompting concerns that their consumption of essen-
tial surgery (cardiac, neuro, etc) will “crowd out” local consumption, especially by the poor. In reality, access to
specialist surgery by the poor is already strained here due to prohibitively high costs of treatment (most people
pay out of pocket), even in the public sector. Furthermore, specialists tend to be concentrated in the private sec-
tor; public sector specialists number 25%–30% in Malaysia8
, meaning that access for the poor to essential surgery
is further constrained by a lack of human resources. High quality, specialised care is typically provided in private
hospitalsand can only be affordedby middle to high income patients.
Future forecasts predictthat the Asianmedical tourist industry is set togrow ata Compound Average Growth Rate of 16%
between now and 2012. In reality, many forecasts and estimates (by the Medical Tourism Association and otherindustry
players) appear to be unrealistic and exaggerated. Real medical tourists (see box 1), those that travel specifically for the
purpose for the medical intervention, are in reality a niche market that in Southeast Asia is limited to regional neighbours
(Indonesians travelling to Singapore) and middle eastern consumers (to Singapore and Thailand). Keith Pollard, editor of
the International Medical Travel Journal, attributes the major disparities between the figures(Figure 2), in the case of US
Move towards universal coverage in new health reforms so that consumers can access quality, affordable care
The fact that insurers or employers are still a long way off from formally linking with overseas providers to
reduce costs,as thisis a slowprocess;and
Impact of the recession on consumers, who are delaying or forgoing care seeking (even if it is cheaper over-
seas). Minimal information is available on local, ASEAN consumers of health services in neighbouring coun-
tries, who provide the bulk of medical tourists in Singapore, Malaysia and Vietnam. They travel due to real or
perceivedconcerns aboutqualityof care or accessibilityintheirhome countries.
Private hospitals and governments will likely con-
tinue to aggressively promote medical tourism and
their countries’ respective competitive advantages.
Outlining the potential positive and negative effects
of medical tourism on health systems provides al-
lows us to consider the policy options available that
can mitigate the industry’s negative effects. Widen-
ing the benefits of medical tourism to include lower
Clearly, unless governments intervene in quality
checks / regulation, unchecked medical tourism growth can further exacerbate differences between public and pri-
vate health systems, with private hospitals catering to the rich and the public for the rest (read: poor). This is a real
threat in Southeast Asia where regulation is already weak and the private sector is already entrenched in the health
sector. Private hospitals are catering more to fee paying patients, at the same time as governments are scaling up
financing schemes where access is not tied to payments (in rhetoric and slowly in practice). Integrating the incen-
tives of private hospitals (paid reasonably for treating poorer patients, ramping up CSR otherwise face regulation to
treat poor patients), and governments (ensure that universal coverage and fair access to health services) need more
attention from both policymakers and industry professionals. Country governments that are interested in promoting
medical tourism should undertake a cost benefit analysis of the social, as well as financial, gains and losses. They
ought to remember that the majority of financial gains from medical tourism go straight into surgeon’s pockets and
those of private hospital shareholders, unless governments intervene. Mitigating the negative impact of medical
As for healthcare consumerism and its promotion, if governments really want consumers to take charge of their
own health, providing the information channels on healthy lifestyles and introducing the right legislation e.g.
mandating food manufacturers to display nutritional content, can empower them to do this. Enabling consum-
ers, rich and poor, to have the same choices requires serious policy assessment. Private hospitals too, should
realise some CSR towards achieving this end, which has beenso far lacking from the major players in ASEAN.
Multi-billiondollarhydropowerprojectswhose massive reservoirsinundate entire villages are not the only way to
produce electricity from flowing water.
At the other extreme are small-scale systems appropriate forsingle households and available at minimal cost — apotential
solutionfor developing country contextswhere gridelectricity is unavailable. In between these two lies anentire spectrum
of hydropower options, from 100W to 100MW.In this bulletinwe focuson the range known as pico-hydropower, covering
These turbines are an ideal way to satisfy the energy needs of a household or several neighbouring households. As such,
they are sometimes referred to as “family hydro” since a single family will typically be responsible for the installation, utili-
sation, and maintenance of the system.1
This is more or less the case in Laos, aleading home for pico-hydro in the region,
where it is estimated that the average installed unit benefits 1.5 households. In contrast, researchers from Nottingham
Trent University profiled installations in Kenya with significantly broader benefits: one 1.1kW unit serving 65 households
and a 2.2kWunit serving 110. Similarschemes spanningnumeroushouseholdshave been adoptedinNepal andVietnam to
dramatically reduce annual electricity costsfor all andare especiallyapplicable whenindividual demandislimitedtolighting
The UK’s Department for International Development commissioned a study published in 2004 suggesting a global
market for low head pico-hydro of around four million units based on willingness to pay estimates, proximity to a
watercourse, and electrification status. While this technology has been especially pronounced in countries outside
the region like Nepal, Ecuador, and Kenya, Southeast Asian countries have also found widespread use for it. In the
last two decades2
, several hundred thousand units have been sold throughout the region, especially in Vietnam and
Despite these facts, pico-hydro remains relatively obscure among available renewable energy
technologies, especially in the international aid world. Searches on the websites of major bilateral
agencies like SIDA, UK-DFID, AusAID, result in few hits and even fewer programmes that have em-
ployed it. Likewise, the World Bank’s Energy Sector Management Assistance Programme (ESMAP)
site returns only one technical paper published in 2005 and specific to the Ecuadorean market.
The problem may be partly definitional since some organisations have adopted expansive interpretations of ‘micro
hydro’or ‘mini hydro’whichconventionallyrefertocapacitiesupto100kW and 1,000kW respectively.
While this may inadvertently decrease pico-hydro’s visi-
bility, some claim these organisations deliberately over-
look this "invisible technology" for the sake of more
modern alternatives like solar panels or small wind tur-
bines which donors may be more inclined to fund. Safe-
ty issues are another possible explanation for the lack of
support. Individuals working with shoddy equipment,
fragile power lines, or adopting unsafe practices have
occasionally been electrocuted, but some researchers
claim these concerns are overblown and that the num-
beris actuallyquite low.
Regardless of the reasons, the shortage of organisations
and governments actively promoting or supporting the
technology comes at the loss of the 800 million people
in Asia who lack access to electricity, especially given its
value as a cost-effective solution for remote, rural
communities who lack grid connections or whose grid
access is unreliable. According to a 2007 technical re-
port conducted by ESMAP, both 300W and 1kW pi-
co-hydro systems generate electricity at significantly
lower cost than competing off-grid technologies such as
photovoltaics, wind, and diesel generators. Their fore-
cast suggests that larger-scale pico generation costs could dip below US$0.10/kWh by 2015, making it
cost-competitive against grid-based electricityin several countries in the region.3
Even though costs may continue to
drop in the future, current prices are lowenough that most units are sold on a cash-and-carry basis with no need for
Whereas mega-dams like China’s Three Gorges and Brazil’s proposed Belo Monte have been roundly criticised for
displacing communities and railroading indigenous rights, pico-hydro schemes have been celebrated as pro-poor
solutions with numerous social and environmental benefits. Unlike their larger counterparts, these systems can be
operated on a run-of-river basis without needing reservoir storage. Depending on its design and the site’s character-
istics, a pico-hydro unit can be installed directly in a waterway with minimal civil works requirements, like weir con-
struction. Alternate designs employ a diversion channel to feed water through a penstock that ultimately flows to
the turbine’s runner (propeller). In both forms, the runner is connected by a shaft to the generator whose spinning
Unlike solar powered systems, there is no need to purchase an inverter since the output is AC
Pico-hydro can satisfy a household’s lighting requirements and power appliances used for leisure, like TVs and cell
phone chargers, or small machinery for income generation. While the link between electrification and wealth crea-
tion is tenuous, according to numerous empirical studies, lighting effectively extends the day’s usable hours and
lengthensthe availabletime forstudying,relaxingwithfamily,orworkingindoors.
Electricity from pico-hydro can displace the need for kerosene lamps or candles for lighting, reducing exposure to
poor air quality created by their use in enclosed spaces. These energy sources also represent a sizable share of
household expenses. Shifting away from them therefore marks a savings opportunity as well as insulation against
price fluctuations or fuel shortages. As well, families can now recharge small appliances like cell phones and electric
torcheson theirownwhich mayalsosave several dollarsamonth.
Unlike other renewable energy sources, water bodies flow throughout the day, obviating the need for batteries as
backup charge storage. This reduces the units’ overall costs which are often low enough that subsidies are not re-
quired. In comparison, photovoltaic systems may cost several-fold more than pico-hydro with deployment pro-
Another environmental benefit lies in its potential application in mixed use areas, such as farmlands adjacent
to conservation sites. In Thailand, for example, even when an upstream watershed is located in a protected
area, downstream farmers are still able to utilise the water flow for electricity production.6
There are also
less visible indirect benefits. Electricity can power fans which keep mosquitoes away and reduces disease in-
cidence. As a result, health expenditures are reduced and morbidity/mortality losses avoided.
Substantive research on pico-hydro applications in Southeast Asia as a whole is limited, despite known use in multiple
countries. While Vietnam as of 2004 was believed to have the largest number of pico-hydro units in operation in the
world (120,000), few documents in English profile this. The country’s terrain, especially in the northwest and Central
Highlands, lendsitself to pico-hydro and a feasibility study conducted about a decade ago concluded that it could serve
the energy needs for 200,000-250,000 households.7
Along with China, Vietnam is a main manufacturing center for pi-
co-hydro units with traders plying the Vietnam-Laos border.8
Substantially more information about Laos’ pico-hydro
market and end-users is available through efforts of the Laos Institute for Renewable Energy (LIRE), a Vientiane-based
organisationthathasbeeninvolvedinpico-hydroissuesoverthe lastfew years.
Laos’ favourable geography of hilly terrain and extensive waterways has contributed to a significant uptake of pi-
co-hydro in the country — an estimated 60,000 units serving 90,000 households, all without government support.9
With an overall electrification rate below 50% and about 85% of the population residing in rural areas10
, it is little
surprise that the technology has been successful. This is especially the case in areas without road access. According
to one study, only 11% of households in rural areas without road access have electricity, though no official census
has been undertaken to assess the prevalence of renewable energy in such locations. Particularly in the northern
provinces where rolling hills lend themselves to hydropower potential, traders, end-users, and retailers give greater
supportto pico-hydrothansolarhome systems.
Most of the turbines sold in Laos are unbranded imports from China
and Vietnam with little to no documentation aside from claimed ca-
pacity. The three most available sizes are 300W, 500W, and 1,000W,
but several researchers have indicated that actual output may be sig-
nificantly lower than stated values. Models can be bought in retail
shops in the capital city Vientiane, but are more expensive than units
for sale in the northern provinces where many of the end-users are
based. Branded units are typically of higher quality and therefore last
longer, but may be out of reach for the average villager. For example,
the LIRE reports that a an unbranded 1kW turbine may cost up to
US$100 in Xiengkhouang province, whereas the Canadi-
an-manufactured Powerpal model of equivalent size will cost more
than six times as much, exclusive of delivery charges and import du-
Like in other countries, electricity derived from pico-hydro is used for
both leisure and productive purposes. Televisions with DVD players
capable of playing karaoke VCDs are a common form of entertain-
ment among such households, with battery charging, fans, and cell-phone charging as other uses. Lighting extends
the workday and some Lao householdsspendpart of their eveninghoursweavingand making bamboo mats.
Alongside LIRE’s work in promoting electronic load controllers, they are also working to improve the pico-hydro supply
chain by introducing higher quality products and facilitating connectionsbetween retail shop owners and traders. LIRE is
also testing shared pico-hydropower as a possible solution for sustainable village management. Under such a scheme, a
village operates and maintains the power system which runs on fewer, but larger turbines (e.g., 500W, 1000W). Pro-
grammes like this may actually receive governmental support. The country’s Ministryof Energy and Minesis finalisingits
renewable energy strategy which will include pico as a contributing technology towards achieving a national electrifica-
The importance of a load controller
Since the flow rate of a stream or river used by a pico-hydro unit is variable, the electricity it produces suffers from
significant voltage fluctuations. Without an electronic load controller (ELC) to regulate output voltage, light bulbs
and appliances suffer shortened lifetimes and increased replacement costs. This is similar to the voltage spikes that
occasionally occur through grid-connected electricity. Families whose appliances have been destroyed know all too
well the value of connecting valuable equipment like stereos and televisions to a surge protector to block voltage
spikes. In a pico-hydro scheme, an ELC performs a comparable function by allowing the generator to spin at full
speedyetensuringthatelectricityof constantvoltage isdelivered.
Load controllers assume various forms, but one of the simpler designs sends the “ballast load” to a water heater in
an insulated tank. The hot water can then be used for cooking purposes and depending on the location of use and
the fuels used for cooking, may reduce demand for firewood.13
In their absence, like in Laos where load controllers
are uncommon, households may keep lights and appliances running throughout the day to flatten the load or re-
move the turbine fromthe waterwaywhennotrequired.
Researchers have found this situation to be quite costly for Lao families. Households report monthly or even weekly
replacement of light bulbs due to the voltage fluctuations and largely believe that no alternatives to this situation
exist. As a result, LIRE and ETC Energy, a Dutch consultancy focusing on developing country energy issues, have
partnered to address this issue and others in a bid to improve the safety and reliability of pico-hydro in Laos.14
objective is to increase the availability of ELCs in retail stores and to raise awareness about its role in improving elec-
tricity quality. While an ELC would increase pico’s price, the premium could be quickly recovered through avoided
In spite of small-scale hydropower’s various benefits and its relative success in countries like Laos, Vietnam, and
China, several challenges remain. Some are endemic and have been present since its introduction, while others are
potential issuesthatmaynot arise until several yearsinthe future,suchasanticipatedclimatechange impacts:
Insufficient consumer and retailer education. In the Laos context, LIRE has found that end-users and retailers
remain under-informed about how to assess the quality of system components, a problem exacerbated by
manufacturers providing little documentation in relevant languages. Many customers are deciding among
models with emphasis only on upfront capital costs without awareness of the unit’s long-term maintenance
High maintenance demands. A Laos Ministry of Energy and Mines document published several years back
stated that small-capacity systems are the most likely to break down and indicated that long-term system
costs may be higher than anticipated, as reflected in the earlier bullet point. To reduce the chances of
breakdown, pico-hydro units require regular maintenance, unlike other power sources. Each day, some-
one must inspect the turbine assembly and clear away any branches, fish, or other debris trapped in the
propeller. Electrical cables also are checked to ensure they are intact. Turbine parts must be regularly re-
placed, adding more time and money spent to keep the system operational. All these demands may be
barriers preventingadditional householdsfromharnessingelectricitythroughthis technology.
Possible decreased river flows, especially climate change-induced. In the past few months, several Southeast
Asian countries have experienced prolonged droughts which have affected their large hydropower capacity.
It is likely that if large systems are impacted, small systems will be too, especially in light of possible changes
to precipitation levels caused by climate change. While there is already seasonal variation in flow rates,
these may become more pronouncedbecause of climate change.
Insufficient training in installation. Since few training opportunities exist to learn how to properly install a
system, a ‘trial and error’ approach is commonly used. The householder who wants to install the system may
benefit from the experience of friends and family who have previously installed systems, but the local site
conditions may not allow a standardised installation method. As a result, the turbine may not be properly
situatedandrunsa heightenedriskof beingsweptawayduringhigh-flowperiods.
Pico-hydro is by its nature not universally applicable. An obvious point, but important nonetheless, is to rec-
ognise that households without sufficient river access are not feasible candidates for pico-hydro. It is not a
one-size-fits-all technology and therefore may not be an appropriate option for many rural households that
One of the major challenges for governments and donor agencies in supporting renewable energy technologies like
pico-hydro is to identify where best they can contribute without choking the existing market dynamics. To that end,
a thorough understanding of the needs and positions of relevant stakeholders like manufacturers, retailers, and
end-users is necessary before considering new programmes or policies. Regardless, there are several facilitating
rolesthese organisationscanprovide whichthe marketalone hasbeenunableto.These include:
The creation of a certification programme that would enable customers to differentiate competing prod-
ucts based on quality metrics. Consumers and often retailers have little information about the available
models and are therefore in no position to judge which units are of higher quality. This is an especially
important issue since poorly designed equipment requires more maintenance and suffers from shorter
lifetimes. Certification programmes have been adopted for solar home systems and could provide a tem-
plate from which to draw from, though important distinctions between the two remain. Pico-hydro so far
has received little support from government agencies, which is believed to be necessary for the success of
a certification programme. As well, manufacturers would be incentivised to improve their equipment’s
quality only if customers were willing to purchase more expensive units. For households that are barely
able to afford units,the current focus may be more on price than quality.
Encourage joint venture investments and international tie-ups. Alternatively, another means of improving
equipment quality is to encourage collaboration between foreign and local companies. Foreign companies
may have access to deeper supply chains and are able to negotiate discounts when purchasing components
in bulk. Local companies may lack the financial or technical capacity of larger firms, but have superior infor-
mation about the local market and end-users’ needs. These small firms on their own may lack visibility and
therefore needthe facilitationof agovernmentagencyorNGO to forge suchpartnerships.
Provide appropriate subsidy support to households unable to afford systems on their own. Even with pi-
co-hydro’s modest price tag, poor households may still be priced out. Without subsidy support, these house-
holds will continue using inferior liquid fuels or fuelwood, with their attendant environmental and health im-
plications. Governments may presume these households will eventually gain grid access, but the economics
will typically favour decentralised solutions, especially for communities with low population densities and de-
mand levels. Agencies should adopt the view that for some households, pico-hydro represents a transition
technology until grid connection is made, while it will serve as an endpoint for other households. Households
too poor to afford pico-hydro now will likelynot be candidates for grid connection in the future. Therefore sub-
sidy support can enable them to enjoy the benefits of modern energy services at significantly lower cost than
gridextension. Innovative financing approaches can recover some or all of the loan from the avoided expendi-
ture of displacedfuels.
TheEnergy Securitysection greatly benefited fromtheinsightsof ThongsantiVongsaly andSopha Soulineyadeth,
bothfromtheLaosInstituteof RenewableEnergy in Vientiane.
TRADE AND INVESTMENTFACILITATION
50 years ago, Foreign Direct Investment (FDI) was a mere shadow of its current self.
Mostnations viewed foreign investmentwith suspicion, erecting barriers toentry toward off foreign investment and shel-
ter domesticeconomic activityfromexternal competition. Jump ahead to 2010, and the worldis avery different place.Na-
tionsnowactivelycompete to attractFDI andsee foreigninvestment as anessential ingredient tobolstereconomicgrowth,
generate jobs, transfer technology, and leapfrog development. States that miss out on FDI tend to be the poorest, least
developednation-states.Statesthatare successfulatattractingFDItendtobe therichest,mostsuccessfulstates.
These realities have not been lost on governments. Strategies to attract FDI are now central to the policy planning of de-
veloping and developed economies. Between 1991 and 1998, global governments enacted 848 regulatory changes to en-
hance foreign investment facilitation. Though the role of FDI in supporting an economy’s developmenthas beenstudied in
great depth, only in the past two decades has more attention been paid to the strategies and agenciesinvolved in FDI at-
Epitomising the competitionbetween nations is the burgeoning number of highly active and aggressive investment promo-
tion agencies (IPA). Their marketing and advertising efforts are ubiquitous in airports, magazines, television and event
sponsorships. Established to promote investment, the promotion bodies command high resource costs for developing
countries, both human andfinancial. Moreover, when given the authority to offer tax or financial incentives, such agencies
take on costs in terms of foregone state tax revenue. Given the intensity of competition between developing countries in
Southeast Asia for similar types of multinational (MNC) investment, tax incentives have increased in magnitude, and there
Historical evidence on their utility in attracting FDI, creating jobs and improving the welfare of the
poor is mixed. Studies by Morisset (2003), Harding and Javorcikr (2007) and Wells and Wint (1990)
point to the usefulness of IPAs in attracting FDI, though their success is often conditioned on the
business and regulatory climate of the host country, the characteristics of the promotion agencyitself
and the mainactivitiesit undertakes. Forexample,in cross-national comparisons,itwas revealed that
when an IPA spends more money on policy advocacy (identifying private sector needs and putting
forward policy or legal proposals to government), the more effective it was in attracting FDI. Similarly, studies found that
more autonomous IPAs (less controlled by government) tend to be more effective in attracting FDI. These qualifications are
important because they demonstrate that not all IPAs are createdequal and that more in-depth study on IPAs is needed to
For this bulletin,we have chosentospotlighttrends ininvestment facilitation and IPAsin the Philippines and Indonesiatohelp
assessfuture prospectsforFDIgrowthThreebarrierstomoreforeigninvestmenthave commonlybeenrecognised;poorquality
infrastructure (electricityshortages), redtape (bureaucracy) and corruption.Currently,a sizable portionof foreignanddomestic
investment intoIndonesia goestowards the primary sector (seeFigures 1 and2).
In the Philippines, foreign investment is geared into the manufacturing sector, though we suggest caution with these
figuresbecausetheyrepresentapprovedFDIandnotactual FDIinflows.(SeeFigure 3)
InvestmentPromotionAgencies:costlyor highlybeneficial tothe poor?
IPAs undertake a wide range of activities to entice investors. For example, they can both promote investment through
marketing and seminars, andmore recently,facilitate investment throughsite visitsfor potential investors, matchinvestors
with local partners (eg. suppliers, joint operating partners), service existing investors and help investors obtain the neces-
sary permits andlicensesfor doing business. More controversially, theymay be ina position to negotiate tax holidays, pref-
erential energy access agreements and othersimilar incentives asfoundinexport processing zones. IPAsglobally have pro-
IPAs play an important role in overcoming information asymmetries between foreign investors and host countries by
providing information on local business conditions to provide more predictability for potentially large scale projects. When
potential investors raise concerns over regulatory uncertainty orlabour force skill sets, IPAs take a leadership role in advo-
The latest study to the effectiveness of IPAs specific to ASEAN is by Kindra, Strizzi and Mansor. They undertook a
study of whether investment promotion and marketing was a determinant factor in FDI generation into the ASEAN
region, based on questionnaires and surveys given to businesses. Surprisingly, they found that promotion activities
were quite limitedintheireffectivenessinattractinginvestment.
In the past year,we have witnessed several positive statements comingfrom investment promotion agencies in Indonesia
and the Philippines, with greater policy advocacy efforts undertaken by IPAs to open sectors to foreign investment and to
For example, Indonesia’s Investment Coordinating Board (BKPM) is targeting Rp200 trillion to Rp300 trillion per year
(US$22-33 billion, and a total Rp1500 trillion(US$165 billion) in domestic and foreign direct investments over the next five
years. Similarly,in the Philippines, the government announced the Philippines Investment Promotion Plan (PIPP) this year
which sets an ambitious target of 2.4 trillionPesos(US$51.7 billion) over the nextfive yearswith mining, power generation
and shipbuilding as the top sectorsidentified for FDI. The planwas funded by technical assistance from the Japanese Inter-
national Cooperation Agency and designed to attract continued and sustainable Japanese FDI, especially given that Japan
The BKPMis trying to establish itself as the single destination for
investors for public and private partnerships, whereby BKPMwill
expedite other ministerial approvals under a ‘one-stop-shop’ plat-
form. Under such a potential system, BKPMis given the authority
tograntlicenses and business permitswhichnormallywouldhave
required up to 16 different approvals. Similarly, under the PIPP,
thePhilippines Boardof Investments(BOI) saysitwill workwith 11
Economic Zone Authorities, both central and regional, to meet
investment targets and to streamline location information for po-
tential investors during promotional activities. To tackle existing
investor-government issues such as undue taxes, tedious proce-
dures,visas, redtape andsmuggling, the PhilippinesBOIset upthe StrategicInvestorAftercare Programmein 2008 andisusing
itsintra-government networks to solve issuesandhelpretain existingforeign investors.
Some of these efforts have paid off. In June 2010,we witnessed major changes to the ‘Negative Investment List’inIndone-
sia which relaxed foreign ownership limits and gave preferential treatment to ASEAN-based investors into such sectors as
construction, cargo handling, and hospital services. In the World Bank’s Doing Business 2010 report, many invest-
In spite of these positive statements, there is reason to be sceptical given the historical problems of implementing invest-
ment plans. With respect to the PIPP, Nomura Research, the authors of the plan, and Philippines Board of Investments
head Elmer Hernandez conceded thatinvestment targets could only be reachedwith complementaryimprovementsinthe
investment climate. In the World Bank’s first ever assessment of FDI restrictiveness, titled Investing across Borders 2010,
the study authorsfound that the Philippines and Indonesia still have significant barriers for investing in several sectors and
Given the historical gap between investment promo-
tion targets and actual inflows at the national level, it
is worthwhile to look at export processing zones (EPZ)
as a particular investment promotion vehicle that has
proven successful in attracting investment, providing
employment and reducing poverty. Their genesis
stems from the idea that by fully liberalising a small
area, and making it competitive for foreign investors
to set up business (through guaranteed infrastructure,
tax/duty exemptions on imports/exports, proximity to
transport routes), investors will face fewer barriers
and risks to doing business. Though the number of
EPZs has exploded since the late 1990s (see Figure 5),
not all are successful in attracting investment, and
even those that have succeeded with attracting in-
ward investment, not all have generated linkages with
the rest of the economy, enhanced the skill sets of
labourers and managers, and have had a meaningful
impact on developmentindicators.
In the Philippines, the Philippine Export Zone Authority (PEZA) has proven quite successful in attracting invest-
ment. From 1984-1994, PEZA’s predecessor EPZA attracted P24.5 billion pesos (US$530 million), while PEZA at-
tracted P955.7 billion pesos (US$20.7 billion) from 1995-2005.5
Suggestive of their importance to the economy,
exports from Philippine EPZs contribute 60% to national exports (estimated at US$32 billion) and include both low
end and high end manufactures, such as electronics, semiconductors, electrical machinery, chemical products,
medical precisionand parts, rubber,plastics and garments.
Elsewhere, Ireland, Taiwan and Mauritius (all coincidently island nations) have successfully used EPZs as a tool for
export-led growth, with significant spillovers in boosting domestic entrepreneurship, building key infrastructure
and establishing networks with the global economy. However, we should note that these countries were pioneers
in their development strategies in the 1960s and with a growing number of zones available for multinationals to
locate their production or service centres today, the organisational comparative advantages enjoyed by EPZs are
slowly eroding with tax concessions taking on greater importance. Moreover, as Harding and Javorcikr (2007)
found, such investment incentives tend to divert investment from countries within the same geographic region
(though not from countriesof differentincome levels).
With successful case studies of investment promotion agencies and EPZs achieving their goals of attracting invest-
ment, creating jobs and earning foreignexchange, we expect growing knowledge transfer on best practices between
countries, gained through country study visits and business advisory services. It is unclear whether these attraction
strategies will explicitly include a human development focus but given the smaller scale of EPZs, we suggest theyof-
fer particularly attractive intervention points for NGOs (indeed, the International Labour Organisation has been very
active insecuringlabourrightsforEPZ workers) anddevelopmentagencies.
Develop assessment criteria for IPAs to determine their economic impact (jobs created, contribution to de-
Developprivate sectorperformance incentivesforIPAsthatare sharedevenlybetweenregions
EstablishbettercoordinationbetweenIPA inthe regiontomanage excessivelycostlyincentives
3. National StatisticalCoordinationBoard,Philippines
5. PWCBrief onBatanEPZhttp://www.pwc.com/ph/en/taxwise-or-otherwise/2009/bataan-re-loaded.jhtml