Foreign Direct Investment among South Asian Countries: Concerns and

Opportunities

By

Ms. Kushum Shakya

Table 1.1: South Asian GDP per Capita Growth Rates 

SAARC Countries

Growth Rate of GDP Per Capita

1960s1 1970s1 1980s1 1990s1 2000-042

Pakistan 4.29 2.11 3.82 1.47 4.1

India 1.52 0.75 3.70 3.71 6.2

Bangladesh 1.40 -0.52 1.98 3.15 5.1

Maldives na na na 4.92 -

Bhutan na na 5.36 3.40 -

Nepal 0.48 -0.32 1.49 2.25 2.6

Sri Lanka 2.15 2.63 2.84 3.98 3.8

Source: 1.World Development Indicators (2002), and 2. World Development Report (2005).

SAARC Countries 

1993 1999 2000 2001 2002 2003 Difference between 1993-2003

FOREIGN DIRECT INVESTMENT (US $ Millions)

Bangladesh 14.10 179.7 280 174 65 102 623.40

Bhutan 0.00 1 0 0 2 -  

India 550.0 2170 2320 3900 2150 4369 694.36

Maldives 7.0 11.5 13 12 12 -  

Nepal 6.0 4.4 4.4 0 10 15 150.00

Pakistan 306.0 472 470 322 485 534 74.51

Sri Lanka 195.0 176.4 172.9 172 235 229 17.44

SAARC Countries 

1993 1999 2000 2001 2002 2003 Difference between 1993-2003

FOREIGN DIRECT INVESTMENT AS % of GDP

Bangladesh 0.04 0.40 0.62 0.38 0.14 0.18 350.00

Bhutan 0.00 0.23 0.00 0.00 0.34 0.00  

India 0.20 0.50 0.50 0.90 0.50 0.63 215.00

Maldives 2.2 2.00 2.10 1.90 0.00 0.00 -100.00

Nepal 0.2 0.10 0.10 0.00 0.20 0.22 10.00

Pakistan 0.6 8.00 8.00 6.00 8.00 0.56 -6.67

Sri Lanka 1.9 1.10 1.10 1.10 1.4 1.14 -40.00

Investors Countries

Bangladesh India Nepal Pakistan Sri Lanka

Top Ten Investor

USA 1 (29.5) 1 (22.1) 7 (4.4) 1 (41.6)  

Japan 3 ( (7.6) 5 (4.4) 6 (6.1) 3 (15.0) 4 (11.6)

Germany 8 (1.9) 6 (3.8)   4 (6.2) 5 (7.0)

UK 2 (13.9) 3 (7.6) 5 (6.2) 2 (22.7) 9 (1.47)

France   9 (2.5)   5 (2.2)  

Korea, Rep 6 (2.8) 4 (4.5)   8 (1.6) 1 (32.7)

Hong Kong 4 (7.5)   10 (2.1)   3 (11.9)

Singapore 5 (5.9)       6 (6.4)

Malaysia - 8 (2.75)      

Investors Countries

Bangladesh India Nepal Pakistan Sri Lanka

Intra-SAARC Investors

Bangladesh na (0.03) na na Na

Bhutan na na (0.1) na Na

India 7 (2.4) na 1(37.2) na 10 (1.22)

Maldives na na na na Na

Nepal na na na na (0.6)

Pakistan (0.7) na (0.3) na Na

Sri Lanka 10 (0.8) (0.01) na na Na

SAARC Share

3.9 0.04 37.6 na 2.1

Source: FDI and Economic Integration in the SAAARC Region, Institute of Policy Studies (2000).

Table 1.5: Number of Industries Approved for FDI by Category up to 2005/06 (First nine months)(Rs. in million)

Category No. of Industries

Total Project

Cost

Total Fixed Cost

Foreign Investment

FDI in Total

Project Cost (%)

Employment

Agriculture 15 440.15 385.20 101.7623.12

1023

Construction 21 1145.56 878.64 653.9257.08

1449

Energy Based 17 19572.30

17917.47 3271.15

16.71

4877

Manufacturing

486 37993.43

27521.72 12424.72

32.70

62979

Mineral 3 1153.14 1068.32 45.983.99

1129

Service 265 16480.62

13869.29 7404.71

44.93

17513

Tourism 260 16045.48

15239.88 4675.60

29.14

15982

Total 1067 92830.67

76880.52 28577.84

30.78

104952

Major Constraints to Investment

• Low Growth Rate• Shallow Credit Market• Shallow Financial Market• Acts and Regulations• Rigid in rules and regulations.• Poor Infrastructure• Electricity Problems• Corruption• Political Instability• High Age Dependency

 

Prioritized Sectors/Prospects/Opportunities

•  Hydropower projects

• Tourism

• Education and Health Sector

• Manufacturing

• Transport and Communication

• Information Technology

Overview of FDI Potential by Terms for Nepal

• I. Short-Term (Less than 3 years)

o Tourism

o Manufacturing for regional and global markets

o Production if herbal products for medicines and cosmetics.

II. Medium Term (3+ years)

o Power generation for the Indian market

o Other agro-based industries

o Basic ICT (Information, Communication and Technology) services

o Privatization related opportunities

III. Long Term (10-20 years)

• Business, professional and financial services for the region

o Light manufacturing for the domestic and linked to exporters

Suggestions/Observations/Requirements

1. Harmonize investment policies, taking a common stand towards FDI and simplifying rules and regulations for FDI in the South Asian countries.

2. Harmonize and coordinate macroeconomic policies.3. Integrate and interconnect the financial institutions

(central banks and other related financial institutions).4. Harmonize exchange rates, tax laws and custom laws. 5. Harmonize national standards and certification

process to ensure quality.

Suggestions/Observations/Requirements…

6. Increase capacity building by providing technical assistance, financial resource mobilization, raw material’s mobilization, provide skill and development training among SAARC.

7. Strengthen the privates sectors like FNCCI.8. Attract on joint venture from other South Asian

countries like India (35% joint ventures from India to Nepal).

9. Update Acts and regulation.10.Improve FDI and technology transfer Act 1992 in

compatible with globalization and liberalization.

Thank You