1 / 24

Fostering Intra-Regional Investment in South Asia

Fostering Intra-Regional Investment in South Asia. Nazneen Ahmed Research fellow Bangladesh Institute of Development Studies. Regional economic integration and Intra-regional Investment. Regional economic integration is expected to lead to ----

cleary
Download Presentation

Fostering Intra-Regional Investment in South Asia

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Fostering Intra-Regional Investment in South Asia Nazneen Ahmed Research fellow Bangladesh Institute of Development Studies

  2. Regional economic integration and Intra-regional Investment • Regional economic integration is expected to lead to ---- • liberalization, deregulation and privatization policies across economies, • Liberalization of markets and sectors • ensures implementation of common trade policies, standards of treatment, • Reduce differences in business practices and regulations, administrative procedures and business support measures. • Flow of intra-regional investment is expected to rise as there is decrease in information, adaptation and transaction costs of trade.

  3. Forms of Intra-regional Investment • Intra-regional investments can take place in two forms: • vertical investment • horizontal investment • Vertical investment: • Different stages of production is localized in different economies to take advantage of the differences in factor prices, • Producing for both the domestic market and the source country market. • Horizontal investment: • Different production facilities are placed in different economies to take advantage of the local markets as well as the local production factors, • mostly targeting the domestic market.

  4. Regional Integration and FDI flows - observations of different studies • Source: Aradhna Aggarwal, 2008

  5. Regional Trade Agreements in South Asia (in addition to SAFTA) • Source: Aradhna Aggarwal, 2008

  6. BITs (bilateral investment treaties) and DTTs (double tax avoidance treaties) held by the South Asian countries • Source: Aradhna Aggarwal, 2008

  7. FDI Regime in South Asia & Intra-regional Investment • South Asian countries have liberalised investment regime in varying degrees since the mid-1980s to attract more investment in the private sector. • Major manufacturing and service sectors of South Asia have been liberalized for foreign investors, which large-scale investment, mainly in • i) export-oriented industries, • ii) industries in the Export Processing Zones (EPZs), • iii) High technology products that will be either import substitute or export-oriented. • But within South Asia, intra-regional investment flows have not been significant compared with other regions of Asia. • FDI flows between South-East Asia and South Asia as well as East Asia and South Asia have been less significant by far as those between East Asia and South-East Asia.

  8. FDI in South Asia

  9. Net FDI inflows for South Asian Countries • Source: Asian Development Bank, South Asia Economic Report

  10. Share of Individual Countries in SAARC FDI Inflows

  11. Intra-Regional FDI Inflows (% of country total)

  12. Trends in FDI outflows from South Asia (in Million US$ and %)

  13. Intra-Regional Investment in Bangladesh • Along with economic liberalisation in Bangladesh since late 1980s, inflow of FDI registered an upward trend from a very low base. • Total FDI inflow increased from US$ 92 million in 1995 to US$ 579 million in 2000 and reached to 845 million in 2005. In 2006, however, this amount went down to US$ 793 million and again to US$666 in 2007. • Most of the FDIs in Bangladesh are coming from extra-regional sources. • The share of South Asian FDIs in the total inflow has shown upward trend during the last decade, increasing from 1.55% (US$ 1.4 mln) in 1995 to 1.60% (US$ 9.3 mln) in 2000 and reaching 3.82 (US$ 32.3 mln) per cent in 2005.

  14. FDI inflow in Bangladesh from South Asian Sources • Within the total investment coming from the South Asia region to Bangladesh, Pakistan was the single largest source (79%) in 2005 (US$ 25.5 mln), while Indian investment of US$ 1 mln was the single largest source (47%) in 2006 .

  15. Intra-regional Investment in Bangladesh FDI Inflow in EPZs of Bangladesh: Distribution by Sources (Million US$) Source: Compiled from BEPZA

  16. Policy concerns for Intra-Regional Investment • Investment potential depends on • resource availability, • access to market, • strategic location-specific advantage and • technological advancements. • A common investment framework for all South Asian countries --may lead to utilization of investment potentials in a coordinated manner. • Need to have a competitive business environment • High growth prospects, Industrial dynamism and investment in the service sector

  17. Global ranking on ease of Doing Business • Source: World Bank

  18. Global Competitiveness index: ranking of infrastructure • Out of 131 countries. Source: World Economic Forum, 2007

  19. Policy concerns for Intra-Regional Investment • SAPTA to SAFTA, also new RTAs proposed. • Result: lowering of tariff • But there are problems with regards. To intra-regional FDA • Absence of a harmonized trade regime discourages investment in South Asia. • Different kinds of standardization and certification processes, • Different custom rules and regulations • Different tax laws and regulations and duty structures.

  20. SAFTA as a hub for increasing intra-regional investment • The objective of creation of SAFTA is to “strengthen intra-SAARC economic cooperation to maximize the realization of the people’s potential for trade and the development of their people.” • Regional economic integration in South Asia could work as a catalyst in improving intra-regional investment • Problem in SAARC region seems to be more political than economic

  21. Towards more Intra-Regional FDI • There are possibilities of vertically integrated intra regional FDI • Most services are non tradable and require commercial presence of the service providers. Inclusion of services therefore is expected to promote FDI in services. • Trade facilitation : harmonization of trade documentation and rules; unhindered movement of goods, better connectivity, mutual recognition of standards through accredited testing laboratories. • Prior consultation in the case of imposing countervailing duty and antidumping duty

  22. Towards more Intra-Regional FDI • Joint project for the development of infrastructure and power. • Freer movement of natural persons across borders (simplified visa rules) • Cooperation between business chambers. • Political mistrust needs to be eliminated • Cluster and SEZ approach can play a vital role. • Regional transport network, power grid, existence of and access to all ports by regional investors (The port’s in South Asia are about 15-20 percent more expensive than the Chinese ports)

  23. Geo-political realities of transit / transshipments / corridor • According to India, the issue of transit is innocuous, an economic issue. • For Bangladesh it is ‘sensitive’. Fear of losing sovereignty to 23 times bigger India, which is also surrounding Bangladesh on three sides. • This fear is aggravated by history of India’s overbearing attitude in many unresolved bilateral issues including the water sharing of the Ganges.

  24. Let us trust each other and cooperate to develop together.

More Related