Pakistan among major recipients of foreign direct investment in South Asia

Dawn/Asia News Network

ISLAMABAD — As inflows of foreign direct investment (FDI) to South Asia have turned around with an increase of 23 percent, Pakistan has emerged as the third-largest country in the region with FDI inflows of US$1.3 billion in 2011, according to the World Investment Report 2012. The report published yesterday by the United Nations Conference on Trade and Development (UNCTAD) says that inflows of FDI to South Asia touched the figure of US$39 billion in 2011 after a slide in 2009-2010. The recovery derived mainly from the inflows of US$32 billion to India, the dominant FDI recipient in South Asia. Inflows to Iran, the second largest recipient of FDI, amounted to US$4.2 billion. Bangladesh has also emerged as an important recipient, with inflows increasing to a record high of US$1.1 billion in 2011. The report forecast cautiously optimistic prospects, saying that “whether countries in the South Asia region can overcome old challenges and grasp new opportunities to attract investment will depend to a large extent on governments’ efforts to further open their economies and deepen regional economic integration.” Countries in the region face various challenges, which need to be tackled in order to build an attractive investment climate for enhancing development, suggests the UNCTAD’s flagship publication. In a special feature on “attracting investment for development: old challenges and new opportunities for South Asia,” UNCTAD points out that South Asian countries face different challenges in building a conducive business environment and an attractive investment climate, which are crucial for promoting economic development. The challenges facing the region are stabilization in Afghanistan, security concerns in Iran and Pakistan, and macroeconomic as well as political issues in India. Two issues stand out as major concerns, it points out, by noting that at the country level, high political risks and obstacles have been an important factor deterring FDI inflows. Countries in the region rank high in the country risk guides of political-risk assessment services, and political restrictions on both FDI and business links between countries in the region have long existed. This has deterred FDI inflows and negatively affected the countries’ FDI performance. However, recent developments in the region have highlighted new opportunities in the wake of political relationship between India and Pakistan, the two major economies on the subcontinent, which has now been moving towards greater cooperation, with Pakistan granting India most-favored-nation status in November 2011 and India recently announcing that it will allow FDI from Pakistan. In Afghanistan, some FDI has started to flow into extractive industries. The report regrets that at the regional level, progress in economic integration with the South Asian Association for Regional Cooperation as the key architect has been slow, and the trade barriers between neighboring countries in the region are among the highest in the world.