Friday, July 6, 2012

Nepal attracts more foreign investment

Nepal succeeded in attracting foreign direct investment inflow worth $95.49 million in 2011, which is $8.75 million more than the $86.74 million it had been able to attract a year ago, according to a global report.
With more foreign direct investment inflow, the country has also improved its ranking in the UNCTAD’s World Investment Report 2012 — published today — as the report has ranked Nepal at 175th in foreign direct investment (FDI) Attraction index 2011 from a year ago's 178th ranking among the 182 economies.
The inward FDI Attraction Index ranking is based on the average of a country’s percentile rankings in FDI inflows and in FDI inflows as a share of gross domestic product (GDP).
Similarly, the country ranked 150th in FDI Potential Index out of 182 economies. The Inward FDI Potential Index ranking is based on the simple average of a country's percentile rank in each of the economic determinants areas. A country's ranking within each group of determinants is based on the simple average of the country's percentile rank of each variable included in the group.
However, Nepal ranked at the bottom among the South Asian countries.
Nepal had managed to receive decent amount of foreign investment after the initiation of economic reform in 1991-92, but it remained erratic during a decade of armed conflict that ended in 2006.
Since 2006-07, the FDI figures exhibited robust growth barring 2008-09, during which it was affected by global financial crisis.
Foreign direct investment inflows to South Asia rose by 23 per cent to $39 billion in 2011 following declines in 2009 and 2010, the report revealed.
According to the report, subtitled 'Towards a New Generation of Investment Policies', India has witnessed the highest inflow of FDI that stood at $31.6 billion in 2011, whereas it had witnessed FDI inflow of $24.2 billion in 2010. The recovery in South Asia took place mainly as a result of the good performance of India that is the largest FDI recipient in South Asia and accounts for more than four fifths of total FDI inflows to the region.
The FDI outflow from India stood at $14.8 billion in 2011, whereas in a year ago, the outflow stood at $13.2 billion only.
FDI inflows to Pakistan, the second largest FDI recipient country, amounted to $1.3 billion. Bangladesh has also emerged as a major recipient, with FDI inflows increasing to a record high of $1.1 billion.
Similarly, the FDI outflows from South Asia rose by 12 per cent to $15.2 billion, it said, adding that outflows from India, the region’s dominant source of FDI, is the highest.
Countries in the region face different challenges like political risks and obstacles to FDI, which need to be tackled to build an attractive investment climate, the report suggested.
Nevertheless, recent developments have highlighted new opportunities. The improving political relationship between India and Pakistan, the two major economies in the subcontinent has been moving towards greater engagement.
In Afghanistan, significant FDI has been flowing into extractive industries, despite the country’s continuing internal conflict.
In 2011, about 145 cross-border mergers and acquisitions (M&As) and 1,045 greenfield FDI projects — that is, ground-up investments in new ventures — by foreign firms were recorded In South Asia.
Cross-border M&As rose by 131 per cent in value, and the total reached $13 billion in 2011, surpassing the previous record set in 2008. The significant increase was driven mainly by large transactions in extractive industries.
After three years’ decline, outbound FDI from the region recovered as well.
Though cross-border M&As slid across all three sectors – extractive industries, manufacturing and services – the drop was compensated largely by a rise in overseas greenfield projects, particularly in extractive industries, metal and metal products, and business services."The FDI growth seems to be keeping its momentum in 2012," the report projected.
"As economic growth in India has slowed, however, concerns have risen about short-term prospects for FDI inflows to South Asia," the World Investment Report added. "The global economic situation has created further uncertainties."
Whether countries in the region can overcome old challenges and grasp new opportunities will depend to a large extent on governments’ efforts to further open up their economies and deepen regional economic integration, concluded the report that revealed that the global FDI inflows rose by 16 per cent in 2011, surpassing the 2005–2007 pre-crisis level for the first time, despite the continuing effects of the global financial and economic crisis and the current debt crisis in Europe.
UNCTAD projections for the medium term based on macroeconomic fundamentals continue to show FDI flows increasing at a moderate but steady pace, reaching $1.8 trillion in 2013 and $1.9 trillion in 2014, barring any macroeconomic shocks but the growth rate of FDI will slow in 2012, with flows levelling off at around $1.6 trillion from 2011's $1.5 trillion.

FDI potential index ranking (out of 182)
Economy — Nepal
Overall rank — 150
Market attractiveness — 142
Availability of low-cost labour and skills — 65
Enabling infrastructure — 146
Presence of natural resources — 145
(Source: World Investment Report 2012)

South Asian ranking (Out of 182)
Economy – FDI Attraction ranking – FDI Potential ranking
Afghanistan – 168 – 159
Bangladesh – 144 – 89
Bhutan – 174 – 134
India – 59 – 3
Maldives – 68 – 126
Nepal – 175 – 150
Pakistan – 127 – 50
Sri Lanka –159 – 68

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