Foreign direct investment


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Foreign Direct investment,A Comparative Study on South Asian Countries

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Foreign direct investment

  1. 1. Our Presentation About
  2. 2. FDI?Foreign Direct Investment
  3. 3. TYPES OF FDI
  5. 5. Are there have Any Benefit of FDI? FDI is instrumental in bridging resource gaps that exist in host country’s economy: Resource gap Skill and knowledge gap Gap between targeted foreign exchange Create demand in other industries through backward and forward linkages etc
  6. 6. Are there have Any Cost of FDI? MNEs by using their economic clout influence host government policies in such a way that it is inimical to the development of the country Due to their preponderant influence the development that takes place tends to be lopsided as the dualistic economic structure is reinforced Sometimes control of MNEs over local assets is increased to such an extent that they start exerting influence over political decisions Example In Bangladesh: KAFCO
  7. 7. ROLE OF FDI IN ECONOMIC DEVELOPMENT  Provides different support  Filling the saving gap  More employment  Revenue to Government  Encourage entrepreneur  Infrastructural development  Raising productivity and real wage  To brings superior technology  Increase competition  Increase domestic investment  Give opportunity to enter export market  Foreign Currency Earning  Ensure favorable balance of payment and many more………
  8. 8. FDI target and actual inflow (millions$)12001000800600 Target400 Actual200 0 2005 2006 2007 2008 2009
  9. 9. TRENDS OF FOREIGN DIRECT INVESTMENT IN BANGLADESH Foreign Investment project Rej with BOI during July 1991 - July 2007 $3,500 $3,000 $2,500Million $ US $2,000 $1,500 $1,000 $500 $0 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Year
  10. 10. Some notable foreign investment either in implementation or under discussionCompany /GROUP Amount Industry/sector StatusOrascom 300 Telecommunication In implementationSing Tel 185 Telecommunication In implementationDhabi Group 1000 Telecommunication, Already invested 17 Banking million dollar in bank Pharmaceuticals and Alfalah And 10 million tourism in Warid TelicomTATA 2500 Steel, power, and Under discussion FertilizerGlobal Vulcan energy 1600 Energy and power Submitted proposal, under discussion
  11. 11. The incentives Fiscal Non-fiscal1. The tax holiday for 10 years followed by 1. Investment protected under foreignreduced rate of next 5 years private investment act 19802.duty free import of consumer materials 2. 100% foreign ownership is permissiblemachinery/spare parts/Equipments3.Relief from double taxation 3. Enjoy MEN status4. exemption from dividend tax 4. No ceiling on foreign investment5.Gas facility available 5. Full repatriation of capital and dividend6. Duty free import of 3 vehicles 6. Foreign currency loan from abroad under7.Expartiates exempted from income tax for direct automatic route3 years 7. Non resident Foreign currency deposit8. Accelerated depreciation on machinery (NFCD) allowed of ‘A’ type industryor plant allowed 8. Operation of fc account by ‘B’ type9. Remittance of royalty, Technical and industries allowedconsultancy fees allowed 9. Residency /citizenship10. Duty and quota free access to EU, , , ,etc and process
  12. 12. INDIAFDI is not permitted in the following industrial sectors: Arms and ammunition. Atomic Energy. Railway Transport. Coal and lignite. Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc.
  13. 13. Investment in India S. Korea increased its flow of investment in India from a meager U.S.$ 6.3 million in 1996-97 (0.2 per cent of total FDI) to U.S.$ 333.1 million in 1997-98 (10.4 per cent share). There has been a sharp rise in the number of FDIs approved in 2004. During the first seven months of 2004, between January and July, Rs 5,220 crore worth of FDI was approved. Almost a third share of the investment in India is by NRI. According to the latest Reserve Bank of India figures, outflows through various NRI deposits schemes amounted to $903 million since May 2004, as against net inflows of $1.2 billion in the corresponding period last year.
  14. 14. NEPAL Up to 100 per cent equity participation by foreigners is allowed into almost all the sectors except those in cottage industry, arms and ammunition industries, energy, real estate business, security printing, currency and coinage, retail business, travel and trekking agencies, consultative services; Non-discriminatory treatment for foreign investment; Full repatriation of equity, profits or dividends and interest on loans; A guarantee against nationalization; Generous and attractive income tax allowances with minimum five year tax holiday for most of the industries; No tax on dividends, export earnings and interest on foreign loans Corporate tax rate of 33 per cent and income from royalty and technical management services is taxed at a standard rate of 15 per cent; Only 1 percent duty on import of capital goods; Residential and business visa is provided for foreign investors and their dependants; Bonded warehouse and duty-draw back facilities on export
  15. 15. PAKISTAN Relaxation of foreign exchange controls, and a general policy of permitting foreign investors to participate in local projects on a 100 per cent equity basis; Allowing of foreign companies registered in Pakistan to undertake export and import trade; Provision of full safeguards to protect foreign investment; Withdrawal of work permit restrictions on expatriate managers and technical personnel working in an industrial undertaking and easing of remittance restrictions; Abolition of the ceiling on payments of royalties and technical fees; Elimination of the requirement of obtaining a "No Objection Certificate" (NOC) from the appropriate provincial government, except for areas which are classified as negative areas; No requirement of government approval to set up an industry in any field, place and size, except for the following industries: Arms and ammunition; High explosives; Radio-active substances; Security printing, currency and mint. Exemptions or relief from import duties has been allowed on imported plant and machinery Tax relief in shape of first year allowance has been provided for a number of industries.
  16. 16. SRILANKA
  17. 17. MALDIVES Area (‘000 km2): 0.3 Population (millions): 0.3(2000) Capital city: Male Official language: Dhivehi Currency: Maldivian rufiyaa Exchange rate (period average): 1999 Rf11.8=$1 GDP in current prices (millions of dollars): (1999) 348.6 Exports of goods and services (millions of dollars): (1998) 426.7 Imports of goods and services (millions of dollars): (1998) 410.1 Official development assistance (millions of dollars) :( 1999) 25.5 External debt (millions of dollars): (1998 ) 179.9
  18. 18. BHUTANBhutan has the potential to improve her FDI performance. The main Advantages of Bhutan are:1. Privileged access to a neighboring country like India and Bangladesh with large markets; If FDI can reach Indian shore, given the attractiveness it can also travel a few miles to Bhutan;2. Best Political stability in the region as compared to India, Bangladesh, and Nepal3. Almost negligible social problem with strong social bond and patriotic feeling4. corporate like Government structure with non-existent political Party system and Low corruption level. The country’s political set-up is gradually moving towards participative representation of the common people in the country’s assembly with decentralized development and authority structure.5. Least Power Cost in the region equivalent to INR 0.90 per KWH and abundant power supply6. A low wage, trainable English-speaking workforce;7. A flourishing local entrepreneurial culture in both small and large business;8. A growing international recognition in terms of tourist landmarks9. Unique temperate climate suitable for work and also ideal for cultivating medicinal herbs and horticulture with great market potential.
  19. 19. Policies and Incentives of Foreign Direct Investment in South Asia in comparison with Bangladesh
  20. 20. PROBLEMS FOR INFLOW OF FDI IN BANGLADESH Bureaucratic red tapism Weak domestic court system Inadequate infrastructure facilities Excess procedure formalities Poor economic performance Political instability Inadequate privatized industrial base
  21. 21. SUGESSION(s)Tax exemptionsDutyLocationNatural resourcesSocial stabilityLanguageMarket accessGSP facilityCost of business
  22. 22. POLICY RECOMMENDATION TO ATTRACT FDIImprove quality of bureaucracy and governanceCoordinated government agenciesDynamic and independent government agenciesPolitical reformationImprovement of law and order situationDevelopment of infrastructure and human resourcesEnsuring power and energyImprovement of port services
  23. 23. POLICY RECOMMENDATION TO ATTRACT FDI Privatization and further reforms Modernization of business law Revision of tax law Setting up of industrial parks and new EPZs Improving the country’s image abroad Policies regarding macroeconomic stability Economic and commercial diplomacy Devoting efforts to shift FDI track
  24. 24. CONCLUSION
  25. 25. The role of FDI has become increasingly important, during the first three decades, FDI turned out to be the major dynamo for stimulating international resource flows from the developed countries to the developing and underdeveloped ones. In Bangladesh there are no specific FDI. It is include with foreign investment. So the current foreign investment situation in Bangladesh does not a clear and confident picture. It is short out by the statistics presented by the BOI itself. However the country must be an attractive location for foreign investors. An FDI enabling framework is a precondition. The administrative system for FDI also needs to be effective in dealing with foreign investors and their needs. Economic conditions conductive to investment are the key determinants but they rely more on political stability and dissemination of facts. However, most of the developing countries including Bangladesh have been realizing the importance of FDI for the industrial development, employment generation and correcting adverse balance of trade of a country. An enormous number of policies are formulated, reforms in the sector of economic, legal, administration and fiscal have been made and various facilities and incentives have been provided by the Govt. of Bangladesh to create a favorable climate of foreign investment in the country. But the inflow of FDI in the country over the last few years is not remarkable and it is very much insignificant in comparison to the inflow of FDI in other developing countries as well as neighboring countries. A number of reasons are identified for the poor inflow of FDI in the country. Among them bureaucratic red-tapism, inadequate infrastructural facilities, excessive procedural formalities, weak domestic court system, poor economic performance, political instability and inadequate privatization base are note-worthy. In order to overcome these problems as well as to create a congenial environment for foreign investment some strategic measures have been recommended. These are development of adequate infrastructural facilities, reduction of procedural formalities, reform in public administration, easing of legal system, re-design of taxation system, creation of EPZs, regional zones, improvement of law and order situation, ensure political stability, aggressive privatization programs, strengthening the capital market, empowering of BOI. The implementation of these suggestions would help to a large to boost FDI inflows in Bangladesh.