Regional Investment Pioneers in South Asia

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Washington D.C, 18 November 2021 (TDI): The World Bank’s new report, “Regional Investment Pioneers in South Asia – The Payoff of Knowing Your Neighbors”, explores the potential of intraregional investments. Moreover, it also outlines constraints to such investments. The report also emphasizes the role of knowledge connectivity.  It mentions cross-border engagements and explores the economic and investment dynamic in another country.

South Asia

South Asia’s low levels of intraregional economic engagement hurt its overall economic growth. Intraregional trade is only 5-6 % of the total trade. It is less than a third of its potential. Intraregional investments are even lower at barely 0.6 % of the total inward Foreign Direct Investment (FDI) from the world.

Post-pandemic Recovery

Post COVID-19, regional economic engagements will be critical for recovery and growth. It is due to several factors like the rise in trade and connectivity costs. Another factor is the need to diversify global value chains and shift them closer to home. The importance of services in global recovery and the growing services sector in South Asia will also be crucial.

Constraints In Intraregional Investments
  • The outward foreign direct investment (OFDI) in South Asia is restrictive. Moreover, they are non-transparent and discretionary.
  • The Internal Foreign direct Investments (IFDI) are changing. They have their own challenges by global standards. For instance restrictions on land ownership along with sector-specific restrictions.
  • South Asia firms have underdeveloped knowledge about the investment environment of neighboring countries. There is a knowledge deficit. The knowledge embedding networks are even more important in economic decisions.
  • There is bilateral mistrust in South Asian countries. It increases the transactional and contracting costs of economic engagement.
Investors in South Asia

Despite constraints, regional pioneers in South Asia have built successful intraregional investments across various sectors. For instance;

  • Prior exporters have become regional investors. They have earned more knowledge of the investment landscape.
  • Well-networked firms have strong social and ethnic links.
  • Neighbors, especially for services investments.
  • Followers of pioneer investors in their business group.
  • Firms with high surplus investment funds along with the firms that use the region as a tool to invest in global markets.
Policy Guidelines

The report presented four policy actions to tap the potential of intraregional investments.

  • Relax OFDI regimes for smaller economies. This will enhance the competitive investment landscape as well as, the abilities of economies to respond to crisis situations like COVID-19.
  • Promote smart IFDI promotion techniques. These policies can target high-quality and high-visibility global firms. Moreover, small economies can target their affiliates that have already incurred high entry costs.
  • Support cross-border information and network-development activities. These include industry-specific information web portals along with intraregional networking events. For instance, industry meetings, cross-border women’s networks, and investment missions abroad.
  • Accelerate digital connectivity to reduce trade costs. This includes building electronic trade documentation along with the automation of border management processes. This initiative will expand electronic national single windows to regional trading partners.

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