The survey conducted in June, 2010, which covered 194 executives from multinational enterprises investing in developing countries, features Nepal with countries like Iraq, Kosovo, Somalia, Afghanistan and Sierra Leone, among others.[break]
The findings of the survey were revealed in a report - World Investment and Political Risk - that the World Bank´s Multilateral Investment Guarantee Agency (MIGA) released on Friday.
The report estimates that FDI into developing countries has increased by 17 percent in 2010. This suggests global FDI flow could recover over the next couple of years. Last year, the FDI flow into developing countries had declined sharply by 40 percent.
“This upsurge in FDI into developing countries is welcome news, especially considering last year´s drop,” a press statement quoted MIGA Executive Vice President Izumi Kobayashi as saying. “FDI flows directed to productive assets can spur economic growth and reduce poverty.”
Despite such prospect, the findings suggest Nepal would continue to drive the investors away if the country did not work hard to do away with internal instability and other constraints.
MIGA had surveyed multinational executives during the course of preparing the report. It had found that their top worry when operating in developing countries over the next three years was political risk.
“Political risk tops business concerns such as market size, lack of finance, and quality of infrastructure,” states the report.
It is because of this situation, Nepal has managed to draw investment from only 4 percent of the 194 investors. But the good news is, 5 percent of the total investors covered during the survey plan to invest in the country within the next three years, according to the survey.
The MIGA report has focused on FDI into conflict-affected and fragile economies. In conflict-affected and fragile economies, the report says, the investors are primarily concerned about adverse government intervention like changes in regulations, breach of contract, non-honoring of sovereign guarantees, currency restrictions, and expropriation.
“In fact, adverse changes in regulations not only rank first among investors´ concerns in conflict-affected and fragile economies, but also are most often responsible for losses in these destinations,” it states.
Nonetheless, the report underlines the important role of FDI in conflict-affected and fragile economies, despite real obstacles.
“Economic growth is critical for all of us around the globe -- but it is even more so for under-served markets -- especially those economies that have been struggling under the very heavy burden of conflict and instability,” the statement quoted Kobayashi as saying.
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