India and Pakistan were top recipients of foreign direct investment (FDI) inflows to South Asia, with India getting major share of $17 billion from total $22 billion and Pakistan $4.3 billion FDI in 2006.
"India received more FDI than ever before, and inflow was 153 percent more than in 2005," said 2007 World Investment Report (WIR) of United Nations Conference on Trade and Development (Unctad).
Other important recipients of FDI in the sub-region included Pakistan, Bangladesh, and Sri Lanka. According to the report, the performance of Pakistan in attracting FDI in 2006 had been promising. Strong economic growth and aggressive privatisation programme had led to booming FDI inflows during 2004 and 2006.
After playing a leading role in a number of large merger and acquisition (M&A) deals in Pakistan's privatisation process, West Asian companies announced a series of large green-field projects, the report said.
Inflows to Sri Lanka rose significantly, reaching a record high of $480 million. However, Bangladesh did not realise as an underperformer according to Unctad's Inward FDI Potential and Performance Indices. Bangladesh received $625 million in 2006, which was 10 percent less than in 2005.
Elaborating the Indian position, the report said that rapid economic growth had led to improved investor confidence in the country. According to Indian government, the country's economy was expected to grow by 9.2 percent in 2006-07 fiscal. The sustained growth in income had made the country increasingly attractive to market seeking FDI. Indeed, foreign retailers such as Wal-Mart had started to enter the Indian market.
At the same time, a number of US transnational companies (TNCs) such as General Motors and IBM were rapidly expanding their presence in India. Large Japanese TNCs such as Toyota and Nissan are also doing the same. Private equity firms are also playing a role, said the report.
Global FDI inflows soared in 2006 to reach $1,306 billion--a growth of 38 percent. This marked the third consecutive year of growth, and approached the record level of $1,411 billion reached in 2001.
The rise in global FDI flows was partly driven by increasing corporate profits world-wide and resulting higher stock prices that raised the value of cross-border M&As. The United States regained its position as the leading host country, followed by UK and France. The largest inflows among developing economies went to China, Hong Kong (China) and Singapore, and among the transition economies to the Russian Federation.
The developed-country TNCs remained the leading sources of FDI, accounting for 84 percent of global outflows, while there was a rebound of FDI from the US, almost half of the world outflows originated from European Union (EU) countries. Increased cross-border M&As activity supported the current rise in global FDI in 2006.
According to the report, China and India were beginning to challenge the dominance of the Asia's newly industrialising economies like Hong Kong (China), the Republic of Korea, Singapore, and Taiwan province of China as the main sources of FDI in developing countries.
China's outflows increased by 32 percent to $16 billion in 2006, and its outward FDI stock reached $73 billion, the sixth largest in the developing world. China is establishing the first group of eight overseas economic and trade co-operation zones in Pakistan comprising Mongolia, Thailand, Nigeria, Mauritius, Zambia, Russia, and the Commonwealth of Independent States (CIS).
India's outflows were almost four times higher than those of 2005. Compared to China, where FDI outflows were driven by the international expansion of state-owned enterprises encouraged by proactive government policies, booming outflows from India have been dominated by privately owned conglomerates.