South Asia gets more FDI despite problems; political risk in Pakistan, Sri Lanka, Afghanistan

MANILA, Feb 29, 2008 (AFP) – Robust near-term economic growth should drive strong foreign direct investment flows into South Asia despite corruption, poor infrastructure, rigid labour laws and civil unrest, the Asian Development Bank said Friday. FDI flows into the Indian sub-continent had risen rapidly since 2004, growing by 132.9 percent in 2006 to 24.3 billion dollars as economies moved away from the failed closed socialist model, the Philippines-based lender said in a study.

However, its share of FDI stock remained low at just 6.5 percent of South Asia’s gross domestic product (GDP), compared to Southeast Asia’s 39.5 percent of GDP and East Asia’s 29.1 percent of GDP.

Nevertheless, projected GDP growth of 8.1 percent for 2007 and 2008, along with double-digit export growth over the same period should “enable the region to attract more FDI, especially if intra-firm and intra-regional trade increases,” the report said.

It said United Nations and World Bank surveys showed South Asia was the world’s “least attractive FDI destination” and the “second-least business-friendly region” after Sub-Saharan Africa.

This was due to “poor business climate, poor infrastructure, restrictive labour policy and labour unrest, political uncerta