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Tuesday, September 28, 1999 Published at 12:24 GMT 13:24 UK

World: South Asia

Foreign investment falls in South Asia

Pakistan's power dispute "discourages" foreign investors

The United Nations report on foreign direct investment for 1997-1998 shows South Asia generally receiving less year on year. The only country to buck this trend was Bangladesh.

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By Jyotsna Singh in Delhi

The latest report published by the United Nations Commission for Trade and Development says that foreign direct investment into India fell by one billion dollars last year.

The report shows the figure fell to US$2.3bn from $3.3bn, despite the Indian Government's commitment to attract $10bn annually.

A government spokesman said he would not like to comment on the report since it was based on old data. The report also takes note of the measures taken last year to encourage private investment and foreign participation in the domestic economy .

The report says that the South Asia as a whole has considerable potential provided the countries put in place effective policies to attract foreign investment.

The World Investment Report showed that while the global stock of foreign direct investment increased by 20% last year, the developing countries' share in this total declined by 26% in 1998.

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By Islamabad correspondent Owen-Bennett Jones

The Unctad report shows that foreign direct investment into Pakistan fell by around one third between 1997 and 1998, confirming that Pakistan is suffering from a dearth of direct foreign investment.

The figure fell from US$497m in 1998 from US$714m in 1997.

Some of the reasons for a lack of confidence among foreign investors have been evident for years.

The high levels of corruption in Pakistan, combined with the country's inpenetrable bureaucracy, make it difficult to get projects under way unless investors have the right contacts in the administration.

New factor

But the most recent new factor discouraging foreign investment has been the government's handling of its dispute with the independent power producers (IPPs).

In the mid-1990s foreign power companies were encouraged to invest in Pakistan and many did so.

But the current government has said that bribes were paid by the foreign companies to secure unrealistically high prices for the electricity they were producing.

The IPPs have consistently denied the charges.

The IPPs and the government have gone through countless legal battles over the last two years as they wrangled over what price the state should pay for the IPPs' electricity and although some of the smaller IPPs have reached agreements with the government there is still no progress regarding the biggest of the independent power producers, Hubco.

Indeed, having failed to reach agreement on an appropriate price for its electricity Hubco has now said it will invoke the sovereign guarantee included in its original contract with the government.


The IMF and the World Bank have both made it clear that the government must settle its differences with Hubco but for the moment the two sides are still deadlocked.

Pakistani officials admit that whatever the rights and wrongs of the Hubco dispute it has seriously damaged investor confidence.

They say they are hopeful that direct foreign investment will pick up but for the moment there is no sign of it doing so.

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Alone in South Asia Bangladesh benefitted from a doubling of FDI in 1997-1998.

Unctad says the inflow increased to $317m in 1998, mainly in the energy sector, against $141m in the previous year.

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