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Business Opportunities & Challenges: Focus on South Asian Countries

 

South Asia typically consists of Bangladesh, Bhutan, the Maldives, Nepal, Pakistan and Sri Lanka, also includes Afghanistan, and Iran.The global economy has gone into recession with developed economies recording negative growth and substantial slowdown of emerging economies. The global trade is forecasted to decline by 7% in 2010, as more and more countries adopt import substitution and protectionist policies. Although the decline in international commodity prices have helped to curb domestic inflation and averted a supply side shock, the decline in demand for both export goods and private remittances has reduced foreign exchange inflows, the global economy is still witnessing mergers & acquisitions.
Bangladesh offers opportunities for foreign investors in important sectors, including power, steel, fertilizer, hotel, tourism, and petrochemicals. These opportunities are reflected in the inflows of foreign direct investment (FDI), which increased from virtually zero in the early 1980s to 0 million in FY2007. . To meet the challenge, market-oriented liberalizing policy reforms were initiated in the mid-1980s and were pursued much more vigorously in the 1990s. These reforms were particularly aimed at moving towards an open economic regime and integrating with the global economy . Bhutan, one of the world’s smallest and least developed, is based on agriculture and forestry, which provide the main livelihood for more than 60% of the population. Hydropower exports to India have boosted Bhutan’s GDP growth. Bhutan’s hydropower potential and its attraction for tourists are key resources. The Bhutanese Government has made some progress in expanding the nation’s productive base and improving social welfare. Sri Lanka, the region’s leading reformer of business regulations, made it easier to obtain credit by strengthening the legal rights of creditors and enhancing the availability of credit information.The structure of the Pakistan economy has changed from a mainly agricultural base to a strong service base. Agriculture now only accounts for roughly 20% of the GDP, while the service sector accounts for 53% of the GDP Significant foreign investments have been made in several areas including telecommunications, real estate and energy. Other important industries include apparel and textiles (accounting for nearly 60% of exports), food processing, chemicals manufacture, and the iron and steel industries.. Iran is a founding member of OPEC and the Organization of Gas Exporting Countries. Petroleum constitutes the bulk of Iran’s exports (80%), valued at .9 billion in 2006 Since the mid 90′s, Iran has increased its economic cooperation with other developing countries in “south-south integration” including Syria, India, China, South Africa, Cuba and Venezuela. Iran is expanding its trade ties with Turkey and Pakistan and shares with its partners the common objective for the creation of a single economic market in West and Central Asia.

BANGLADESH: BUSINESS OPPURTUNITIES AND CHALLENGES

BUSINESS OPPORTUNITIES

1. The present government has adopted an economic strategy to create a suitable environment to make Bangladesh a very attractive destination for foreign investors in the South Asian region.

2. Bangladesh wants to be an active partner in the world economic community. It is one of the most open economies among the developing countries. The Bangladesh economy has already been liberalized extensively and it is vigorously pursuing a private sector-led, export oriented growth strategy.

3. Private investment both local and foreign is welcome in areas with the exception of only rive sectors on strategic grounds There is no restriction on the amount of investment or in the share of equity. Full 100 percent foreign investment and joint venture with local private partners or with the public sector is freely allowed .Foreign investors now enjoy the same treatment as provided to the domestic investors.

CHALLENGES

1. Food security and inflation are pressing concerns

The unusual rise of food prices in the recent time, which has been a world phenomenon, has really hard hit the poorest and the marginalized groups. This price hike was caused by domestic production shortfall following successive natural disasters and also by international higher prices. The food price rise has severe human dimension and has seriously eroded the purchasing capacity of people living below the poverty line and government employees, industrial workers, and others with fixed incomes. Addressing the hardship of poor people affected by higher food prices remains a challenge.

2. Environment and climate change pose a serious development challenge

The climate change also poses a major development challenge for Bangladesh. Bangladesh’s vulnerability to natural disasters also poses a risk. The recent severe flooding and cyclone are premonitions of future possible catastrophe. According to the United Nations Human Development Report 2007/2008, one meter rise in sea level would inundate 18% of land area in Bangladesh, directly threatening 11% of the population. Rising sea levels and exposure to climate disasters could result over 70 million people being permanently or temporarily displaced.

3. Foreign Investment:   Private investment from overseas sources is welcome in all areas of the economy with the exception of only five industrial sectors (reserved for public sector) as mentioned earlier. 100% foreign direct investment as well as joint venture both with local private sponsor or with public sector is allowed.

Foreign investment, however, is specially desired in the following categories:

Export-oriented industries;-industries in the Export Processing Zones;
High technology products that will be either import-substitute or export-oriented;-undertaking in which more diversified use of indigenous natural resources is  possible;
Basic industries based mainly on local raw materials;

IRAN

BUSINESS OPPORTUNITIES

1. The Iranian government estimated in 1986 that several countries, chiefly Egypt, the United States, and France, owed Iran US to US billion. Clearly, the continued costs of the war coupled with falling oil revenues afforded the economy little elasticity.

2. Iran had a US.4 billion balance of payments deficit during 1986, largely as a result of low oil prices and the disruption of oil shipments caused by Iraqi bombing. Oil prices fell from US per barrel in November 1985 to US in February 1986. Although prices rose in the fall of 1986, the average price of oil for the year was US per barrel, half that in 1985. The estimated US billion in export earnings in 1986 was the lowest since 1973.

3.CAIRO – Egypt’s Beltone Financial has signed a deal to complete its planned merger with Pioneers Holding and expects to complete the deal by the end of May, Beltone said on Sunday.

 

CHALLENGES

1.Political tensions between Tehran and Kuwait increased significantly after the United  States agreed to reflag Kuwaiti oil tankers. Iran accused Kuwait and its neighbors, especially Saudi Arabia, of being mere puppets of the “Great Satan.”(US)

2. Iran’s relations with the other three GCC members–Kuwait, Oman, and Saudi Arabia- have been more complex and, throughout the early and mid-1980s, have been  characterized by alternating periods of tension and mutual accommodation.

3. The outbreak of war between Iran and Iraq further alarmed the Persian Gulf Arab states.

4. Continues to suffer from double-digit unemployment and underemployment.

5. Underemployment among Iran’s educated youth has convinced many to seek jobs

overseas, resulting in a significant “brain drain.”

PAKISTAN

 

BUSINESS OPPORTUNITIES

1Unilever has acquired the shares of Ambrosia International Ltd., Mehran International           Ltd., and Pakistan Industrial Promoters Ltd., which form what is often called the Polka group of ice-cream companies. Polka is one of the oldest and well-known brands of ice-cream in Pakistan. The Polka group has three factories in Hub, Karachi and Lahore, respectively. It employs more than 700 people and had a combined turnover of some Rs. 725 million in 1995.

2.  In recent years, the Government of Pakistan has substantially simplified the Foreign Private Investment (Promotion and Protection) Act, 1976, specifically provides that foreign investment shall not be subject to more taxation on income than in investment made in similar circumstances by Pakistani citizens.

3. The recent reduction in the number of days to set up a business is significant and ranks   the country among the best in this regard in Asia.

CHALLENGES

1. The rapid depletion of the country’s foreign exchange reserves has now emerged as the most imminent risk facing its sovereign ratings and country ceiling.

2. At the same time, delays in the ability of its fiscal authorities to wean themselves away from central bank financing of the budget deficit also represent a formidable obstacle for improving inflationary expectations and reducing pressure on the Pakistani Rupee,

3. Lack of good governance, war on terror and decline in investments are the main challenges   faced by national economy and strong political commitment is needed to steer the country out of the current economic crisis.

SRI LANKA

BUSINESS OPPURTUNITIES

With the gradual improvement of the security and safety situation, arrival of foreign visitors to Sri Lanka has increased by 28% in July 2009 compared to the corresponding period of the previous year.

According to IMF latest report: Sri Lanka’s economy will grow 5.5 percent in 2010 due to improving domestic demand and potential export growth after the 25-year war ended in 2009 and as global recovery takes hold.

1. Aitken Spence, one of Sri Lanka’s top hotel firms, has resumed talks with Six Senses Spas, an international spa chain, on building an up-market resort on the south-west coast near Ahungalla, a prime beach resort where it has two hotels and Trans Asia Hotel has been refurbished and reframed as Cinnamon Lakeside Colombo.

 

2. There have been several other initiatives by business organizations including signing of an agreement by Suntel Ltd with Orient City – one of the largest IT parks under construction to provide an advanced data communication solution, an investment of US Million by Dialog Telekom for the development of mobile telecommunication infrastructure in the Northern Province linking the war ravaged province with rest of the mobile network in the country.

3. Initial steps taken by the International Organisation for Migration (IOM), to  establish eight rice processing centers in Batticaloa district through a project funded by the Australian Government’s Aus AID programme, and setting up of two s   state-of-the-art chilling centers in Trincomalee district by Nestle Lanka directly benefiting the local rural communities.

 

CHALLENGES

1. Poor governance can be viewed as a major constraint to the development of a country. Through a brief political history of Sri Lanka this section will demonstrate the linkages present in a number of government issues that have hindered the development of Sri Lanka. Sri Lanka’s income inequality is severe, with striking differences between rural and urban areas. About 15% of the country’s population of 20.2 million remains impoverished. The effects of 26 years of civil conflict, falling agricultural labor productivity, lack of income-earning opportunities for the rural population, high inflation, and poor infrastructure outside the Western Province are impediments to poverty reduction.

2. Sri Lanka depends on a strong global economy for investment and for expansion of its export base, and the global slowdown is a major worry. It hopes to diversify export products and destinations to make use of the Indo-Lanka and Pakistan-Sri Lanka Free Trade Agreements, GSP Plus treatment by the European Union, and other regional and bilateral preferential trading agreements.

BHUTAN

BUSINESS OPPORTUNITIES

1.Various companies, including hydropower, banking and minerals, will join together in Bhutan in the countries new grouping of 14 companies striving to promote growth in the countries private sector. The government has either a full or partial stake in all the companies.

2. An agreement was signed between Bhutan’s Planning secretary, Karma Tshieem and Henrik Neilson, head of the Danish liaison office, to provide Bhutan with DKK140 million. The money is for the 10 year plan within the health and education sector. The majority of the money, 76 percent, will go towards assisting the health and education sector, while 11 percent will be allotted for vocational training. Denmark has been providing assistance to Bhutan’s health sector since 1989 and in 2003 began helping the education sector.

3.Bluewater Systems secured a deal to supply Bhutan Telecom with new back-up systems, that will attempt to relieve the decade old system of monks traveling across the Himalayas carrying magnetic tapes to the capitol of Thimphu. Bhutan and New Zealand are the only countries thus far to have installed Bluewater systems.

CHALLENGES

1. Unemployment – The current rate is 3.7% and is still increasing.  This has led to increases in many youth related problems in urban centers.

2. Education – The education sector has been riddled with many problems in 2008. Our seemingly ‘trail and error’ approach hasn’t improved anything. There is a lot of work.

3. Private Sector Development -  The country looks forward to the new industrial policy and the assessment of the impact of the FDI policy. The  Government should put in programmes to develop entrepreneurial skills, and support individuals to start and own small businesses.

 

CONCLUSION

While South Asian countries have made significant progress in integrating with the rest of the world, intra-regional trade remains very low.  The reasons for this low level of trade include protectionist trade regimes, which discriminated against trade among larger neighbors; continued conflict between countries, transport and trade facilitation constraints followed by restricted number of mergers and acquisitions in these countries.

However, there is ample scope of growth among the countries discussed above based on the recent developments in their economies. To conclude, emphasis is on enlistment of these countries which are in future list of N11 so that more and more intra-regional trade in goods and services, investment, and development of supply chains can take place in Asia. These should also seek to increase cooperation among themselves to increase the scope of opportunities available with each country with eye on the challenges discussed also so that harmonization of business and trade can be ruled out.

 

 

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