Current investment driven by hope of future change
by: Devangshu Datta 

International capital flows are driven by various considerations. Investors enter specific businesses but some factors affect every business in a given country. Relative growth rates and relative inflation rates are only the most obvious of the macro variables cross-border investors consider. Ease of currency conversion and size of local markets are also important. Investors judge the capacity of institutions and regulators, and the transparency of legal and tax systems. They also assess political stability.

Few countries score high on all parameters. Different types of investors also have different needs. Some investors are short-term, some long-term. Some are portfolio investors looking at listed companies. Depending on type, their focus will lie in different areas.



A short-term portfolio investor will focus on capital gains rates and mechanisms. Capital controls determining the ease of entry and exit will also be important. Such an investor will demand evolved financial markets and track volatility.

A long-term portfolio investor will not be concerned about volatility but want an independent central bank and independent regulators. A direct investor who is bringing in foreign direct investment (FDI) to set up a business will be concerned about political stability, fair contract laws, independent judiciary and acceptable dispute-resolution mechanisms.

It might seem counter-intuitive but a direct investor may not care much about democracy, or desire a transparent, honest legal system. In practice, a corrupt but stable dictatorship, may be easier to deal with. Dictatorships have continuity. People who are bribed will stay in power indefinitely. A crony capitalist can get favours from a corrupt regime.

Complications arise in democratic regimes like India. On many parameters, India receives good scores. It has large domestic markets. It has sophisticated capital markets. It has a reasonably open capital regime since money can enter and exit quickly. It has good growth and independent regulators. On paper, India has an excellent legal system, though it is very, very slow in practice. However, there are downsides. India's complex laws and red tape make it hard to launch a start-up and it also is a very slow process. Capital is expensive. Infrastructure is poor. The tax regime is complex with lots of discretionary powers to officers. The federal nature of government with the division of power between states and the Centre makes it hard for businesses to go pan-India.

India also has plenty of corruption and that is a "revolving chair" because of change in regimes. Hence, different people may need to be bribed every so often. There can also be peculiar and unexpected hurdles such as retrospective taxation. In many Asian nations, capital comes from overseas investors with strong ties to the concerned nation. China, for example, receives a lot of FDI from overseas investors of Chinese origin, who are comfortable with the peculiarities of investing in China. India has a large, successful diaspora but many NRIs are professionals rather than businessmen. Hence, the FDI contribution of non-resident Indians (NRIs) to India is not as high as the FDI contribution of overseas Chinese to China.

Portfolio investors have tended to be fairly comfortable with India because of a good capital gains tax regime and many double-taxation treaties. There is some anxiety over the imposition of a new tax regime with the General Anti-Avoidance Rule (GAAR) from April 2017. Also poor earnings growth for the past two financial years and projections of low earnings growth for 2016-17 has made portfolio investors unenthusiastic.

However, FDI inflows increased in 2015-16, even as foreign institutional investor (FII) contributions dipped. NRI remittances also dipped because Indians in the Gulf are feeling the pinch. FDI investments are supposedly driven by more "permanent" factors because FDI is committed for the long term. If permanent factors are changing for the better, FIIs will return. Indeed, March saw strong portfolio inflows, though FIIs were net sellers through the financial year. However, some of the current FDI investments are being driven by hope of future change, rather than current changes. Investments could easily bog down unless there is delivery on the taxation and legislation front.

Another consideration is political stability and continuity. A series of state elections is due through the next 12-18 months. If there is a lot of violence in those election campaigns and/or the Bharatiya Janata Party loses ground in them, there could be a negative re-rating of India as an FDI destination.

Source:.business-standard

Dubai attracted Dh28.6 billion in greenfield foreign investments in 2015, according to the emirate's newly launched FDI Monitor.
The Dubai Investment Development Agency (Dubai FDI), an agency of the Department of Economic Development - Dubai, revealed new achievements for Dubai's global FDI rankings in its first 'Dubai FDI Monitor' reports series.
According to Financial Times Markets data quoted in the report, Dubai attracted Dh28.6 billion in greenfield FDI in 2015. The emirate witnessed 16 per cent growth in the number of greenfield FDI projects to 279, compared with 240 in 2014, and nearly Dh20 billion ($5.3 billion) of FDI inflows.
"Dubai continued to enhance its position as a preferred global FDI destination in 2015 by climbing global FDI rankings to fourth position in number of greenfield projects and sixth in foreign capital attracted, according to FT Markets," said Sami Al Qamzi, director-general of the DED.
The Dubai FDI Monitor report shows that Saudi Arabia, US, UK, India and Kuwait were the top five source countries for FDI to Dubai in 2015, generating Dh14.9 billion or ($4 billion) and representing 76 per cent of total FDI for the whole year.
As for the largest number of projects in 2015, the top five source countries were US, UK, India, Germany and Switzerland, generating a total of 168, or 60 per cent, of total FDI projects.
Pointing to a strong technology component in capital inflows to the emirate, the Dubai FDI Monitor reveals that 71 per cent of FDI projects in 2015 qualified as high and medium tech, generating 59 per cent of total FDI.
Fahad Al Gergawi, CEO of Dubai FDI, said: "Dubai has been successful in attracting investments in smart city technologies, renewable energy and green buildings among other high-tech sectors that improve productivity and efficiency while accelerating the transition to a green and sustainable economy."
The Dubai FDI Monitor also reaffirms Dubai's ability to facilitate business and serve an expanding consumer market across the Middle East, Africa and South Asia through business services, trade and tourism.
Top industries by number of projects in 2015 were professional services, IT services, transportation and warehousing, finance and retail. The top five industries generated 164 projects, representing 59 per cent of total projects in 2015.
The Dubai FDI initiative to establish an FDI Monitor at a city level sets a precedent among investment promotion agencies globally. The FDI monitor was developed in partnership with Wavteq, an FDI technology and consulting company, and aims to map out the investment landscape in Dubai through analysing FDI flows.

Iranian government spokesman Mohammad Baqer Nobakht said  Iran has attracted over $3 billion of  FDI after Tehran struck a nuclear agreement, also known as JCPOA, with world powers last year.

He called  the Iranian envoys to boost efforts to attract more foreign investors for water, environment and railway transportation projects within the framework of the resistance economy plans, IRNA reported.

Nobakht announced that the country's crude exports have doubled after the implementation of the landmark nuclear deal.

"Iran's oil exports have increased more than two times after the nuclear deal," Nobakht said while addressing a gathering of Iranian ambassadors and envoys to foreign states in Tehran.

The International Energy Agency said Thursday Iran’s oil production has risen faster than expected, reaching levels not seen since before nuclear-related sanctions were tightened in 2011, the Wall Street Journal reported.

Iran ramped production up by 300,000 barrels a day month-on-month in April, hitting 3.56 million barrels a day, according to the IEA’s closely watched monthly oil-market report. The output is now at levels not seen since international nuclear-related sanctions were extended.

Iranian exports increased at greater rate, with preliminary data suggesting a month-on-month rise of 600,000 barrels a day to about two million barrels a day. However, the dramatic increase from 1.4 million barrels a day seen the previous month, may have been helped by loadings that spilled over from March, the Paris-based agency said.

Foreign Minister Mohammad Javad Zarif, who also attended the conference, said the Iranian envoys should focus on the country’s economic development and people’s livelihood in a way that the people would feel the outcome of the nuclear deal.

“We have gathered together here to exchange views on all the new chances and opportunities for making use of the nuclear agreement in the light of the resistance economy,” he added.

Referring to some opposition to Joint Comprehensive Plan of Action (JCPOA) in the US, Zarif said certain opponents to the nuclear deal, who have the record of supporting the Zionist regime, tried to slow down the implementation of the deal by pursuing their close-minded views.