m FDI typically occurs when a firm invests directly in facilities to produce

and/or market a product in a foreign country

m When a firm undertakes FDI it becomes an MNC or TNC

m FDI takes on two forms, namely, Greenfield Investment or Merger &

Acquisitions

m Inward vs outward FDI

m Different motives for FDI:

Resorce seeking ; Market seeking; efficiency seeking ;
Strategic asset seeking
m There are various theories to explain the rationale for FDI
MacDougall-Kemp Hypothesis ( why)
Industrial Organization Theory ( how))
Location-Specific Theory ( where)
Product life cycle theory ( when)

m Benefits of FDI to home country

m Benefits of FDI to host country

m In 20th century U.S passed many laws restricting foreign investment in
shipping, broadcasting, and air services.

m In the 1990s, Europe, the United States, and other industrialized

countries took major steps to encourage FDI

m After Uruguay round of talk highly restricted sectors including

telecommunications were opened up.
m First concerted effort to attract FDI came in 1987 with the passage of
the Industrial Policy and Industrial Enterprise Act.

m In 1992, the Foreign Investment and Technology Transfer Act was

introduced and Investment Promotion Board was established.

m FDI is flow has been mainly in tourism and manufacturing sectors.

m Nepalese government has opened up all sectors to FDI except for

defense, cigarettes, bidi and alcohol.

m 100 % repatriation of equity invested, dividends obtained from foreign

investments, and amount received as payment are allowed.No legal
hindrance in registering mortgages or repossessions
m The Labor and Trade Union Act enacted recently permits strikes and
requires unions to be affiliated with political parties-considered as
disaster decision.

m Bonus Act requires that workers get 10% of yearly profits as bonus
regardless of improvements in productivity.

m Electricity Act has limited bonuses of workers to 2% of yearly profits in

the hydropower sector.

m The bureaucratic hassles and political environment are a hindrance to

FDI
m In the years after the Second World War global FDI was dominated by
the United States, US accounted for around three-quarters of new FDI
between 1945 and 1960.

m Since 1960s, world FDI came to be dominated by the developed

countries.

m There was a phenomenal increase in the inflows of FDI around the

globe since the start of the new millennium .FDI was at its peak in 2000.

m FDI plunged by nearly 40 per cent in 2001 then slumped again in 2002-
2003
m The post-2003 bounce back has been driven by emerging markets. FDI
inflows to these regions grew by 57 per cent in 2004 and 26 per cent in
2005

m Post 2008, the global flow of FDI contracted sharply.

m Developing and transition economies absorbed half of global FDI flows

in 2009 and their relative weight as both FDI destinations and sources is
expected to increase further, as they are leading the FDI recovery.

m Global FDI witnessed a modest, but uneven recovery in the first half of
2010. This sparks some cautious optimism for FDI prospects in the short
run and for a full recovery further on.
m Most regions are expected to see a rebound in FDI flows in 2010.

m In 2010, developing and transition economies attracted half of global

FDI inflows, and invested one quarter of global FDI outflows. They are
leading the FDI recovery and will remain favorable destinations for FDI.

m According to UNCTAD ͞The BRIC countries (Brazil, Russia, India, China)

are the most favoured destination for FDI.

m TNCs from developed countries are generally more pessimistic than

those from developing countries in the short term.

m For LDCs overcoming barriers for attracting FDI remains a key challenge.
Overseas development assistance (ODA) can act as a catalyst for
boosting the role of FDI in least developed countries (LDCs).
m According to 2





   

 (United Nations Conference on Trade and Development )

m Asia is seen as the most-sought after place for FDI (with six countries in
the top 15) although there is still high interest in investing in North
America and the EU-15

m China remains the "top investment destination" for FDI, followed by

India, Brazil, the US and the Russian Federation.

m India will be the second-most popular destination for foreign direct

investment in the globe over the next two years
 6

  
  
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m IMF reported that net inflows in emerging and developing economies

were up to $294.1 billion in 2010 compared to $274.8 billion in 2009
which is, however, till below 2007 numbers ($2 trillion)

m 
 predicts a further increase to between $1.6 and $2 trillion in
2012.
m Historically, majority of cross-border investment has been in the form of
mergers and acquisitions rather than greenfield investments with an
exception in the developing countries where only one third of the FDI is
in the form of M&As.

m According to one UN estimate, some 40 to 80% of all FDI inflows were

in the form of M&A͛s between 1998 and 2003.

m Cross-border mergers and acquisitions (M&As) which was $250 billion

in 2009 rose by 36% in the first five months of 2010.

m Major reason for the popularity of M&A is that it quicker to execute;

this hold particular importance in the rapidly evolving modern business
world.
m In the past two decades FDI has sharply moved away from primary and
manufacturing sector and towards services.

m Until recently it was primarily concentrated in trade and financial

services. However, industries such as electricity, water, communications
are becoming more prominent.

m Reasons:

Liberalization of service industries by many nations in the wake of

WTO/GATS
The rise of internet based global telecommunications networks
In 2009, FDI inflows and outflows slumped in all three sectors:

m Primary sector : There has been a the gradual market upturn since the
second half of 2009 which has encouraged companies to maintain
ambitious investment programmes. The FDI prospects for up to 2012
are therefore rather promising, especially in petroleum.

m Manufacturing sector:
Y Industries such as 
  
 

 that rely on
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such as those for environment-friendly
products, renewable energies look promising.
m The inflow of FDI in Nepal begin in the early 1980s.
m From 1980 to 1989, FDI inflows were minimal with an annual average
of US$ 500,000.
m FDI inflow showed a distinct acceleration during 1990s averaging US$ 11
million per annum.
m During 1990-2000, FDI shoot up at US$ 23 million
ü This was primarily due to Nepal͛s more liberal trade policies
ü Which comprised tariff rate reductions,
ü Introduction of a duty drawback scheme,
ü Adoption of a current account convertibility system
ü Liberalization of the exchange rate regime.
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Rank Doing Business 2009
Ease of Doing Business 121

Starting a Business 73

Dealing with Construction Permits 129

Employing Workers 150

Registering Property 28

Getting Credit 109

Protecting Investors 70

Paying Taxes 107

Trading Across Borders 157

Enforcing Contracts 121

Closing a Business 103

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