foreign direct investment

There is more to Pakistan than just suicide bombs.  Economic growth, and its distribution, is also important, and not just because economically marginalized people have a greater propensity to join up with the terrorists. Pakistan desperately needs foreign investment to overcome persistent budget and trade deficits, but flows have been hit hard by the triple threat of political instability, redoubled terrorist activity, and the world economic crisis. In the year to July 1, foreign direct investment (FDI) fell from $5.4 billion to $3.7 billion, and even the previous year’s figure is nothing to get excited about for a country with 175 million people. Nigeria, with around 150 million people and a lower per capita GDP than Pakistan, attracted $20 billion of FDI in 2008 – true, it does have oil, which Pakistan does not – and Egypt, a slightly richer country with just over 80 million people, took in $8 billion in the year to July 2009, down from $13 billion the previous year. [click to continue…]

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I am currently doing a fair bit of work analyzing and writing about public-private partnerships and their contribution to economic development.  Partnerships are active in a wide range of economic development initiatives all over the globe, from health to education to small farmer productivity, and usually involve some level of private sector contribution to a project designed or supported by a public or multilateral entity.  These are not the same kinds of infrastructure partnerships that blend huge public and private investment to build roads, dams, ports, and power stations.  Instead, they tend to be smaller scale, are often community based, and sometimes go by the name of “social enterprise” or “sustainable business.” The idea is that private companies or foundations (sometimes connected with a company, or perhaps set up by billionaire, semi-retired tech entrepreneurs) invest in projects that promise to help impoverished people and communities, but are aligned with and sometimes can even further a company’s core business.  In the midst of the current economic crisis, many people have assumed that this kind of investment, often considered merely a type of corporate philanthropy (wrongly so, in my view), will dry up.  I think, though, that there are several compelling reasons why companies and foundations may find it in their enlightened self-interest to continue to make such investments, direct or in-kind, in spite of the current climate. [click to continue…]

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Once upon a time there was something called the “Washington Consensus,” a set of economic policy prescriptions championed by the World Bank and the IMF and endorsed by all of the large industrialized countries. The main pillars of the consensus included:

  • Fiscal discipline;
  • Reducing government spending on subsidies for businesses, farmers, and consumers in favor of increased spending on things like education, health care, and infrastructure;
  • Tax reform – broadening the tax base and lowering tax rates;
  • A market-based approach to interest and foreign exchange rates;
  • Liberalizing trade by getting rid of licensing requirements and lowering import duties;
  • Liberalization of inward foreign direct investment;
  • Privatization of state enterprises;
  • Getting rid of regulations that impede market entry or restrict competition, except those that protect the environment and public health and safety ; and,
  • Reinforcing property rights. [click to continue…]

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