FDI has been linked with political stability and there is
a growing consensus on the importance of FDI inflows based on political
stability. While western economies may not consider political stability such an
important factor impacting FDI inflows, this is definitely a force to reckon
with in emerging economies in Asia, Africa and Latin America. Here, I would like to present the case of two
emerging economies, India and Myanmar which reasonably validate the connection
between FDI and political stability.
In 2012, inflows of Foreign Direct Investment (FDI) into
India fell 13.5 per cent with a decline from $34.62 billion in 2011 to $22.78
billion in 2012. While policy makers in India attribute this decline to the
overall global slowdown, most businessmen would attribute instability in the
political situation and a deadlock within the government to make important
policy decisions as an important factor for the dip in FDI. Recently, the UPA
coalition government suffered a major setback when another of its important
ally, DMK withdrew support to the government reducing this government to a
minority dependant on outside support. This in turn meant that there is an
increasing uncertainty about the future of this government and whether it will
last its full term till 2014 is a big question mark. Due to different political
ideologies prevalent in India which also impact business and economic
decisions, investors are preferring a
wait and watch approach till elections take place .
Myanmar is a shining example of how certainty and
stability in the political scenario can impact the flow of FDI. This country
bordering two major emerging economies-China and India has been ruled by the
military since many years and it has begun the process of democratisation by
introducing political reforms. A major step in this direction was the recently
passed FDI bill which removes restrictions on investment of non-Burmese in joint
venture with local partners. In terms of number of projects, the rise from 2011
to 2012 has been 10 to 54 which is a jump of 5 times. In terms of capital
investment, the growth has been impressive from USD 1 billion in 2011 to USD
1.9 billion in 2012 which is a 90% growth making it the 2nd best
performer in Asia. Due to its proximity to India, China and also South East
Asia, Myanmar can attract FDI if it continues with this process assuring
investors of political stability and greater reforms. With a young population,
it can also be a large market for various products and services.
Sources:
Department of industrial policy and promotion, Government of India, UNCTAD
