Policy Environment for Intraregional Investment

investors with residency in the United Arab Emirates (where citizenship is rarely given) which invest in their country of origin cannot be separated from other investors from the United Arab Emirates which invest in the same country. Both capital flows are OFDI from the United Arab Emirates. This is not roundtripping as long as the investment capital is earned in Dubai or any place outside the national border of the destination. Similarly, an Afghan national who is resident in Dubai and investing in Pakistan would not be considered to be making an intraregional investment. It is a foreign investment from the United Arab Emirates. Roundtripping occurs when earnings by residents at home are channeled through a foreign company back to the home country as foreign capital. This issue may be one way to reconcile the US$1.8 billion OFDI by Pakistan with reports from the United Arab Emirates Land Authority, which annually reports India and Pakistan as investing US$6 billion to US$7 billion each in Dubai real estate. The discrepancy may be due to the United Arab Emirates’ reporting of purchases by South Asian nationals residing and working in the United Arab Emirates; technically, this would not constitute FDI.

The use of investment hubs for tax-evasion purposes may be of diminishing concern because of the progress made by the OECD–G-20 Base Erosion and Profit Shifting initiative and improved information sharing across jurisdictions. Many economies (119) and 17 jurisdictions have signed the Convention on Mutual Administrative Assistance in Tax Matters, developed by the OECD and the Council of Europe and endorsed by the G-20 in 2009. India’s and Pakistan’s participation came into force in 2012 and 2016, respectively. Major financial centers participate, including those relevant to South Asia. The agreement became effective for Mauritius in 2015; Singapore in 2016; Hong Kong SAR, China, in 2018; and the United Arab Emirates in 2018. In fact, the United Arab Emirates fell into the blacklist in March 2019 but undertook remedial measures and was removed from the list in October 2019.

Understanding the policy influences on intraregional investment requires an appreciation of the policies that apply to outward investment at home and IFDI policies in the destination country.3 At the global level, investment policy reform has traditionally focused on liberalizing the IFDI policy arrangements of developing economies. Outward FDI (OFDI) liberalization has not been prioritized in developing economies because of an insufficient number of their own multinational enterprises and concerns associated with managing the balance of payments in capital-scarce economies. However, because OFDI has become an important part of many emerging economy success stories, an examination of these policies is vital. Such an investigation is particularly important in South Asia, where restrictive outward investment arrangements and regionally biased policies affect intraregional investment. This section examines OFDI policies in South Asian countries and briefly outlines IFDI policies. Regional bias in both types of investment policies is identified. Finally, the role of international investment agreements is