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India

Executive Summary

India’s GDP growth in 2019 declined to the slowest rate in over six years. Prior to the onset of the COVID-19 pandemic, the International Monetary Fund had reduced its growth prediction for FY 2020 to 4.8 percent from a previous estimate of 6.1 percent. The slowing growth reflected a sharp decline in private sector consumption and reduced activity in manufacturing, agriculture, and construction. The stock of foreign direct investment (FDI) in India has declined a full percentage point over the last six years according to data from the Department for Promotion of Industry and Internal Trade (DPIIT). This mirrors a similar drop in Indian private investment during the same period.

Non-performing assets continue to hold back banks’ profits and restrict their lending, particularly in the state banking sector. The collapse of the non-bank financial company Infrastructure Leasing & Financial Services (IL&FS) in 2018 led to a credit crunch that largely continued throughout 2019 and hampered consumer lending.

Demographic increases mean India must generate over ten million new jobs every year – a challenge for the economy and policy makers. While difficult to measure, given the large size of the informal economy, several recent studies, in 2017-18 suggest India’s unemployment rate has risen significantly, perhaps event to a 40-year high.

The Government of India has announced several measures to stimulate growth, including lowering the corporate tax rate, creating lower personal income tax brackets, implementing tax exemptions for startups, establishing ambitious targets for divestment of state-owned enterprises, withdrawing a surcharge imposed on foreign portfolio investors, and providing cash infusions into public sector banks. India’s central bank, the Reserve Bank of India (RBI), also adopted a monetary policy that was accommodative of growth, reducing interest rates by a cumulative 135 basis points throughout 2019 to 5.15 percent. However, transmission remained a problem as banks, already struggling with large volumes of non-performing assets pressuring their balance sheets, were hesitant to lend or pass on the RBI’s rate cuts to consumers.

The government actively courts foreign investment. In 2017, the government implemented moderate reforms aimed at easing investments in sectors such as single brand retail, pharmaceuticals, and private security. It also relaxed onerous rules for foreign investment in the construction sector. In August 2019, the government announced a new package of liberalization measures removing restrictions on FDI in multiple sectors to help spur the slowing economy. The new measures included permitting investments in coal mining and contract manufacturing through the so-called Automatic Route. India has continued to make major gains in the World Bank’s Ease of Doing Business rankings in 2019, moving up 14 places to number 63 out of 190 economies evaluated. This jump follows India’s gain of 23 places in 2018 and 30 places in 2017.

Nonetheless, India remains a difficult place to do business and additional economic reforms are necessary to ensure sustainable and inclusive growth. In April 2018, the RBI, announced, without prior stakeholder consultation, that all payment system providers must store their Indian transaction data only in India. The RBI mandate to store all “data related to payments systems” only in India went into effect on October 15, 2018, despite repeated requests by industry and the U.S. officials for a delay to allow for more consultations. In July 2019, the RBI, again without prior stakeholder consultation, retroactively expanded the scope of its 2018 data localization requirement to include banks, creating potential liabilities going back to late 2018. The RBI policy overwhelmingly and disproportionately affects U.S. banks and investors, who depend on the free flow of data both to achieve economies of scale and to protect customers by providing global real-time monitoring and analysis of fraud trends and cybersecurity. U.S. payments companies have been able to implement the mandate for the most part, though at great cost and potential damage to the long-term security of their Indian customer base, which will receive fewer services and no longer benefit from global fraud detection and AML/CFT protocols. Similarly, U.S. banks have been able to comply with RBI’s expanded mandate, though incurring significant compliance costs and increased risk of cybersecurity vulnerabilities.

In addition to the RBI data localization directive for payments companies, the government formally introduced its draft Data Protection Bill in December 2019, which contains restrictions on all cross-border transfers of personal data in India. The Bill is currently under review by a Joint Parliamentary Committee and stipulates that personal data that are considered “critical” can only be stored in India. The Bill is based on the conclusions of a ten-person Committee of Experts, established by the Ministry of Information Technology (MeitY) in July 2017.

On December 26, 2018, India unveiled new restrictions on foreign-owned e-commerce operations without any prior notification or opportunity to submit public comments. While Indian officials argue that these restrictions were mere “clarifications” of existing policy, the new guidelines constituted a major regulatory change that created several extensive new regulatory requirements and onerous compliance procedures. The disruption to foreign investors’ businesses was exacerbated by the refusal to extend the February 1, 2019 deadline for implementation.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 80 of 180 https://www.transparency.org/
cpi2019
World Bank’s Doing Business Report 2019 63 of 190 https://www.doingbusiness.org/
en/rankings?region=south-asia
Global Innovation Index 2019 52 of 127 https://www.wipo.int/
global_innovation_index/en/2019/
U.S. FDI in partner country ($M USD, stock positions) 2018 $44,458 https://apps.bea.gov/
international/factsheet
World Bank GNI per capita 2018 $2009.98 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

9. Corruption

India is a signatory to the United Nation’s Conventions Against Corruption and is a member of the G20 Working Group against corruption. India showed marginal improvement and scored 41 out of 100 in Transparency International’s 2018 Corruption Perception Index, with a ranking of 78 out of the 180 countries surveyed (as compared to a score of 40 out of 100 and ranked 81 in 2017).

Corruption is addressed by the following laws: the Companies Act, 2013; the Prevention of Money Laundering Act, 2002; the Prevention of Corruption Act, 1988; the Code of Criminal Procedures, 1973; the Indian Contract Act, 1872; and the Indian Penal Code of 1860. Anti- corruption laws amended since 2004 have granted additional powers to vigilance departments in government ministries at the central and state levels. The amendments also elevated the Central Vigilance Commission (CVC) to be a statutory body. In addition, the Comptroller and Auditor General is charged with performing audits on public-private-partnership contracts in the infrastructure sector on the basis of allegations of revenue loss to the exchequer.

In November 2016, the Modi government ordered that INR 1000 and 500 notes, comprising approximately 86 percent of cash in circulation, be demonetized to curb “black money,” corruption, and the financing of terrorism. An August 2018 RBI report stated 99 percent of demonetized cash was deposited in legitimate bank accounts, leading analysts to question if the exercise enabled criminals to launder money into the banking system. Digital transactions increased due to demonetization, as mobile banking inclusion jumped from 40 percent to 60 percent of the populace. India is investigating 1.8 million bank accounts and 200 individuals associated with unusual deposits during demonetization, and banks’ suspicious transaction reports quadrupled to 473,000 in 2016. On August 7, SEBI directed stock exchanges to restrict trading and audit 162 suspected shell companies on the basis of large cash deposits during demonetization.

The Benami Transactions (Prohibition) Amendment Act of 2016 entered into effect in November 2016, and strengthened the legal and administrative procedures of the Benami Transactions Act 1988, which was ultimately never notified. (Note: A benami property is held by one person, but paid for by another, often with illicit funds.) Analysts expect the government to issue a roadmap in 2017-2018 to begin implementing the Act. In May 2017, the Real Estate (Regulation and Development) Act, 2016 came into effect. The Act will regulate India’s real estate sector, which is notorious for its corruption and lack of transparency.

In November 2016, India and Switzerland signed a joint declaration to enter into an Agreement on the Exchange of Information (AEOI) to automatically share financial information on accounts held by Indian residents, beginning in 2018. India also amended its Double Taxation Avoidance Agreement with Singapore, Cyprus, and Mauritius in 2016 to prevent income tax evasion. The move follows the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, which replaced the Income Tax (IT) Act of 1961 regarding the taxation of foreign income. The new Act penalizes the concealment of foreign income, as well as provides criminal liability for foreign income tax evasion.

In February 2014, the government enacted the Whistleblower Act, intended to protect anti- corruption activists, but it has yet to be implemented. Experts believe that the prosecution of corruption has been effective only among the lower levels of the bureaucracy; senior bureaucrats have generally been spared. Businesses consistently cite corruption as a significant obstacle to FDI in India and identify government procurement as a process particularly vulnerable to corruption. To make the Whistle Blowers Protection Act, 2014 more effective, the government proposed an amendment bill in 2015. This bill is still pending with the Upper House of Parliament; however anti-corruption activists have expressed concern that the bill will dilute the Act by creating exemptions for state authorities, allowing them to stay out of reach of whistleblowers.

The Companies Act of 2013 established rules related to corruption in the private sector by mandating mechanisms for the protection of whistle blowers, industry codes of conduct, and the appointment of independent directors to company boards. As yet, the government has established no monitoring mechanism, and it is unclear the extent to which these protections have been instituted. No legislation focuses particularly on the protection of NGOs working on corruption issues, though the Whistleblowers Protection Act, 2011, may afford some protection once it has been fully implemented.

In 2013, Parliament enacted the Lokpal and Lokayuktas Act 2013, which created a national anti- corruption ombudsman and requires states to create state-level ombudsmen within one year of the law’s passage. Till December 2018, the government had not appointed an ombudsman. (Note: An ombudsman was finally appointed in March 2019.)

UN Anticorruption Convention, OECD Convention on Combatting Bribery

India is a signatory to the United Nations Conventions against Corruption and is a member of the G20 Working Group against Corruption. India is not party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

Matt Ingeneri
Economic Growth Unit Chief U.S. Embassy New Delhi Shantipath, Chanakyapuri New Delhi
+91 11 2419 8000 ingeneripm@state.gov

Ashutosh Kumar Mishra
Executive Director
Transparency International, India
Lajpat Bhawan, Room no.4
Lajpat Nagar,
New Delhi – 110024 +91 11 2646 0826
info@transparencyindia.org

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) 2019 $2.92 trillion 2018 $2.791 trillion https://data.worldbank.org/
country/india
 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country (stock positions) 2019 $28.34*billion 2019 $45.9 billion https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Host country’s FDI in the United States (stock positions) 2015 $9.2*billion 2018 $5.0 billion https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP N/A N/A 2019 15.1% https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

*The Indian government source for GDP is: https://www.indiabudget.gov.in/economicsurvey/doc/Statistical-Appendix-in-English.pdf  The Indian government source for FDI statistics is: http://dipp.nic.in/publications/fdi-statistics  and the figure is the cumulative FDI from April 2000 to December 2017. The DIPP figures include equity inflows, reinvested earnings and “other capital,” and are not directly comparable with the BEA data. Outward FDI data has been sourced from: http://ficci.in/study-  page.asp?spid=20933&deskid=54531  

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 456,911 100% Total Outward N/A 100%
Mauritius 141,925 31% N/A N/A N/A
Singapore 94,651 21% N/A N/A N/A
Japan 33,081 7% N/A N/A N/A
Netherlands 30,884 7% N/A N/A N/A
United States 28,349 6% N/A N/A N/A
“0” reflects amounts rounded to +/- USD 500,000.

Note: Outward Direct InvestmentAccording to India Brand Equity Foundation (IBEF) of the Department of Commerce, Ministry of Commerce and Industry, the outward FDI from India in equity, loan and guaranteed issue stood at US$ 12.59 billion in FY2018-19.
Source: Inward FDI DIPP, Ministry of Commerce and Industry
Outward Investments (July 2018-December 2018) RBI

Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 3,374 100% All Countries 2,010 100% All Countries 1,723 100%
United States 2218 59% United States 614 31% United States 1604 93%
China, P.R. Mainland 605 16% China, P.R. Mainland 605 30% Brazil 51 3%
Luxembourg 317 8% Luxembourg 317 16% Mauritius 27 2%
Mauritius 144 4% Mauritius 117 6% France 20 1%
Indonesia 63 2% Indonesia 63 3% United Kingdom 19 1%

Kyrgyz Republic

Executive Summary

The Kyrgyz Republic has undergone waves of political upheaval and severe economic downturns since its independence in 1991, resulting in an unfavorable investment climate for investors with low tolerance for risk of political instability. The violent arrest and detention of former President Atambaev by state security forces in August 2019 alarmed potential investors anticipating continued stability and positive investment prospects. Corruption continues to be a major constraint to business development, particularly in the state customs and border agencies, despite President Sooronbai Jeenbekov’s campaign to stamp out corruption in business regulation and to increase transparency in the public procurement process. The country’s judicial system is not fully independent and susceptible to external political influence. While the legal and regulatory framework is set up to be in accordance with international norms, poor implementation and weak enforcement, particularly with respect to intellectual property rights protection, is an endemic problem.

Kyrgyz government officials speak optimistically of factors they say indicate an improving investment climate. The government has identified FDI as a key component to growing the economy in the coming years and has created a strategic roadmap for economic development designed to facilitate this growth. The government is taking steps to streamline the process of starting a business, as well as its tax regime. The newly established Institute of the Business Ombudsman, intended to instill greater confidence in the business community, is charged with advocating for the protection of rights and freedoms of foreign and domestic business entities. Under the “Digitalization Kyrgyzstan” initiative for 2019-2023, the development of information and communication technology infrastructure is aimed at improving the regulatory framework for incentivizing innovation and protecting intellectual property.

Stifled progress in improvements to the business legal and regulatory framework deters foreign investors from entering the Kyrgyz market. The Kyrgyz economy continues to rely heavily on the mining and agricultural sectors. Kumtor Gold Company and the parent company Centerra Gold Inc. completed a new strategic agreement with the government in August 2019 after nearly two years of contentious disputes, further dampening the country’s investment image. The government retains a poor track record in international arbitration cases, and in the last five years, foreign investors have filed twenty different lawsuits against the Kyrgyz government.

The Kyrgyz Republic struggles to meet basic infrastructure needs. Disruptions in the supply of electricity remain a problem, especially outside the capital, Bishkek. Power plants, roads, and canals are dilapidated and in need of major capital investment. Chinese infrastructure projects, primarily implemented with non-market loans from the Export-Import Bank of China, tend to improve market access predominantly for Chinese companies.

The Kyrgyz Republic has yet to reap the economic benefits of membership within the Eurasian Economic Union (EAEU), following the country’s August 2015 accession into the customs union whose current members also include Russia, Kazakhstan, Armenia, and Belarus. Harmonized tariff schedules have left Kyrgyz producers and suppliers struggling to compete with cheaper import goods produced by other EAEU member states, in addition to non-member states that have signed Free Trade Agreements with the EAEU. An increase in non-tariff measures, to which the Kyrgyz government and businesses alike have struggled to adapt, create further barriers for Kyrgyz producers. The slow development of technical infrastructure to ensure compliance with EAEU sanitary and phytosanitary standards and quality control have precluded Kyrgyz goods from target markets within the customs union. Persistent reliance on Russia as a source of remittances, imports, and financial support subjects the economy to Russian influence and makes it vulnerable to external shocks to the Russian economy.

The Kyrgyz government remains very open to foreign direct investment, particularly from U.S. and European countries. Kyrgyz entrepreneurs increasingly are purchasing franchise licenses of major U.S.-based companies, particularly in the food service and retail sectors. The Kyrgyz Republic has also experienced a modest uptick in interest from U.S. corporations seeking to bid on infrastructure development projects funded by international financial institutions.

The COVID-19 pandemic significantly disrupted any positive momentum in the Kyrgyz Republic’s economy over the last year. Assuming that the economic downturn will last for at least the first half of 2020, the IMF assessed that real GDP growth will drop to 0.4 percent in 2020. Nearly all sectors face acute setbacks for recovery with the prolongation of emergency quarantine restrictions for an indefinite period. The closure of regional borders, particularly with China and Kazakhstan, caused mass supply chain disruptions, particularly for intermediary materials and equipment, necessary for agricultural, mining, and construction activities. The collapse of global oil prices coupled with high rates of unemployment among migrant workers, in addition to depreciation of the Kyrgyz som exchange rate against the U.S. dollar, have depressed remittance earnings. Local businesses are struggling to adapt to current conditions, but the domestic information technology sector may experience a boom as more local enterprises aim to transition to e-commerce and online platforms. Despite having accepted close to USD 500 million in concessional loans and grants from international donor organizations in response to COVID-19, the Kyrgyz Republic’s public debt in the long-term is expected to remain at 60 percent of GDP and the risk of debt distress will remain moderate.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 126 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 80 of 190 http://www.doingbusiness.org/
en/rankings
Global Innovation Index 2019 90 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 27 http://apps.bea.gov/international/
factsheet/
World Bank GNI per capita (USD) 2018 $1,221 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

9. Corruption

Corruption remains a serious problem at all levels of Kyrgyz society and in all sectors of the economy. According to Transparency International’s 2019 Corruption Perception Index, the Kyrgyz Republic ranked 126 out of 176 countries rated, climbing from its position of 132 in 2016. Kyrgyz politicians and citizens alike are aware of the systemic corruption, but the problem has shown to be difficult to fight. Moreover, many in the Kyrgyz Republic view paying of bribes as the most efficient way to receive government assistance and many, albeit indirectly, gain benefits from corrupt practices.

The Kyrgyz Republic is a signatory of the UN Anticorruption Convention but is not party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The anticorruption service within the State Committee on National Security has taken action against a limited number of ministers and parliamentarians. Over the past year, instances of corruption-related arrests against public figures from the political opposition have increased.

In 2019, President Jeenbekov announced urgent measures to clean up state bodies and purge unscrupulous state actors, but a string of corruption scandals has fueled public criticism of the government’s ineffectiveness to combat public corruption. All companies are recommended to establish internal codes of conduct that, among other things, prohibit bribery of public officials, but such codes are unevenly applied and enforced. There are laws that criminalize giving and accepting of bribe, establish penalties ranging from a small administrative fine to a prison sentence, but the government’s active enforcement of these laws is uneven. In November 2019, Azattyk, the Kyrgyz affiliate of Radio Free Europe, together with the Center for the Study of Corruption and Organized Crime (OCCRP) and the independent online outlet Kloop.kg, published a series of investigations that exposed mass corruption within the highest levels of the Kyrgyz State Customs Service that resulted in the laundering and smuggling or illicit transfer of USD 700 million dollars out of the Kyrgyz Republic.

Public procurement remains an area prone to corruption. In December 2019, the Kyrgyz courts convicted and sentenced former Prime Minister Sapar Isakov and former chairman of National Energy Holding Aybek Kaliyev to prison on corruption charges for their role in awarding the USD 386 million modernization project of the Bishkek Central Heating Plant to the Chinese company TBEA without implementing proper tender procedures. The corruption investigation opened in February 2018, after massive technical failures at the Bishkek Central Heating Plant left the capital without heating and water during a severe cold snap the previous month. With support from international donors, the Kyrgyz government has since prioritized advancements in e-governance, with the aim of increasing transparency in public procurement.

Corruption, including bribery, raises the costs and risks of doing business in the Kyrgyz Republic. It has had a corrosive impact on both market opportunities for U.S. companies and the broader business climate. It also deters international investment, stifles economic growth and development, distorts prices, and undermines rule of law. It is important for U.S. companies, regardless of their size, to assess the business climate in the relevant sector in which they will be operating or investing, and to have an effective compliance program or measures to prevent and detect corruption, including bribery. U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the relevant anticorruption laws of both the Kyrgyz Republic and the United States in order to properly comply with them, and where appropriate, they should seek the advice of legal counsel.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

The Kyrgyz Republic ratified the UN Anticorruption Convention in September 2005. The Kyrgyz Republic is not a party to the OECD Convention on Combatting Bribery.

Resources to Report Corruption

Hotline of the Anti-corruption Service of the State Committee for National Security: Bishkek
Zhibek-Zholu Street
+996 (312) 660020
aks.gknb@gmail.com

Contact at “watchdog” organization:

Mukanova N.A., General Secretary
Anticorruption Business Council of the Kyrgyz Republic
Ministry of Economy 114 Chui Avenue, Bishkek
+996 312 895 496
secretariat.adc@gmail.com
www.adc.kg

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2019 $8,453 2018 $8,093 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 5.5 2018 27 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions) 2019 1.5 2018 0 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP N/A N/A 2018 48.4 UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

*Source for Host Country Data: National Statistics Committee of the Kyrgyz Republic; http://www.stat.kg 

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (2018, US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 4915 100% Total Outward 11 100%
China 1,345 27% China 6 57%
Russian Federation 1,064 22% Tajikistan 2 16%
Canada 1,059 22% Kazakhstan 2 14%
United Kingdom 333 7% Russian Federation 1 11%
Kazakhstan 183 4% Turkey 0 1%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment
Data not available. The Kyrgyz Republic has limited stock and bond markets for portfolio investors. The country is not listed on the IMF’s Coordinated Portfolio Investment Survey (CPIS) site. It is unlikely the country has any large portfolio investors.

Pakistan

Executive Summary

Pakistan’s government increased its positive rhetoric regarding foreign investment since it assumed power in August 2018, pledging to improve Pakistan’s economy, restructure tax collection, enhance trade and investment, and eliminate corruption.  However, the government inherited a balance of payments crisis, forcing it to focus on immediate needs to acquire external financing rather than medium to long-term structural reforms.  The government sought and received an IMF Extended Fund Facility in July 2019 and promised to carry out several structural reforms under the IMF program.

Pakistan has made significant progress over the last year in transitioning to a market-determined exchange rate and reversing its large current account deficit, while inflation has decreased each month of 2020.  However, progress has been slow in areas such as broadening the tax base, reforming the taxation system, and privatizing state owned enterprises.  Pakistan ranked 108 out of 190 countries in the World Bank’s Doing Business 2020 rankings, a positive move upwards of 28 places from 2019.  Yet, the ranking demonstrates much room for improvement remains in Pakistan’s efforts to improve its business climate.  The COVID-19 pandemic has had a significant impact on Pakistan’s economy.  While the IMF had predicted Pakistan’s GDP growth to be 2.4 percent in FY2020, Pakistan’s economy is now expected to contract by 1.5 percent this fiscal year, which ends June 30.

Despite a relatively open foreign investment regime, Pakistan remains a challenging environment for foreign investors.  An improving but unpredictable security situation, difficult business climate, lengthy dispute resolution processes, poor intellectual property rights (IPR) enforcement, inconsistent taxation policies, and lack of harmonization of rules across Pakistan’s provinces have contributed to lower Foreign Direct Investment (FDI) as compared to regional competitors.  The government is working on a multi-year foreign direct investment (FDI) strategy which aims to gradually increase FDI to USD 7.4 billion by Fiscal Year (FY) 2022-23 from USD 2.8 billion in FY2019-20.

Over the last two decades, the United States has consistently been one of the top five sources of FDI in Pakistan.  In 2019 China was Pakistan’s number one source for FDI, largely due to projects related to the China-Pakistan Economic Corridor.  Over the past year and a half, U.S. corporations pledged more than USD 1.5 billion in direct investment in Pakistan.  American companies have profitable investments across a range of sectors, notably, but not limited to, fast-moving consumer goods and financial services.  Other sectors attracting U.S. interest include franchising, information and communications technology (ICT), thermal and renewable energy, and healthcare services.  The Karachi-based American Business Council, an affiliate of the U.S. Chamber of Commerce, has 68 U.S. member companies, most of which are Fortune 500 companies operating in Pakistan across a range of industries.  The Lahore-based American Business Forum – which has 25 founding members and 18 associate members – also assists U.S. investors.  The U.S.-Pakistan Business Council, within the U.S. Chamber of Commerce, supports members in the United States.  In 2003, the United States and Pakistan signed a Trade and Investment Framework Agreement (TIFA) to serve as a key forum for bilateral trade and investment discussions.  The TIFA seeks to address impediments to greater bilateral trade and investment flows and increase economic linkages between our respective business interests.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 120 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2020 108 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 105 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 USD 386 http://apps.bea.gov/
international/factsheet/
World Bank GNI per capita 2018 USD 1,590 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

9. Corruption

Pakistan ranked 120 out of 180 countries on Transparency International’s 2019 Corruption Perceptions Index.  The organization noted that corruption problems persist due to the lack of accountability and enforcement of penalties, followed by the lack of merit-based promotion, and relatively low salaries.

Bribes are criminal acts punishable by law but are widely perceived to exist at all levels of government.  Although high courts are widely viewed as more credible, lower courts are often considered corrupt, inefficient, and subject to pressure from prominent wealthy, religious, and political figures.  Political involvement in judicial appointments increases the government’s influence over the court system.

The National Accountability Bureau (NAB), Pakistan’s anti-corruption organization, suffers from insufficient funding and staffing and is viewed by political opposition as a tool for score-settling by the government in power.  Like NAB, the CCP’s mandate also includes anti-corruption authorities, but its effectiveness is also hindered by resource constraints.

Resources to Report Corruption 

Justice (R) Javed Iqbal
Chairman
National Accountability Bureau
Ataturk Avenue, G-5/2, Islamabad
+92-51-111-622-622
chairman@nab.gov.pk

Sohail Muzaffar
Chairman
Transparency International
5-C, 2nd Floor, Khayaban-e-Ittehad, Phase VII, D.H.A., Karachi
+92-21-35390408-9
ti.pakistan@gmail.com

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2019 $286,332 2018 $314,588 https://data.worldbank.org/
country/pakistan
 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 $88 2018 $386 USTR data available at https://ustr.gov/countries-regions/
south-central-asia/pakistan
 
Host country’s FDI in the United States ($M USD, stock positions) 2019 $39 2018 $163 USTR data available at https://ustr.gov/countries-regions/
south-central-asia/pakistan
 
Total inbound stock of FDI as % host GDP 2019 0.98% 2018 14.8% UNCTAD data available at
https://unctadstat.unctad.org/
CountryProfile/GeneralProfile/
en-GB/586/index.html
 

* Source for Host Country Data: All host country statistical data used from State Bank of Pakistan which publishes data on a monthly basis.

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data – 2018
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 42,296 100% Total Outward 1,962 100%
United Kingdom 9,349 22.1% United Arab Emirates 460 23.4%
Switzerland 3,944 9.3% Bangladesh 218 11.1%
Netherlands 2,680 6.3% United Kingdom 156 7.9%
Cayman Islands 1,374 3.2% Bahrain 140 7.1%
United Arab Emirates 1,138 2.7% Kenya 84 4.3%
“0” reflects amounts rounded to +/- USD 500,000.

Source:  IMF Coordinated Direct Investment Survey (CDIS) http://data.imf.org/CDIS

Table 4: Sources of Portfolio Investment
Portfolio Investment Assets – 2018
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries 422.9 100% All Countries 392.7 100% All Countries 30.2 100%
United Kingdom 93.5 22.1% United Kingdom 92.5 23.6% UAE 6.7 22.1%
Switzerland 39.4 9.3% Switzerland 38.8 9.9% Mauritius 1.4 4.6%
Netherlands 26.8 6.3% Netherlands 26.7 6.8% China P.R. 1.1 3.6%
Cayman Islands 13.7 3.2% Cayman Islands 13.6 3.5% United Kingdom 1.0 3.3%
China P.R. 13.1 3.1% USA 1.06 0.27% Japan 0.8 2.5%

Source:  IMF Coordinated Portfolio Investment Survey (CPIS) http://cpis.imf.org

Tajikistan

Executive Summary

Tajikistan is a challenging place to do business but could present high-risk, high-reward opportunities for foreign investors who have experience in the region, a long-term investment horizon, and the patience and resources to conduct significant research and due diligence.  At the most senior levels, the Tajik government consistently expresses interest in attracting more U.S. investment, but the poorest of the Central Asian countries harbors few U.S. investors and remains a largely uncompetitive investment destination.

Tajik President Rahmon publicly emphasizes the need to foster private-sector-led growth, and attracting investment is prioritized in the government’s 2016-2030 National Development Strategy and in-progress 2021-2024 Economic Development Strategy. Strategy documents notwithstanding, bureaucratic and financial hurdles, widespread corruption, a largely dysfunctional banking sector, non-transparent tax system, and countless business inspections greatly hinder investors. The absence of private investment, along with the government’s commitment to dedicate significant financial resources to the construction of the Roghun Dam hydropower plant, creates pressure on the Tax Committee to enforce or reinterpret tax regulations arbitrarily in order to meet ever-increasing revenue targets.

Tajikistan is saturated in opaque loans connected to China’s Belt and Road Initiative, and Chinese investments account for more than three-quarters of the country’s total Foreign Direct Investment. Tajikistan is also reportedly considering joining the Russian-led Eurasian Economic Union.  Should it apply for and receive membership, U.S. firms could experience higher trade tariffs. Finally, despite Tajikistan’s 2013 accession to the World Trade Organization, the Tajik government has imposed both blanket and targeted trade policies to protect private interests without notifying its partners, as occurred with bans on imported chicken meat in 2017 and exports of mining concentrate in 2019.

The Tajik economy faces endemic challenges. Consumption has been a major driver of Tajikistan’s economic growth, but it is reliant on migrant remittance flows from Russia, where about one million labor migrants reside. The novel coronavirus pandemic is projected to severely reduce remittances this year and precipitate a two percent GDP contraction in Tajikistan. Falling remittances also lead to shortages of foreign exchange and put downward pressure on the country’s reserves as it defends the national currency. Tajikistan’s banking sector is plagued by politically-directed, non-performing loans, high interest rates, and the absence of correspondent banking accounts in the West.

Despite these challenges and risks to potential investors, Tajikistan is pursuing greater trade links with its neighbors and has made modest progress to improve its investment climate over the past year. The World Bank cited Tajikistan as a top reformer on its Doing Business 2020 report and is also providing technical assistance towards tax reform. Authorities made steps towards greater compliance on intellectual property rights protections this year, and Tajikistan was recognized for significant progress towards transparency in the extractives sector. Should the government continue an economic reform path, opportunities in energy, agribusiness, food processing, tourism, textiles, and mining could prove promising.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 153 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2020 106 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 100 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2017 $41 http://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 $1,010 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

9. Corruption

Tajikistan has enacted anti-corruption legislation, but enforcement is politically-motivated, and generally ineffective in combating corruption of public officials.  Tajikistan’s parliament approved new amendments to the criminal code in February 2016.  Now, individuals convicted of crimes related to bribery may be released in return for payment of fines (roughly USD 25 for each day they would have served in prison had they been convicted under the previous criminal code).

Tajikistan’s anti-corruption laws officially extend to family members of officials and political parties.  Tajikistan’s laws provide conditions to counter conflict of interest in awarding contracts.

The Tajik government does not require private companies to establish internal codes of conduct that prohibit bribery of public officials.  Private companies do not use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials.

Tajikistan became a signatory to the UN’s Anticorruption Convention in 2006.  Tajikistan is not a party to the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions.

Tajik authorities do not provide protection to NGOs involved in investigating corruption.

U.S. firms have identified corruption as an obstacle to investment and have reported instances of corruption in government procurement, award of licenses and concessions, dispute settlements, regulations, customs, and taxation.

Resources to Report Corruption

Sulaimon Sultonzoda Said, Head
The Agency for State Financial Control and Fight with Corruption
78 Rudaki Avenue, Dushanbe
992 37 221-48-10; 992 27 234-3052
info@anticorruption.tj; agenti@anticorruption.tj

(The agency requests that contact be made via a form on their website – www.anticorruption.tj)

Contact at a “watchdog” organization (international, regional, local or nongovernmental organization operating in the country/economy that monitors corruption, such as Transparency International):

United Nations Development Program
39 Aini Street, Dushanbe
+992 44 600-56-00
registry.tj@undp.org

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2019 $7,986 2018 $7,523 https://data.worldbank.org/
country/tajikistan
 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or internationalSource of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2018 $43 2018 $43 BEA data available at
https://www.bea.gov/
international/di1usdbal
 
Host country’s FDI in the United States ($M USD, stock positions) 2018 $N/A 2018 $N/A BEA data available at
https://www.bea.gov/
international/di1fdinew
 
Total inbound stock of FDI as % host GDP 2019 50.8% 2018 36.7% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* Source for Host Country Data: National Bank and State Statistics Agency

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 2,860 100% Total Outward 130 100%
China, P.R. 1,437 50.2% Italy 129 99.2%
Russian Federation 340 11.9%
United Kingdom 282 9.8%
Switzerland 132 4.6
Iran 124 4.3%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment
Data not available.

Turkmenistan

Executive Summary

Turkmenistan is slightly larger than the state of California but is sparsely inhabited, with abundant hydrocarbon resources, particularly natural gas.  Turkmenistan’s economy depends heavily on the production and export of natural gas, oil, petrochemicals and, to a lesser degree, cotton, wheat, and textiles.  The economy is still recovering from a deep recession that followed the late 2014 collapse in global energy prices.  The current investment climate is considered high risk for U.S. foreign direct investment.

Official figures from the government of Turkmenistan show that the country’s GDP at the official exchange rate was USD 40.76 billion in 2018 and USD 38 billion in 2017.  The black-market exchange rate for dollars, on average 4 times the official rate in 2017-2018, suggests the true GDP numbers are much lower.  An official number for 2019 GDP was not yet available, though the government reported an implausibly high GDP growth of 6.2 percent in 2019.  GDP growth in 2018 was reported as 6.5 percent.  Most economic indicators released by the government are widely seen as unreliable.

Many businesses assert the government has not taken serious measures to incentivize foreign direct investment outside the petroleum industry and there is no significant U.S. FDI in Turkmenistan.  Most U.S. commercial activity in Turkmenistan is related to exports. Some companies, such as General Electric and John Deere, have established themselves as key suppliers of industrial equipment in certain sectors, but their business operations are largely limited to sales to the Turkmen government.  Delays in payment to foreign companies are common and some firms require upfront payment prior to delivery of goods.

A lack of established rule of law, an opaque regulatory framework, and rampant corruption remain serious problems in Turkmenistan.  Contracts are often awarded to companies with close ties to the President’s family.  The government strictly controls foreign exchange flows and limits on currency conversion make it difficult to repatriate profits or make payments to foreign suppliers.  In 2019 the black market rate was relatively steady, hovering around 18 manat/dollar, while the official exchange rate was pegged at 3.5 manat (TMT)/dollar.  The COVID-19 pandemic put additional pressure on Turkmenistan’s hard currency reserves and caused the black-market rate to spike to 21 manat/dollar in the first part of 2020.

Although Turkmenistan regularly amends its laws to meet international standards, many businesses have complained that the country often fails to implement or consistently enforce investment-related legislation.  There are no meaningful legal protections against government expropriation of assets and there is no independent judiciary.  In December 2016, the government expropriated the largest (and only foreign-owned) grocery store in Ashgabat, as well as the shopping center where it was located and a business center, without compensation or other legal remedy.  There have also been consistent reports in recent years of officials associated with the family of President Gurbanguly Berdimuhamedov seizing local companies.  In some cases, local business owners have reportedly been jailed using security-related laws as a pretext to reopen the business under new ownership.

Political stability is the most positive aspect of doing business in Turkmenistan.  Where opportunities exist, U.S. companies may be able to secure contracts with the Turkmen government for export of goods or services, in particular for construction materials, agricultural equipment, oil and gas extraction parts, medical devices, and food processing equipment.  Many foreign firms working with the Turkmen government are able to provide some form of financing, often through export credit agencies and development banks.  The Turkmen government has expressed interest in attracting more U.S. companies to compete for tenders and take part in infrastructure projects and bringing more western technology to the Turkmen market.

Key issues to watch:  developments in the financial sector, including the TMT/USD black market exchange rate and the severity of restrictions on currency conversion, will determine to some extent the health of the investment climate.  The COVID-19 pandemic is expected to have lasting economic consequences for Central Asia in particular, although the extent of the crisis remains to be seen.  Downward pressure on global energy prices and fundamental shifts in natural gas markets are also expected to have an outsized impact on Turkmenistan’s government revenue.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 165 of 180 https://www.transparency.org/country/TKM
World Bank’s Doing Business Report 2020 N/A https://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 N/A https://www.globalinnovationindex.org/
userfiles/file/reportpdf/GII_2019_EN_English.pdf
U.S. FDI in partner country ($M USD, stock positions) 2019 N/A https://apps.bea.gov/international/factsheet/
factsheet.cfm?Area=343&UUID=912a1109-
0ce4-466a-8e93-3c0adb2c4b89
World Bank GNI per capita 2018 6,740 https://data.worldbank.org/
indicator/NY.GNP.PCAP.CD?locations=TM

9. Corruption

There is no single specifically designated government agency responsible for combating corruption.  In June 2017, Turkmenistan set up the State Service for Combating Economic Crimes (SSCEC) to investigate officials and state-owned enterprises on corruption charges.  The SSCEC, which reports to the Minister of Internal Affairs, does not appear to be an independent and objective investigative body.  There is no independent corruption watchdog organization.

Anti-corruption laws are not generally enforced, and rampant corruption remains a problem.  Formally, the Ministry of Internal Affairs (including the police), the Ministry of National Security, and the General Prosecutor’s Office are responsible for combating corruption.  President Berdimuhamedov has publicly stated that corruption will not be tolerated.  In 2020, Transparency International ranked Turkmenistan 165 among 180 countries in its Corruption Perceptions Index.  Foreign firms have identified widespread government corruption, including in the form of bribe seeking, as an obstacle to investment and business development throughout all economic sectors and regions.  It is most pervasive in the areas of government procurement, the awarding of licenses, and customs.  In March 2014, the parliament adopted a law on Combating Corruption to help identify and prosecute cases of corruption.  The law prohibits government officials from accepting gifts (in person or through an intermediary) from foreign states, international organizations, and political parties.  It also severely limits the ability of government officials to travel on business at the expense of foreign entities.  Notwithstanding the 2014 law, corruption remains rampant.  There are no NGOs involved in monitoring or investigating corruption.  Certain government officials including traffic police are known to ask for bribes.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Government data on many economic indicators, including Foreign Direct Investment (FDI), are generally unavailable or unreliable.  According to various independent analysts, however, most foreign investment is directed toward the country’s oil and gas sector.  Turkmenistan has a natural gas production sharing agreement (PSA) for the Bagtyyarlyk contractual territory with the China National Petroleum Corporation (CNPC), the only foreign firm Turkmenistan has allowed into onshore gas production.  In the oil sector there are two onshore PSAs:  the Nebitdag contractual territory operated by Italy’s ENI, and the Hazar project operated jointly by the Turkmennebit state oil concern and Mitro International of Austria.  In addition, there are five PSAs for offshore operations:  Block I operated by Petronas of Malaysia, Block II (Cheleken Contractual Territory) operated by Dragon Oil (UAE), Block III operated by Buried Hill (UK), Blocks 19 and 20 operated by ENI (Italy), and Block 21 operated by Areti (Russian-owned, headquartered in Switzerland).  RWE of Germany terminated its PSA for Block 23 with the Government of Turkmenistan and closed down its Turkmenistan branch in December 2017.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP), in billions 2018 $40.76 2018 $61.8 http://country.eiu.com/Turkmenistan/
ArticleList/Updates/Economy
 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A ** BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A ** BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP N/A N/A 2018 81.6% UNCTAD data available at
https://unctad.org/sections/dite_dir/
docs/wir2019/wir19_fs_tm_en.pdf
 
 

* Source for Host Country Data:  2019 Statistical Yearbook of Turkmenistan, State Committee of Statistics of Turkmenistan

** Statistics not available.  Amount is either zero, or is grouped with other countries under “other” in the source data.

Table 3: Sources and Destination of FDI
The IMF does not detail the sources and destination of FDI for Turkmenistan: http://data.imf.org/CDIS 
UNCTAD has limited data on FDI for Turkmenistan: https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx 

Table 4: Sources of Portfolio Investment 
The IMF does not provide sources of portfolio investment for Turkmenistan: http://data.imf.org/CDIS 

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