A STUDY

ON
“FDI IN AFGHANISTAN”
EDELWEISS STOCK BROKING PVT LTD

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 ABSTRACT

The purpose of this study is to describe the major FDI determinants that show capital flow in
Afghanistan and to investigate impact of FDI determinants on economy of Afghanistan in
particular. Design/methodology/approach: This Research look into whether FDI determinants
influence FDI based in Afghanistan by taking time series data using OLS, over the period of
2005-2015. Findings: The relation of FDI with a few FDI determinants including total debt
service, total external debt, gross domestic production and gross fixed capital formation contain a
strong positive result on economic growth in Afghanistan; at the same time as the relation of FDI
with Inflation contain a negative effect. Research limitations/implications: The restrictions of the
study are basically the enlargement of data which cannot be found continuous for 2015
completely for all variables. Originality/value: The objective of this research is to define the
main FDI determinants that show capital flow in Afghanistan and to explore impact of FDI
determinants on economy of Afghanistan in particular. Secondary objective is the quantify FDI
determinants to suggest some policies through which FDI can improve in Afghanistan. Foreign
Direct Investment is generally considered a vital source of economic growth for Afghanistan,
bringing in employment opportunities, capital investment, and business knowledge needed for
economic growth. This research paper postulates to study the relationship between FDI and
economic growth of Afghanistan for the period of 2005 - 2016 using time series data. Real GDP
annual growth rate is taken as a dependent variable and inflation rate, interest rate, exchange rate,
FDI, and Unemployment rate are taken as independent variables. The researcher used the
multiple regression (OLS) model and empirical analysis for both the IVs and DV over the
periods 2005 - 2016. We used the annual data from World Bank Indicators for Afghanistan. The
results of the study discloses that the null hypothesis is rejected showing that FDI has a positive
impact on the economic growth of Afghanistan. Meanwhile, the unemployment rate also shows a
negative significant relationship with the economic growth rate of Afghanistan and the null
hypothesis was rejected, whereas, the interest rate, inflation rate and the exchange rates have
positive but insignificant relationship with the dependent variable and the null hypothesis for all
these three variables were retained. The study recommends that the government should bring
modifications in the domestic market to draw attention of more FDIs in Afghanistan.

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 CONTENTS

PARTICULARS PAGE: NO
CHAPTERS

INTRODUCTION

 NEED OF THE STUDY

 OBJECTIVE OF THE STUDY

 NEED FOR THE STUDY

 SCOPE OF THE STUDY

 PERIOD OF THE STUDY

 METHODOLOGY

 LIMITATATION

2
LITERATURE REVIEW

COMPANY PROFILE
3

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 INDUSTRY PROFILE

DATA ANALYSIS &INTERPREATION

4

5 CONCLUSIONS FINDINGS, SUGGESTIONS

BIBLIOGRAPHY

CHAPTER-1
INTRODUCTION

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 INTRODUCTION
Trade is a simple economic conception involving the purchasing and retailing of goods
and services, with recompense paid by a buyer to a seller, or the conversation of goods orservices
between parties. In other words, International trade is the exchange of goods andservices across
international borders or territories (Ben-Porath, 1980).
The determinants of FDI according to the empirical studies are categorized into twosides;
demand side and supply side. The demand side contains variables linked to theAfghanistan
(country-specific). The source side comprises variables connected to the investingcorporation
itself (company-specific). Country exact variables maybe will comprise market
scope, economic development, equilibrium of expenditures, inflation rates, tax levels, political
constancy, and government policies re foreign investments. Afghanistan can possess location
exact benefits, such as his national markets, natural properties, and labor power that assist to
invite investments by external investors. This study will usually highpoint the second category
(i.e., the country exacts variables). Thus, the data and discussions will completely be emphasized
on this type of determinants of FDI. This study, thus, aims to examine the dynamics that affect
foreign direct investment (FDI) in Afghanistan.
Empirical analyses of the factors determining foreign direct investment (FDI) in Afghanistan
have employed a variety of econometric specifications. Many previous studies of Afghanistan
FDI activity have used a gravity equation, which controls mainly for the economic size of
Afghanistan. Foreign direct investment (FDI) is a straight investment into manufacture
orcommercial in a country by a separate or corporation of a different country, also bypurchasing
a corporation in the board country or by increasing processes of a currentbusiness in that country.
Foreign direct investment is in difference to collection investment
which is a submissive investment in the safeties of additional country such as stocks and bonds.
(Kunle, 2014). Foreign direct investment is supposed to make significant assistances to growth
and economic improvement of host (recipient) countries. Foreign direct investment feeds
receiver
countries through the capital inflows, technical involvement, human capital improvement and
managerial proficiency compulsory for supportable economic development. According to
Abdoulayeet. al. (2015), Foreign direct investment concerned with fundamental factors such

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as stable macroeconomic and political situation as well as credibility of policy reforms.
and maintainable macroeconomic situation improves the sureness of private investors. Decrease
in debt load is also dangerous not only for behind both external and financial equilibrium butalso
for producing confidence to inspire private subdivision investment (Dunning, 1993).
The financial limit, mostly cruel for the intensely grateful countries, rapidly explainedinto a
quick discount in investment and development rates in these severely obligatedeconomies. Such
weakening in investment and growth rate occasioned in the increasingsignificance of foreign
direct investment as a moderately dependable foundation of capital Asthere are mainly two types
of FDI horizontal and vertical that serve a different purpose to theinvestor. If a multinational
enterprise wants to expand their business horizontally, they mayduplicate the home production of
goods or services and allocate it in multiple countries (host country). This type of FDI is called
horizontal FDI. Vertical FDI on the other hand, serves toallocate fragments of the different
production stages of a multinational firm, with the aim oflowering costs. (Aizenman & Marion,
2003; Braconier, Norbäck & Dieter, 2004).
FDI is to utilize raw materials in the host country, or to establish a closer contact to
theconsumers via distribution outlets (Moosa, 2002). FDI is defined according to residency
theinvestors purpose being an effective voice in the management of earning either long
termcapital or short term capital as shown in the nations balance of payments account
statement(Macaulay, 2012). Broadly, foreign direct investment includes mergers and
acquisitions,
building new facilities, reinvesting profits earned from overseas operations and intra
company loans. In a narrow sense, foreign direct investment refers just to building new
facilities. He believed that FDI encourages the inflow of technology and skills and fills the
gap between domestically available supplies of savings, foreign exchange and
government revenue. It also encourages the inflow of technology and skills. (Onu, 2012).
Engman, M. (2005) mentioned in his research paper Foreign direct investment (FDI) has
long been known as an important source of financing for development in host (recipient)
countries. UNCTAD (2012b) finds that FDI positively contributes to host economies,
including through higher employment and wages, tax revenue increase, export generation
and capital formation. Identifying factors that make a host country more attractive to FDI

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therefore remains an important policy issue.

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 1.2 OBJECTIVE OF THE STUDY
 To know the flow of investment in Afghanistan.
 To know how can Afghanistan Grow by Investment.
 To Examine the trends and patterns in the FDI across different sectors and from different
countries in Afghanistan
 To know in which sector we can get more foreign currency in terms of investment in
Afghanistan
 To know which Country’s safe to invest.
 To know the reason for investment in Afghanistan.
 To understand the FDI policy in Afghanistan.

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 1.3 SOURCE OF THE STUDY
The study is based on Primary data and the facts and figures collected from various
sources such as Fact sheets on FDI, Details of FDI given by RBI, Department of Industrial
Policy and promotion (DIPP), Ministry of commerce and Industry, Effectives of foreign direct
investment to the economics of Afghanistan This information can be used by the foreign and
local investors by viewing the availability of strong low-cost and skilled human resources large
and growing domestic markets availability of abundant land and natural resources low cost raw
materials. The available market of Afghanistan and strategic location. This study highlights the
foreign investment sources and makes a modest attempt towards depicting Afghanistan as
potential for foreign direct investment

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 SCOPE OF THE STUDY
Foreign direct investment is that investment, which is made to serve the business interests
of the investor in a company, which is in a different nation distinct from the investor's country of
origin. A parent business enterprise and its foreign affiliate are the two sides of the FDI
relationship. Together they comprise an MNC.
The parent enterprise through its foreign direct investment effort seeks to exercise substantial
control over the foreign affiliate company. 'Control' as defined by the UN, is ownership of
greater than or equal to 10% of ordinary shares or access to voting rights in an incorporated firm.
For an unincorporated firm one needs to consider an equivalent criterion. Ownership share
amounting to less than that stated above is termed as portfolio investment and is not categorized
as FDI.

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 PLAN OF THE STUDY

The entire research work will run into five chapters.

CHAPTER-1: Introduction brings out the importance of the study, and states its objectives and
source of the study, plan of the study scope of the study. It also includes methodology and
limitations.

Chapter II: REVIEW OF LITERATURE. Will contain previous reviews,history of the

Problems. A Quick look on subjective well-being will also be carried out in chapter II.

Chapter III COMPANY PROFILE AND INDUSTRY

CHAPTER-IV Analysis and Discussions is to be done in chapter IV.

CHAPTER-V Findings, Conclusions and Suggestions for further Research will be presented in
Chapter V followed by Bibliography and References

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 RESEARCH METHODOLOGY

In order to accomplish this project successfully we will take following steps.

Data collection:

Secondary Data:
Internet, Books, newspapers, journals and books, other reports and projects, literatures
FDI:
The study is limited to a sample of investing countries e.g. Mauritius, Singapore, USA etc. and
sectors e.g. service sector, computer hardware and software, telecommunications etc. which had
attracted larger inflow of FDI from different countries.
FII:
 Hypothesis Test: If the hypothesis holds good then we can infer that FIIs have
significant impact on the Indian capital market. This will help the investors to decide on
their investments in stocks and shares. If the hypothesis is rejected, or in other words if
the null hypothesis is accepted, then FIIs will have no significant impact on the Indian
bourses.

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 CHAPTER-2
REVIEW OF LITERATURE

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 REVIEW OF LITERATURE

Since FDI has been determined one of the key driver for stable economic
development across the countries, meaning FDI happens while a trade activity flows among
two or more countries. Foreign investor’s aspects for Right and ownership efficient
protection of Assets and properties in Host County. Stable economic and political freedom,
low practice of corruption has been shown positive response with higher prosperity and
higher inflow FDI attraction cross-countries. Simultaneously, there has been a growing
interest in the determinants of FDI in developing countries (IMF, 2003, Acemoglu et al.,
2005, pp. 15-18). Authors investigated the link between institutions and FDI. Such an
association could be observed as one inter-channel through which institutions push to
promote productivity and development growth across the countries. Indeed, good institutions
are supposed to utilize their positive influence on development through the promotion of
investment in general, which faces less indecisiveness and higher expected rates of return
(R&R). Because FDI is now forming a very large share of capital in poor countries
(UNCTAD, 2004, pp.7-8).

Foreign investment promotions effect local institutions to act more competitively, that might
be an important influence on growth and development, institutional distance between the
parent country and the host country has been so far, an issue, an early study the impact of
institutions on FDI by Wheeler and Moody (1992, p. 6). Talking about the principal
component of thirteen risk factors (including bureaucratic red tape, political instability,
corruption and the quality of the legal system), they did not find a significant impact of good
institutions on the location, latterly study by Wei (1997 and 2000) pointed out corruption as
a significant barrier and impediment inward FDI for host country. Emerging and transition
countries, due to significant advantage of FDI have liberalized their FDI policy and
promoting best policies economy policies to attract foreign investments. It has been observed
that the benefit of attracting inward FDI is significant including, modern information
technology spillover, Human and capital transformation, improving business environment
and competition and enhancing business interactions worldwide. Moreover, apart from
growth and well development benefits, foreign investment considered to better the social and
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environmental issue of host country. By offering standard Technology and supporting social
well fare of the host country. And participating and protecting the social and environment, to
contribute in economic and prosperity of operating country, which mainly effect the
employment generation and decreasing thepoverty.

The participation of FDI in social and economic are vary from country to country, depending
on the investing firm that what kind of assets and resources they will allocate for host
country. It’s according to their capabilities and improvements, which they possess. FDI
parent company made the decision how and what approaches can be used to target the
unemployment and reduce the poverty. The other method is called quantitative analysis of
various MTCs capabilities, the cost and benefits relationship. (UNCTAD, 2006, p. 15), to
find the common characteristics of parent company and host country (Dunning, 1993,
p.8).Opportunities of Foreign Direct Investment

Transfer of resources

Technology transmissions are the most significant factor of transfer through foreign
investment may produce as a positive externality in the host operating country and it lead to
economic development and increase GDP of country, such as facilitating more research and
development activities (R&D). As high development countries possess standard technology
capabilities their presence in under developing countries can be benefited, therefore host
country can generate and benefited more technological spillovers However, how and to what
magnitude MNEs provide and facilitate such spillovers it differs according the nature of
sector. (OECD 2002, pp. 12- 15). Study suggests, the degree of technology transfer need to
be pertinent to the host country business capabilities, the technological capability of host
operating economy is important. Data suggests, FDI have more positive influence over
domestic firms on productivity, the technological break between foreign and domestic firms
must be an obstacle. Where the technological capability of local economy is low and they are
unable to absorb foreign technologies transformation through MNEs. Foreign firms possess
modern technology and tools, VijayaRamachandran (1993, p. 292), found that technology
transmission and the managerial and skills interchange between parent and subsidiary
business were considerably higher for entire owned subsidiaries over joined venture
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subsidiary, long guoqiang (p. 292), found that wholly owned and majority owned foreign-
affiliates in china and much more likely to use the most advanced technology available in the
parent corporate then 50-50 ownership and domestic firms affiliates is mandatory
requirement technology transfer mandates also counter- productive for bringing newest
technology to the host country economy (Long Guoqiang 2006, p.292).

Transfer of technology and intellectual properties

The critical role of technology in business growth is widely accepted technology can play a
crucial role in industrialization and in global trade activities. (i.e., many businesses opened
the online shopping platform by using technology, the purpose of this offer is to enable
customer to access in a new innovative financial services system via their hand phones)
Many international researches shown the direct correlation between having fast and safe
access to financial services stimulate the economics and business growth whiten countries.
This innovative effort made by Etisalat leap to a major step toward social and economic
integration (Romer, 1994, p.27).

MNEs taking risks and invest in long term projects, the inflow of capital tends to be
desirable for host country. Its declared that FDI not only contribute to economic
development of host country not only providing money but also generate and deploy
technology to support the local market that increase the whole benefit of foreign investment
in host country (Hill, 2000, p. 27).

Bosworth and Collins studied, the consequence of foreign inward on local venture for many
countries they differentiate in three types of inflows: FDI, Greenfield investment and or
assets acquisition. That an increase of 1 inflow associated with a 50-cent increase in
domestic investment GDP. Once the country attracts FDI capital, it corresponds close one-
to-one relationship between FDI and local investments (Borensztein et al, 1998, p. 27), Study
found “crowding in” effect for example, that FDI is considered as complementary to national
investment. A dollar increases in inflow cause to increase in total investment in operating
country economy. Feldstein (2000, p. 27) argues advantage related to capital flows, such as
international capital inflows can minimize the risks and allowing them to diversify their
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investments. Foreign inflow opens international integrations allowing and contributing to
practice best corporate policies, rules and regulations.

Human capacity building enhancement

The foreign owned enterprises could power education transfer of host country, by providing
managerial, entrepreneurship and technical knowledge for the operating ountry nationalities,
meaning that host country will benefit from higher quality training and management experts
and this will increase the ability and stock of knowledge in host country. Gaining training
from a Multi-National Corporations (MNCs) tend to be more standard and modern than what
is in local firms, gaining managerial and financial skills from a foreign can enable workers to
establish their local firm such as, supplies, distributer and product agent. Lall and Streeten
(1977, p. 6) argue on three benefits of host country. Better and higher training can improve
operations efficiency in host country. Entrepreneurial capability finding out new investment
opportunities. Superiority arises from training received by employees (such as accounting,
executive, managerial) (Dunning, 1993, p. 28). FDI could transfer more updated and
technical skills to the host country labors, all this gonna lead to economic development of
country. particularly this transfer is more needed to underdeveloped country. As high
development countries possess higher technology capabilities in their presence in less
development countries, consequently host country can generate and be benefited more spill
overs. However, how and to what magnitude MNEs provide and facilitate such spillovers it
differs according thenature.

Jobs opportunities, employment and wages

The quantitative effect of inward FDI on employment opportunities are both direct and
indirect considerable interest in host country, in underdeveloped countries where capital is
relatively limit with high rate of unemployment, accordingly the creation of employment
opportunities either direct or indirect tend to be one of the most considerable benefits of FDI.
The direct effect arises when Foreign MNE train, employ and compensate several operating
country citizens, and jobs arises because of local spending. For example, Toyota in France

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has created 2000 direct jobs and about 2000 jobs indirect in supporting industries. (Hill,
2000) Per Nzomo (1971, p. 27), in Kenya finding shows, foreign inward played important
job in employment generation and creation and as well as in indirect job opportunities. FDI
activities as directly facilitate round about 27 million works in all developing countries, in
addition with a one sole job there were 1.6 automatically additional extra job opportunities
(Aaron, 1999, pp. 27-28). Domestic private business can be benefited by entering business
partnership such as subcontracting system with Foreign MNE for supplying raw materials or
distribution of goods, entering through (backward linkage) or processing of direct raw
supplies for foreign investor merchandise (forward linkage). By both integration forward and
backward linkage connection with domestic industries and foreign investments, led to more
jobs, sustainable growth and apparently stimulate further economics activities in host
country. For instance, local firm supplying spare parts, components and semi- finished goods
to foreign firm. Per Nzomo (1971, p. 27), finding from Blomström (1983,p. 32), from a
Mexican firm that foreign owned manufacturing paid more wages in compare to local firms
about 25 percent different in wages for their labors, data found that foreign companies have
more wages level in compare to domestic firms around 25 till 30 percent, despite small
manufacturing companies where the discrepancy is less. Several findings of wages and
payments in FDI have been base on manufacturing survey information collected by a
national survey of WB.

Several empirical findings suggest that, foreign enterprises sought to pay better wages to
labors in compare to local firm counterpart, specifically for developed countries. A Survey
found, that average wages difference between foreign owned and local owned companies are
around 30%. Means multinational enterprises pay more than domestic owned manufacturing.
Furthermore, finding from Mexico and Venezuela shows, that wages are better in foreign
firms than domestic competitors. But the working conditions might be qualitatively different.

Integrate and stimulate international trade and investments

The earlier economics literature on FDI, the general theory of capital movements from a
country to another country, based on a region’s geographically location while one country
competitive advantage makes an investment in other country (B) is a direct movement to
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country (B), therefore this movement of capital crosses the border known as foreign
investment in host country which two countries involved in. Country (B) is
thehostcountryandcountry(A)isknownasaparentcompanyororiginatedcompany.

This movement of capital positively affect the domestic productions where previously were
note in place in host country. Investing direct to stimulate the local firm’s productivity and
economic progress (Robert E. Lipsey, pp. 21- 25).

Meantime, while a firm make their foreign investment decision in another market, the level
of productivity in operation in both host and parent country remain static Que. Apart from
physical benefits of FDI in host country could perceive a flexible advantage from FDI spill
overs such as: technological benefits, human capacity building benefits, these benefits a
significant important and underpin the economic and development growth of host country
Blomstrom and Kokko (1996, p. 5). According to Balasubramanyam (1996, p. 16) findings,
export oriented countries might attract more foreign investors and gain great efficiency from
Foreign capital, using productivity function of FDI observed an extra input and additional
spill overs to domestic resources, these are the necessity sources for skills and technology for
economic and growth opportunities.

An economic benefit received from consequences of foreign investment activities is the most
important policy for host government. Generally, there are three inward balances of
payments in associate with FDI, when an MNE establish an abroad operation the host
country benefited from inward capital flow. Second, if the FDI absorb in imports and exports
that effect positively the remittance of host country, and the technical fees and taxes are
imposed to foreign enterprise while making export for host country territory to other
countries market. Foreign enterprise while making export for host country territory to other
countriesmarket.

FDI by other countries has strong and has influence in economic growth of host country as
well as in economic policies, and stimulating trade between domestic investments and
international arena. Blamestorm and Kokko (1996, p. 30) found host country effect of FDI,
and Foreign investment played a crucial role in level of export growth in host country. Apart

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from monitory inflows of foreign, there are some other mentionable factors that affect the
economy. Such as contributing in host country trade integrate policies, opening more close
integration between foreign and local companies.

Supporting domestic firms by production partnership, supporting the technological and skill
improvement of local firms.

The impact of FDI depends on strategic motivation of firm, whether the forms is efficiency
oriented-market-seeking or recourse-seeking, FDI can have crucial impact on business and
economic progress of host country by subsidiary exports, thus FDI can play an active factor
to increase host country’s exports productivity. According to OECD Report (2002, p. 16)
foreign enterprise may be able to assist economic development by encouraging domestic
competition and thereby ultimately leading to great efficiency, minor price and more capable
service. More rivalry inclines to bring and stimulate more capital investment by enterprise in
equipment’s, R&D as well as in technical experts, as they competing to gain edge over their
rivals. FDI’s influence on competition in domestic markets, especially in the case of services
and Telecommunications. OECD study, like trade, FDI act as motive to innovation and
competition, encourage domestic enterprise to efficiency (OECD, 1998, p.47).

Less developed countries (LDCs) cannot attract sufficient foreign capital (FDI) to enable
them to achieve and participant in international businesses, which is significant for economic
and development growth of a country. Once of the crucial feature of LDCs is their
incapability to attract global FDI, the inflow of foreign assets remains insufficient in less
developed countries (LDCs) where the country’s economy inter dependency has strong
influence on international trade ofcountry.

By Demand factor: countries attract FDI whenever there is a strong demand for a product of
a company, means company invests when foreign demand is stronger and profitable (de
mello 1997), in addition, globalization processes enable companies to expand, invest, and
operate across boarder. Cost of production factors: firm seeks to decrease the cost of product
and increase profit, whenever for cost of production is comparatively low in foreign country,
parent company is interested to transfer its part or whole of its company there (Carbaugh
2000, p.15).

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LDCs benefited countries interesting social and economic benefits, offering modern
technology and knowledge, allowing them to switch their comparative advantage to
competitive advantage in market. Due to lack of industrialization and infrastructure in the
LDCs disable them to attract foreign investors in their tertiary. FDI brings job opportunities
and provide capacity building training, in broader scale, FDI can boot local productions and
incomes in LDCs, and play an essential in diversification of production. The challenge in
front of LDCs and foreign investors is to reduce the obstacle unattractive elements in the
business environment and to do business in according to global context. The adverse
consequences of FDI on host country is tended to be important issue, as benefits may not be
free of loss and some drawback and other adverse effects is according to country condition.
Historically more than other capital inflow FDI is given more consideration because FDIs
controlledby major large Multinational Enterprise MNEs, can have more power and
influence on local industries. Technology transfer from FDI to host country is some positive
externalities that host country hopes to gain benefit from modern technology. Blomström and
Kokko (2003, p. 30.) argue the spillover of technology is underpinning for host country
government toward encouraging FDI inflows.

Spillover occur in two ways Voluntary and involuntary. Suggest backward linkage occur
when an MNE allow domestic supplier to provide the inputs (Blomström et al., 2000, p. 36).
Involuntary occur when domestic industries and MNEs linked to innovations via technology
that transferred from developed countries to developing countries. It suggests that
technology transfer from developed countries to developing countries can fill the
technological gape and this process allowing for domestic industries more effective and
higher quality productions. Many authors emphasized the potential benefit of FDI can bring
to host country, including by improving pay and jobs conditions both direct and indirect. The
productivity spillover tends a positive and more favorable to the host country as domestic
industries. MNE productivity possibly is good because of well-paying wages and standard
workplace for workers. Aside from productivity MNEs pay higher benefits only to maintain
more skilled human resource and keep jobsecurity.

Foreign direct investment and environmental and social concerns

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 FDI has the potential to bring positive effect and bring positive changes in host country
through disseminating and initiating good social technology practices, before 20th, MNEs
(Multinationals Enterprises) were not involved in political issues of the host country. In the
21st century big corporations gone beyond the economic activities they were deeply
involved in political systems in their operating country, (Gabriel, 2006, pp. 19-20). Great
MNEs seek influences in the legislative process of the host country, the goal of the investor
is to rational profit and tend to force influence in the economic system to protect their
investments.

The strategic behavior of MNEs in foreign countries is based on their interests and long-
term goals; therefore, many countries have strong and strategic goals. Consequently, leader
prefers presence of FDI to use trade to advance their country productivity an economic –
well (Eden, 2009, p. 8). Corporate Social Responsibility is the voluntarily responsibility and
contribution of companies towards improvement of environmental protection, human social
rights and other society’s ecosystem importance (Clarke, 2007, pp. 63-64). CSR basically
mentioned 1953 in the social responsibility of a businessman magazine by “William J.
Bown”.

2.1 Constrains of Foreign Investment in Afghanistan.

Cultural barriers

Barriers defined to be in different mode broadly comes from government rule, regulations
and policies over imports to protect and encourage local / internal productions and services,
or to stimulate domestic export in order to gain competitive advantage of local productions.
Non-economic and intellectual variance like culture that has strong affect upon international
trade and economic development which are inevitable are the most far-reaching (Hazel
2009); it is a notion that has been pointed out in 20 thcentury by German sociologist “Carl
Weber” , who wrote the cultural and religious value affected economic production,
contending that protestant were more productive than Catholics because of a work ethic
rounded on the belief that pursuing wealth was a duty (Hazel, 2009, pp. 421-423).

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As the mind ways, behaviors, beliefs, value, practices, and ideas characteristics of a race,
culture is very abroad concept. Guiso, Sapienza and Zingales (2006, p. 421.) emphasize that
the means it can be incorporated into economic discourse is ambiguous making it difficult to
test. Nevertheless, they are able to narrow down the concept to show how it is linked to
economic outcome by predicting on beliefs and norms. Later on, countryman influences
economic integration between countries (Guise, Sapienza and Zingales 20019, p. 420) this is
echoed in a study by Gokmen (2014, p. 421) wherein culture cause uncertainty and become
an obstacle to bilateral trade relation between two countries wherein those countries are
culturally–closer trade is more with other. His findings showed that two countries with
distinct religious majority and different dominant ethnicities had lower bilateral import flow
compared to those countries sharing thesame

majority and ethnicity, being culturally closer implies near similarities in values and beliefs,
traditions and ethics and other sharing cultural factors. Like countries in the same region tend
to share more tradeinterchanges.

In the same way, A Study by (Elsass and veiga in 1994), showing that large cultural distinct
increase trade cost and reduce bilateral trade because of difficulties in cultural
and behavior understanding (Parkhe 1991: Neal 1998 Cited Molhamnn 2009, p. 20). For
instance, a marketing strategy that works and is acceptable by belief, and values of American
citizens might be acceptable and favorable by major citizens of Asian countries,
Therefore, there is a distinct difference in values, beliefs and religions.

Corruption and bureaucratic differences

Overlapping corruption and Bureaucratic system and inefficiencies policies discourage

foreign investment in Afghanistan. Over bureaucratic and administrative loop, procedure as
well as lack transparency in administrative system can aggravate investors seeking to invest
in long term projects, frequent changes in middle and top level in diverse Afghanistan
directorates, ministries are disruptive and prevent appropriate work and strategic

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implementation and routine duties of different inter-departments. Corruption and over
bureaucratic is impediment to investment in Afghanistan, although the government has
established regulation and legislation to combat inducement, corruption, and, other forms of
corruption, enforcement which are varying. Government struggle to address the culture
combat of against corruption by increasing prosecutions bodies and organizations, executing
and auditing systemic reforms, and strengthening transparency of government services.

Security and infrastructure

A stable security and developed infrastructure have incredible positive impact on economic
growth of Afghanistan and in the Regine countries. Economic and development in
Afghanistan strongly tightened with security condition. Unstable security situations are
affecting the whole Reign, security and development is like a two side of the same coin.
Therefore, I do not think that accomplishing one is promising without contribution of the
other.

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2.2 The role of foreign investment in economic development of Afghanistan.

Today, many countries of the world have found a strong desire to attract foreign investment due to
lack of domestic resources for investment. In our country, although a large volume of investments
is made by the government in the form of development budgets, but with the approach of
increasing the presence of the private sector in the economy that has been applied in recent years,
the importance of private sector investment and, besides, attracting foreign investment, It's
important.

In recent years, improving economic conditions and political stability and ultimately reducing the
country's risk profile has made it easier for foreign investors and attracting their funds, but its
speed and scope should be increased.

In order to become more attractive in attracting foreign capital, we must consider changing and
reviewing the process of economic and development investment in public and public sectors, and
ultimately expanding the scope of the participation of the private and domestic sectors and
revising how to interact with the world around them.

According to a report released by the Ministry of Economic Affairs and Finance, it is said: "In
order to attract foreign investment and create an environment for improving domestic investment,
it is necessary to meet certain conditions that are nowadays considered as a business environment.
What is the space The business is shaped by the political, economic, social and technological
factors. Factors that can have a profound effect on business.

2.3 Types of Foreign Investment

Attraction of foreign investment with two characteristics of the technology and systems of the day
of each industry and the provision of financial resources in the form of capital and even

25 | P a g e
borrowing from the owner of the capital and its impact on the development of economic growth
and business development and

2.4 The employment of the country is very important

Foreign investment is usually done in two ways: direct investment (direct investment) and direct
investment. Buying bonds and stocks of companies in stock trades and deposit bonds in foreign
banks is a type of equity investment. In this case, the foreign investor does not directly play a part
in the production unit management department, nor does it have any financial responsibility for it.
The most important feature of equity investment is its escape. In other words, the foreign investor
can at any moment transfer his capital to a country or a third country by selling shares or
securities, but foreign direct investment is a kind of investment that, in order to obtain a
permanent and permanent benefit in a country-based institution Other than the country of the
investor, the result is to gain effective control over the company's management.

Generally speaking, foreign investment is referred to as the acquisition of assets of companies,

institutions and individuals from foreign countries, which can be distinguished in two ways:

1. Direct investment that the country or foreign investor is investing directly or with the
participation of domestic investors. (FDI)

2. Indirect investment, usually done by foreign investors (FPIs) through the purchase of shares
and bonds in stock exchanges.

The International Monetary Fund (IMF) sees foreign direct investment in effective companies that
are being effectively controlled by individuals or foreign institutions. The general form of this
investment is investment in branches and subsidiaries of transnational corporations. Determining
whether a company is actively controlled by foreigners
26 | P a g e
No, it's not easy to do. In this regard, criteria are considered for this purpose:

- 50% or more of the voting shares owned by foreigners.

-Material of 25% or more shares owned by a foreign entity.

- The presence of special foreign groups in the board of directors.

Direct investment can take the form of new investment, reinvestment of revenues or loans from a
parent company or a controlled company, direct investment can be done with the help of this
criterion, which will be used to achieve sustainable benefits and power in the management of the
firm. It recognizes indirect investment, but the direct feature of foreign direct investment is that it
is not merely an investment, but also the transfer of technology, experiences and skills related to
management, marketing and presence in global markets, which may also be Importance of cold
weather for the country Hgzary is more important than capital spending.

In direct investment, a country or an investment company, it is responsible for the financial affairs
of the manufacturing or trading company in the capitalist country, and the management and
control of the company are among the responsibilities of the investor company.

But investment in the basket of funds (indirect) includes all investments of a real or legal person
residing in one country in the securities of a firm resident in the country. The purpose of this type
of investment is to study maximum profit through optimal allocation of capital in an international
portfolio. In order to achieve this, the investor is attempting to optimally allocate its wealth by
buying bonds and shares of companies in stock trades and even holding long-term deposits in
other countries, in order to reduce the risk of its investment and make more money. In this type of
foreign investment, unlike direct investment, the investor does not directly play a role in the
department of production, and financial responsibility is not paid to him.

27 | P a g e
Other types of foreign investment include joint ventures. In these investments, the foreign
investment company may provide the capital itself. (Independent investment) or its economic
activities in the form of a joint venture. In the case of foreign investment in the form of a joint
venture, the cost of investment and its benefits are divided amongst domestic and foreign
investors. Today, most developing countries prefer this kind of foreign investment because of the
benefits that they face over other forms of foreign investment because they have good advantages
for these countries. In general, these benefits can be summarized as follows. :

The integration of domestic and foreign investment in the socio-economic system of the host
country, providing the field of modern industrial production and benefiting the domestic investor
from the expertise of the investment company in modern industrial activities and new technology.

The local investor effectiveness of joint management efficiency and obtaining the required
experience.

Promotion of reinvestment from the company in the host country.

A foreign investor contributes to the profit and loss of a joint venture, and it benefits only when
the firm is investing in positive returns and profitability.

-It is feasible for the foreign investor to take the plant and if the firm is harmed, it will not be paid
to the foreign investor. Therefore, the financial burden of such investments for developing
countries is far less than obtaining a loan and credit, which in any case is the recipient, responsible
Reimbursement is the principal and all things.

2.5 The motives that lead to the outflow of capital

Undoubtedly, while the main motive of any foreign investor is to earn maximum profit, there are
other goals that can be mentioned:

- Ensuring the consistency of supply of raw materials.

-Regulation of labor and possibly minerals and other cheap raw materials.

-To act in the name of a banking or insurance company that supports profits, home-grown
companies or home-grown companies.
28 | P a g e
- Lack of investment opportunities and severe competition at home or high tax rates.

Proponents, Opponents, Advantages, Disadvantages

With regard to foreign investment, there are many advocates and opponents in the world, and the
two groups agree or disagree with the pros and cons of the attraction and development of this type
of investment. It is not disputed that foreign investment can influence some of the macroeconomic
parameters such as GDP, investment volume, savings, growth rates of payments, foreign trade
volumes, and exchange rates. Often, differences in how these effects are and how much they are.
Possible losses and costs are reciprocal.

According to the report, foreign investment advocates see it as a way to eliminate the difference
between the existing amounts and the amount needed to meet the goals and needs of national
development, and therefore believe that foreign investment will improve such quantities as
savings, foreign exchange reserves, government receipts, Studying skills and technical
knowledge, supplying the market, attending the global economy, and financial and international
markets.

Foreign investment advocates believe that these investments do not stop at the level of financial
investment, but they also come with a set of elements and factors that are especially important for
developing countries, with the current global economic conditions.

Such experiences are less common in developing countries, and as a result, foreign investors can
fill the gap with such a large development in developing the country's economy, including
developing countries with the help of these investments. How to deal with markets, banks and
foreign sources of finance. Also, the advocates emphasize that foreign investment brings with it
the technology of production, machinery and modern equipment, which can lead to the transfer of
technology and skills.

On the other hand, opponents of foreign investment in their opposition to such investments have
their own arguments and argue that foreign investment, with the provision of long-term capital, by
creating monopoly and preventing competition, actually reduces savings and investment in
developing countries Because most of the profits from foreign investment go out of the country
instead of reinvestment. On the other hand, the income of these investments is also the income of
29 | P a g e
groups that are eager to have less savings, and foreign investment has led to an increase in
investment, The demand is pushing up prices.

Opponents of foreign investment believe that with such investments, the bipolar economy will
lead to a limited number of employees in the modern economy, and will have higher incomes, as a
result of which the disparity between their income and other employees will intensify. .
Opponents insist on the fact that, due to foreign investment, limited resources are diverted from
the basic requirements for the production of modern products that will only meet the specific
needs of the group and, as a result of the difference between developed and less developed regions
in the country, the investment increases.

Perhaps the most important point of opposition to foreign investment is the fact that foreign
investment is capital and it focuses more on technology, which can complicate the employment
situation in developing countries, which is the main problem for these countries.

Dr. HumayoonQayumi is an Afghan economic analyst Atlantic Council said, ‘the region is seeing
that an unstable Afghanistan is not helpful for any of the countries either. A stable Afghanistan is
to the benefit of the regional countries as a whole. In some ways, because of our location we
play such a pivotal role in bringing more economic opportunities to the regional surrounded
countries. So, hopefully, these nations will see
thatastableAfghanistanreallyhelpstheireconomies.(HumayoonQayumi,2017)He
alsoemphasizedthatanunstablecountryisnotebeneficialinthereign,butastable country can
contribute to the world economic and development. Such as the TAPI (Turkmenistan-
Afghanistan-Pakistan-India Gas pipeline) project is a good example of security and infrastructure
in the reign. And also CASA 1000 electricity project, which is again a partnership of four countries
Kyrgyzstan, Tajikistan, Afghanistan, and Pakistan. Thus, these energy projects can generate more
economic and job opportunities for countries in thereign.

30 | P a g e
FOREIGN DIRECT INVESTMENT ACTIVITIES IN ASIAN COUNTRIES
AND REGIONAL POLICIES
Framework of Globalization and Regional Cooperation

The concept of globalism entails across the national borders. In the Post-Second World War
period, the sense of ecological distance started to reduce concept of one global village‟ arose.
Despite the fact that the meaning of globalization andregionalizationare convolutedly related
to each other, the earlier is a different phenomenon in the literature of social science. Thus,
regionalism and globalism have been increasingly inspiring the concept, while globalism is a
new phenomenon. Creating opportunities, smooth and competitive platform where large
number of organization comes under the concept such as the European Union, North
American Free Trade Area (NAFTA) and world trade organization (WTO) are originated to
ensure and improve economic efficiency and political stability among countries, such as
improving international trade rules and policies, organizing and administrating the global
economic system, as economy cooperation agreements, economic integration and preferential
trade agreements to administer the free trade and customs union to one economic union where
to link and integrate various Regine to one focal point and procedure of economic, socio-
political and cultural issues. Conflicting, regions are defined as a group of states that are
connected by ecological relationship and manyindependences.
The dialog of regional integration in South Asia was not in 1980 when the states of the region for the
first time realized that a viable block of their own is needed for economic and political cooperation.
Later on, the South Asian Association for Regional.

31 | P a g e
 CHAPTER: 3
COMPANY PROFILE
INDUSTRY PROFILE

32 | P a g e
 COMPANY PROFILE

Overview

Edelweiss, a rare flower found in Switzerland. You will discover in our identity: A graphic flower
that represents ideas. Around it, the protective arms of the letter ‘e’: We believe ideas create
wealth, but values protect it.

It is the practice of this core thought that has led to Edelweiss becoming one of the leading
financial services company in India. Its current businesses include investment banking, securities
broking, and investment management. We provide a wide range of services to corporations,
institutional investors and high net-worth individuals.

The core inspiring thought of ‘ideas creating wealth and values protecting it’ is translated into an
approach that is led by intrapreneurship and creativity and protected by intellectual rigour,
research and analysis.

Approach

Client Focus

Edelweiss is driven by the emphasis we place on building long-term relationships with our clients.
We work closely with our clients to equip them with the ability to address large, fast-growing
market opportunities. Our emphasis on long-term relationships also means that we have a
significant ongoing involvement with almost all of the clients that we work with.

33 | P a g e
Execution Orientation

We focus obsessively on delivering high quality execution through our experienced team of
professionals. Each team is led by senior personnel and is highly research and ideas driven. We
place strong emphasis on confidentiality and integrity in a sensitive business environment.

Culture

Edelweiss fosters a culture that is entrepreneurial and results-driven and that emphasizes
teamwork and intellectual rigour. Our team is encouraged to display higher levels of initiative,
drive, and hunger for learning and taking on additional responsibility.

Professional Integrity

We place a strong emphasis on confidentiality, honesty and integrity in our business dealings. We
expect our people to maintain high ethical standards, both in their professional and personal lives.
We strive to be fair in all our dealings. We respect our competitors.

Research Driven

All our businesses are built on a research and analytics foundation. Our understanding of
underlying market trends and strong analytical expertise has resulted in a demonstrated ability to
identify emerging trends and themes early. We seek to provide the highest quality research and
investment opinions to our clients.Board of Directors

Mr. Rashesh Shah

Rashesh Shah, Chairman of the Edelweiss Group has over 20 years of experience in public and
private markets in India. Mr. Shah’s focus on innovation and his passion for growth through
expansion into related/adjacent markets has been a key differentiator for Edelweiss. Mr. Shah’s
relentless focus is on organization building and human capital development. Under his
stewardship over a period of 15 years, Edelweiss has seamlessly grown into a fully diversified
financial services company. Mr. Shah serves on the Boards of various companies as well as on the
Executive Committee of the National Stock Exchange and is serving the third term as the

34 | P a g e
Chairman of the Capital Markets Committee of FICCI. He has recently been appointed as
Chairperson, ASSOCHAM National Council on Capital Markets. His academic qualifications
include an MBA from Indian Institute of Management, Ahmedabad, a Diploma in International
Trade from the Indian Institute of Foreign Trade, New Delhi and a Bachelors degree in Science
from the University of Mumbai.

BOARD OF DIRECTORS

Mr. VenkatRamaswamy

Executive Director and Head of Investment Banking and Co-Founder of Edelweiss. Mr.
VenkatRamaswamy has previously worked with the Spartek Emerging Opportunities Fund and
ICICI, where he worked on project-based lending to large corporates, analyzing and evaluating
investment decisions. He subsequently managed the Spartek Fund that focused on making equity
investments in small and emerging companies. He brings significant experience and expertise on
client relationships to Edelweiss. Mr. Ramaswamy holds an MBA from the University of
Pittsburgh and is an Electronics Engineer.

Mr. NarendraJhaveri

Mr. Jhaveri, on his return from U.K., after a brief stint with NCAER as Senior Economist, joined
the Economics Dept. of the Reserve Bank of India in 1965. He shifted to ICICI in 1974 as Chief
Economist and then moved to project finance. Mr. Jhaveri has served as an Independent Director
on the Boards of several leading Indian companies besides acting as an advisor to several of them
on diverse matters related to business. He also serves as the Chairman of the IMC Economic
Research and Training Foundation. Over a span of his long professional career Mr. Jhaveri, apart
from giving frequent lectures on subjects related to Indian Financial System, Capital Market,
Economic Development and Corporate Governance, has contributed a large number of articles in
Indian Economic dailies and specialized journals. He holds a Masters Degree in Economics from
Gujarat University. He has also obtained M.Sc. in Economics from the London School of
Economics, specializing in public finance and with 40 years of experience.

Mr. KunnaChinniah

35 | P a g e
Mr. KunnaChinniah is Executive Vice President with GIC Special Investments ("GIC SI"). GIC
SI is the private equity arm of the Government of Singapore Investment Corporation ("GIC").
MrChinniah oversees the Asian private equity business for GIC SI. MrChinniah began his career
in 1982 as a Senior Field Engineer with Schlumberger Wireline Services in the Middle East. He
joined GIC in 1989 and between 1989 and 1997, he held various positions with the Special
Investments Department of GIC in the North America and Europe Divisions including the
position of Regional Manager, on separate occasions, for Europe and North America, overseeing
private equity investments in both regions. He was also GIC's representative in Frankfurt. He was
based in Frankfurt from March 1992 to February 1995 and in San Francisco from November 1989
to April 1991 and from March 1995 to November 1997. His last position prior to his return to
Singapore in November 1997 was Regional Manager, North America Division of the Special
Investments Department. MrChinniah is a Chartered Financial Analyst. He obtained his Bachelor
of Engineering (Electrical) degree from the National University of Singapore in 1982 and
completed a Master of Business Administration in 1989 from the University of California
(Berkeley). In 1997, he attended the World Bank Executive Programme conducted by Harvard
University.

Mr. P.N. Venkatachalam

Mr. P.N. Venkatachalam has over 40 years of experience in the banking sector in India and
abroad. Mr. Venkatachalam joined the State Bank of India as a probationary officer on April 1967
and retired on March 2004 as a managing director. He served briefly as member of the Interim
Pension Fund Regulatory Authority of India, New Delhi in 2004 and has served as a director on
the board of Small Industries Development Bank of India. Mr. Venkatachalam is presently the
Chairman of Laser Soft Infosystems Limited and a director of KhazanaJewellery Private Limited.
He holds a Masters of Arts degree in Economics and is a Certified Associate from the Indian
Institute of Bankers.Mr. Venkatachalam joined our Board on August 9, 2007.

36 | P a g e
Mr. Berjis Desai

Mr. BerjisDesai, is an Independent Director on the Board of Directors of the Company. Mr. Desai
is the Managing Partner, J. Sagar& Associates, one of India's leading law firms. He holds a
Masters in Law. He is an Advocate and a Solicitor. He has been in practice for 30 years and has
rich and varied experience in the legal field, with particular emphasis on corporate law and
legislation related to Merger & Acquisition, derivatives, securities & financial laws, international
business laws and international commercial arbitration. Mr. Desai is also on the Board of various
listed companies as an Independent Director.

verview

At Edelweiss, Corporate Social Responsibility is part of our DNA and we focus on initiatives that
help to build a better, more equitable and sustainable society. For us, CSR means giving back to
society – beyond the call of business.

The idea of EdelGive was conceived to provide strategic direction to the philanthropic activities
of Edelweiss and its employees. Having worked with several talented and successful
entrepreneurs in the for-profit world, our approach to philanthropy is to help create stronger and
more sustainable organizations in the social sector through a venture capital approach. Advice and
high quality engagement on key organizational and managerial issues is the fulcrum of our work
and we believe, will help multiply significantly over time, the impact of our grant-making.

Corporate Social Responsibility

At Edelweiss, Corporate Social Responsibility is a part of its DNA and it focuses on initiatives
that help to build abetter, more equitable and sustainable society. For Edelweiss, CSR means
giving back to the society -beyondthe call of the business.

Edel Give Foundation, the CSR wing of Edelweiss, has accordingly been formed to create an
effective institutional platform to provide structure and direction to the philanthropic activities of
Edelweiss, its employees, its clients and its associates. Its primary focus is on creating
educational, employment and sustainable livelihood opportunities for underprivileged youth and it
brings an „institutional banking and venture capital” rationale andthinking to the social sector.
Edelweiss leverages its strengths - the ability and expertise to act as a bridgebetween providers
37 | P a g e
and consumers of capital - to achieve the objective of addressing the primary needs of
thesocialsector.EdelGive Foundation focuses on the twin areas of education and livelihood and
leverages Edelweiss‟intellectualcapital by encouraging Edelites to volunteer and use their skills to
support non-profits in developing MISsystems, reviewing their accounting and reporting systems
and building five-year strategic and financial plans.

Kubera-Edelweiss Social Innovation Honours is a joint CSR initiative of Kubera Partners and
Edelweiss to

encourage NGOs who are working to improve the status of the girl child in the areas of health,
education and

employability. The Social Innovation Honours for the year 2009-10 received overwhelming
response with over280 entries out of which 5 NGO were selected for the award for their
innovative work to empower women.Edelweiss has been rated among the top 5% of companies in
terms of CSR by Karmyog.com.This presentation is for information purposes only and does not
constitute an offer or recommendation to buy or sell any securities or financial

products of Edelweiss. Any action taken by you on the basis of the information contained herein
is your responsibility alone and Edelweiss or its

directors or employees will not be liable in any manner for the consequences of such action taken
by you. This presentation may contain certain wordsor phrases that are forward - looking
statements, based on current expectations of the management of Edelweiss Capital Ltd. or any of
its subsidiaries

and associate companies (“Edelweiss”). Actual results may vary significantly from the forward-
looking statements contained in this presentation due to

various risks and uncertainties. The information contained herein is as of the date referenced and
Edelweiss does not undertake any obligation to

update these statements. Edelweiss has obtained all market data and other information from
sources believed to be reliable or are its internal

38 | P a g e
 INDUSTRY PROFILE
FINANCIAL SERVICES IN INDIA- BRIEF OVERVIEW
Financial services industry is the mainstay of any economy as it mirrors the financial health of the
country. Indian financial markets are highly regulated with different authorities keeping an eye on
every avenue of financial sub-segments viz. Stock markets, mutual funds, insurance and banking.
Stock markets are regulated by Securities and Exchange Board of India (SEBI) while Insurance
Regulatory and Development Authority (IRDA) keeps an eye on the insurance industry.
Similarly, Reserve Bank of India (RBI) keeps a check on the Indian banking sector and
Association of Mutual Funds in India (AMFI) takes care of the mutual fund segment.

India boasts of aRs 23, 000 crore (US$ 4.44 billion) - financial services distribution and advice
market. Recent developments, Government measures, key facts and figures pertaining to the same
are discussed hereafter.

Insurance Sector

Even when the turbulent times are prevalent in the global financial markets, Indian consumers
have not lost faith in their financial systems. This fact is majorly driving Indian insurance market.

According to the data released by Life Insurance Council, total premium collected (including both
new and renewal premiums) during April-September 2011 stood at Rs 1,22,661crore (US$ 23.69
billion). In the same period, the renewal premium collection increased by 17 per cent to Rs 73,575
crore (US$ 14.21 billion), as against Rs 62,818 crore (US$ 12.13 billion) in the corresponding
period in 2010.

Till September 30, 2011, promoters of life insurance companies had injected over Rs 32,720 crore
(US$ 6.32 billion) as capital. Also, there was an investment of more than Rs 200,000 crore (US$
38.62 billion) in infrastructure development in the sector.

The council further predicts an upsurge in new premium collections during October 2011-March
2012.

39 | P a g e
Banking Services

Ratings agency Moody's believe that strong deposit base of Indian lenders and Government's
persistent support to public sector and private banks would act as positive factors for the 64
trillion (US$ 1.23 trillion) Indian banking industry amidst the negative global scenario.

 According to the RBI's 'Quarterly Statistics on Deposits and Credit of Scheduled Commercial
Banks', March 2011, Nationalized Banks, as a group, accounted for 53.0 per cent of the
aggregate deposits, while State Bank of India (SBI) and its associates accounted for 21.6 per
cent. The share of new private sector banks, Old private sector banks, Foreign banks and
Regional Rural banks in aggregate deposits was 13.4 per cent, 4.6 per cent, 4.4 per cent and 3
per cent respectively.

With respect to gross bank credit also, nationalised banks hold the highest share of 52.8 per
cent in the total bank credit, with SBI and its associates at 22.1 per cent and New Private
sector banks at 13.2 per cent. Foreign banks, Old private sector banks and Regional Rural
banks held relatively lower shares in the total bank credit with 4.9 per cent, 4.6 per cent and
2.4 per cent respectively.
 Another statement from RBI has revealed that bank advances grew 17.08 per cent annually as
on December 16, 2011 while bank deposits rose 18.03 per cent.

MUTUAL FUNDS INDUSTRY IN INDIA

Recent data released by AMFI stated that the cumulative average Asset Under Management
(AUM) of all fund houses aggregated to about Rs 6,87,640 crore (US$ 132.77 billion) in the last
quarter of 2011.

Data compiled at the end of 2011 indicated that HDFC Mutual Fund maintained its top position
with an average AUM of Rs 88,737.07 crore (US$ 17.13 billion) while fund houses namely
Reliance, ICICI Pru, Birla Sunlife and UTI followed. By the end of 2011, there were a total of 44
fund houses in the country as against 42 in the first quarter of the year.

40 | P a g e
Private Equity (PE), Mergers & Acquisitions (M&A) in India

Global consultancy firm Ernst & Young (E&Y) has stated that the value of M&A deals involving
Indian companies aggregated to US$ 34.4 billion in 2011 involving 806 transactions. There were
177 outbound deals with an aggregate disclosed value of US$ 8.8 billion in 2011; forming 25.6
per cent of the total M&A pie.

Adani Enterprises' acquisition of Abbot Point Coal Terminal in Australia (US$ 2 billion) and the
GVK Group's purchase of Australia-based Hancock Coal's Queensland coal assets (US$ 1.3
billion) were among the biggest outbound deals recorded in 2011.

According to data released by auditing and consultancy firm KPMG, India Inc witnessed a 31 per
cent increment in PE investment to US$ 7.89 billion during the first three quarters of 2011. PE
firms like Blackstone India and Kohlberg Kravis Roberts & Co (KKR & Co) are betting high on
Indian markets. The Blackstone India chief was reported to have said that he intends to close 5-6
deals a year in India whose financial valuations would revolve around roughly US$ 100 million to
US$ 120 million each.

The financial industry, or financial services industry, includes a wide range of companies and
institutions involved with money, including businesses providing money management, lending,
investing, insuring and securities issuance and trading services. The following institutions are a
part of the financial industry:

Banks

Credit card issuers

Insurance companies

Investment bankers

Securities traders

Financial planners

Security exchanges

41 | P a g e
Financial Industry: History

The major events that have shaped the modern finance industry are:

The Great Depression (1929): The Great Depression originated in the US with the Wall Street
crash in October 1929. The effects of the depression spread across the world, especially in the
heavy industries. Capital requirements regulation, financial industry oversights and the insurance
of deposit accounts sprang out of this tumultuous period.

Black Monday (1987): On October 19, the stock markets across the world witnessed a huge crash.
This was the largest one day decline in the stock market history. The crash started in Hong Kong,
spreading to Europe and the US. Analysts blamed computer trading systems for magnifying the
losses.

Asian Financial Crisis (1990s): The Asian Financial Crisis was triggered by the collapse of Thai
baht as the government of Thailand decided to float the national currency. The nation had a huge
foreign debt at that point, driving it to the verge of bankruptcy. The crisis rippled across the whole
of Southeast Asia and has led to many emerging market countries to reduce debts and build up
foreign currency reserves.

42 | P a g e
 CHAPTER-4

DATA ANALYSIS

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 THE EFFECT OF FDI IN AFGHANISTAN.

Afghanistan - Foreign Direct Investment and Foreign Portfolio Investment

Statistics

Table No. 1 Number of industries approved for foreign investment

Number of industries approved for foreign investment by Fiscal year (up to fiscal year
2064/65 FNM)
No. of Total Total fixed Foreign Total
Fiscal Year Industries Project Cost Cost Investment Employment
up to Ashad
2046 59 5425.92 4581.82 466.84 10586
2046/47 30 2438.19 2139.6 398.51 9515
2047/48 23 863.56 690.74 406.28 2974
2048/49 38 3508.17 2902.1 597.84 5615
2049/50 64 17886.22 16210.81 3083.67 13873
2050/51 38 3733.23 3175.66 1378.76 4734
2051/52 19 1627.28 1247.85 477.59 2386
2052/53 47 10047.47 9398.54 2219.86 8032
2053/54 77 8559.25 6692.15 2395.54 9347
2054/55 77 5569.38 5142.32 2000.28 4336
2055/56 50 5324.42 4380.17 1666.42 2146
2056/57 71 2669.09 1910.24 1417.61 4703
2057/58 96 7917.62 6122.49 3102.56 6880
2058/59 77 3318.53 1559.59 1209.65 3731
2059/60 74 4921.82 3608.25 1793.77 3572
2060/61 78 4323.74 3775.86 2764.8 2144
2061/62 64 1801.1 1150.89 1639.52 5576
2062/63 116 4121.08 3296.95 2606.31 7358
2063/64 188 3425.57 2650.56 3226.79 7389
2063/64 FNM 121 2690.21 2123.54 2453.12 5398
2064/65 FNM 139 16057.59 13664.93 7968.1 6604
Total 1423 113211.1 93989.88 40799.68 121484

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 No of Total Project Total Total No of
Categories Industries Costs Fixed Cost Employment
Agro-Based 24 525.85 446.49 1344
Construction 35 3026.54 2286.36 2647
Energy Based 26 26660.42 24947.36 5477
Manufacturing 572 42434.76 30765.34 69426
Mineral 5 2436.02 1980.70 1461
Service 393 21179.05 17558.97 22170
Tourism 368 16948.45 16004.66 18959
Total 1423 113211.10 93989.88 121484

45
 Number of Industries Registered by Categories

As we know that Afganisthan can attract more FDI in agro-Based, energy based and
tourism industries than other sectors but here more investment is invested in
manufacturing and service industries.

2.6 Afghanistan GDP

The Gross Domestic Product (GDP) in Afghanistan was worth 19.47 billion US dollars in 2016.
The GDP value of Afghanistan represents 0.03 percent of the world economy. GDP in
Afghanistan averaged 6.24 USD Billion from 1960 until 2016, reaching an all-time high of 20.54
USD Billion in 2012 and a record low of 0.54 USD Billion in 1960.

Number of Industries Registered by Scale (FY 2064/2065)

No of Total Project Total Fixed Total No of
Scale Industries Costs Cost Employment
Large 141 85621.41 75493.92 36232
Medium 196 14052.98 10037.37 25859
Small 1086 13536.71 8458.58 59393
Total 1423 113211.10 93989.88 121484

46
 Number of Industries Registered by Scale

Though Afganisthan can attract foreign investment in large and medium scale
projects, from the above chart we can identify that most of the foreign direct
investment is belong small industries. The main reason behind this may be the
Government of Afganisthan is not being able to establish the amicable and stable
business environment to attract foreign investor as well as the foreign investment
and technology transfer act is not clear and suitable to foreign investment.

47
Afghanistan GDP - Survey - 2017
Afghanistan GDP is projected to be 19.55 USD Billion in 2017 according to a Trading Economics
poll. According to the TE survey, 60% of users expect the value to be higher than the previous
release while 40% of participants foresee a decrease.

48
Afghanistan GDP - Forecast
GDP in Afghanistan is expected to be 21.00 USD Billion by the end of this quarter, according to
Trading Economics global macro models and analysts’ expectations. In the long-term, the
Afghanistan GDP is projected to trend around 23.00 USD Billion in 2020, according to our
econometric models.

API:

The Trading Economics Application Programming Interface (API) provides direct access to our
data. It allows API clients to download millions of rows of historical data, to query our real-time
economic calendar, subscribe to updates and receive quotes for currencies, commodities, stocks
and bonds.

49
 GDPpercapita(currentUS$)
800
700
Afghanistan GDP Last Q2/18 Q3/18 Q4/18 Q1/19 2020
600
500
400 Annual Growth Rate
GDP 3.6 3.3 3.3 3.3 5 5.2
GDPpercapita(currentUS$)
300
200
100
GDP 19.47 21 21 21 18.22 23
-

GDP per capita 596 620 592 620 590 642

GDP per capita PPP 1740 1651 1648 1768 1629 1841

 Impact of (FDI) on (GDP) of Afghanistan

ForeignDirectInvestment, netinflows(Bop,currentUs$)
300000000
250000000
200000000
150000000
100000000 Foreign direct investment,…
50000000
0
2004 2003

Figure 4.1 Total Foreign Direct Investment, net inflows in Afghanistan

Figure 4.1 shows the graphical representation of total foreign direct

investment on gross domestic product (2003-2016), it shows increased
annually (2003-2005) and in 2007 increased to the highest peak.

50
Figure4.2showsthegraphicalrepresentationoftotalgrossdomesticproduct.Itisshownthat there is
consistently increase in GDP(2001-2012).

FDIandGDPofAfghanistan
3 9

8
2.5
7

2 6

5
1.5
4

1 3

2
0.5
1

0 0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

GDPpercapita(currentUS$) Foreigndirectinvestment,netinflows(BoP,currentUS$)

Figure 4.3 Total Foreign Direct Investment & Total Gross Domestic Product of
Afghanistan

Figure 4.3 shows the graphical representation of total gross domestic product
and total foreign direct investment. It is shown that FDI has contribution in
economicgrowth.

51
 CHAPTER-5
FINDINGS,
SUGGESTIONS,
CONCLUSION

52
 FINDINGS
1. The country at present lacks any long terms vision with internal security
emerging as majorissues.
2. The local investors have to be encouraged and foreign participation needs to be
increased with the provision of adequate incentives for income tax holidays,
repatriation of investment, and if possible, constitutional guarantee for private
propertyrights.
3. Foreign aid has to be replaced by foreign investment, especially in export
promoting high technologyindustries.
4. Security and Maoist insurgency was not only the reason for the declining trend
for foreign investment inAfganisthan.
5. Failure of the government mechanisms for improving degree of effectiveness in
FDIutilization.
6. Natural and domestic resources should be utilized atmaximum.
7. Following the global trend and trying to implement them in context of
Afganisthan is not going to work, as Afganisthan presents a different economic
scenario and investmentenvironment.
8. Foreign investment in Afganisthan has developed a wrong perspective among
the people that is dependency and long term it is very dangerous for the growth
and sustainability of thecountry.
9. There should be division of areas so that there arise no bottleneck for being
landlockedcountry.
10. Furthermore, the results indicate that most of the causal links are found in
developing countries which experience a higher level of corruption in the form
of excessive patronage, nepotism, job reservations, “favor-for-favors”, secret
party funding, and suspiciously close ties between politics and business

53
 SUGGESTIONS

The above chapter i.e. data presentation and analysis indicates that the Afganisthan
has yet to appear in the global FDI map. It has not been able to meet the necessary
minimum preconditions for FDI. Afghanistan has a long way to go to make the
environment investor friendly. A developed stock exchange, full convertibility of
foreign exchange or free mobility of capital and easy repatriation of profits and
deregulations are some of the preconditions for FDI. These preconditions are yet to
be fully achieved in Afghanistan.
At the same time, political instability and social and political disturbances have
affected the joint venture projects already operating in Afghanistan. Some of such
undertakings have been withdrawing their capital. For instance, the French
shareholders have withdrawn their capital from the Afganisthan Indosuez Bank.
Similarly, the Kodak Company and Colgate- Palmolive have closed down their
factories at Hetauda. Many of Indian business executives running garments and
carpet factories in Afganisthan has also closed down their operations. These recent
developments appearing in the Afganisthanese business scenario have been a big set
back to the ongoing efforts of the government to attract foreign investment.
The major findings of this study are as follows:

54
 CONCLUSIONS

The review of global, regional and Afghanistan’s FDI and trade reveals clear
patterns and trends. The global environment of FDI and trade suggests a conducive
environment if competitive one. The tremendous growth in the global FDI and trade
as revealed by the data is testimony to this. On the one hand the trend and patterns
for Afghanistan is erratic, negative and declining, which is contrary to and reverse of
the global trends and patterns. This appears to suggest that the world economy is
moving in one direction and Afghanistan in other. The reasons are not hard to
differentiate. For private capital flows and FDI, Afghanistan has yet to create
minimum and necessary preconditions that would attract private capital flows and
FDI. To reverse this balance of trade gap, Afghanistan must create products and
explore niches that have competitive advantage in the regional and global market.
Failure to do so will lead to further marginalization in a competitive global economy
of the 21st century. Instead of share of the pie of the global prosperity, Afghanistan
may find itself bottom of the marsh ofpoverty.

55
 BIBLIOGRAPHY

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OECD.(2002). Foreign Direct Investment for development overview, available link

https://www.oecd.org/investmeninvestmentfordevelopment/1959815
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