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100 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA<br />
window’ system to facilitate and encourage it<br />
(UNCTAD-ICC 2003). There is also a consensus that<br />
the country welcomes investors and that its regime is<br />
liberal by South Asian standards.<br />
Nepal is already very well involved in trade in<br />
services with some of the South Asian countries. India<br />
is obviously the most important trading partner and<br />
also the largest investor in Nepal. Nepal receives a large<br />
number of Indian tourists every year, whereas thousands<br />
of patients and students from Nepal come to India<br />
for medical treatment and education respectively. A<br />
regional agreement will bring Nepal closer to other<br />
South Asian countries particularly Bhutan and<br />
Bangladesh due to their geographical proximity. Like<br />
other countries in the region, Mode 4 is of special<br />
significance to Nepal and it would like to ensure better<br />
market access for its surplus labour force. In this regard,<br />
the regional agreement would be a great facilitator of<br />
movement of natural persons. Nepal may also gain by<br />
exports via Mode 1 as it is developing its capability in<br />
the area of IT. Mode 2 is already a proven area of<br />
interest particularly given its advantage in tourism.<br />
However, Nepal has huge import interest in Mode 3 in<br />
all three service sectors, viz., construction, tourism and<br />
education services.<br />
The Maldives<br />
The Maldives has recorded remarkable economic<br />
growth over the past two decades, especially compared<br />
with the rest of the South Asian countries. It reached<br />
an impressive per capita income of $2,680 in 2006 from<br />
$771 in 1984 and sustained a significant annual GDP<br />
growth of 7.9% in the past 15 years until 2004. The<br />
country has attracted a fairly high level of FDI. However,<br />
due to a combination of factors including Tsunami,<br />
for the first time in its history, the country recorded a<br />
negative growth rate of 4.1% in 2005. But once again<br />
the growth rate has bounced back and registered a<br />
whopping 18.7% rate of growth in 2006 (Maldives<br />
Data Profile, World Bank 2007).<br />
According to the World Bank study, ironically,<br />
although the Maldives lacks the resource endowments,<br />
the scale of economies, and the geographical diversity<br />
enjoyed by its South Asian neighbours, it has surpassed<br />
all of them to achieve the highest per capita GDP levels<br />
in the region (The World Bank 2006). However, the<br />
study adds that the Maldives belongs to a special<br />
category of countries called “Small Island economies,”<br />
which are dependent primarily on tourism and therefore<br />
on a narrow product or service range.<br />
Services constitute by far most of the Maldivian<br />
GDP (82%), as tourism is the economy’s mainstay<br />
(33% of GDP) (Maldives’ TPR 2002). The Maldives’<br />
economic growth has been largely based on tourism<br />
development since the early 1970s. The legal and<br />
regulatory environment for FDI in the Maldives is<br />
relatively simple, liberal and generous (Maldives’ TPR<br />
2002). The main legal instrument on FDI is the Law<br />
on Foreign Investment, which requires an agreement<br />
to be entered into between the investor and the government.<br />
Areas to negotiate include, the sector of operation,<br />
the royalty payable to the government, location<br />
and duration of investment and operation, jurisdiction,<br />
dispute settlement, investment guarantee, compensation,<br />
and incentives, including land rent (and lease<br />
period where applicable) and import duty concessions.<br />
The Law broadly provides for 100% foreign<br />
ownership, in addition to foreign – local joint venture,<br />
and investment guarantee. The investor is permitted to<br />
repatriate capital and profits. Employment of non-<br />
Maldivians is allowed in cases when competent locals<br />
for the post in question are not available. Incentives in<br />
the form of waivers on import duty on machinery,<br />
capital goods and construction materials are available.<br />
Despite a relatively open regime and efforts to<br />
attract FDI, inflows remain low. FDI grew, on average,<br />
by between 10% and 20% annually from 1986 to 2000<br />
(Maldives’ TPR 2002). This growth was from a small<br />
base, with annual FDI inflows averaging $5 million<br />
during 1985 to 1995, and $12 million from 1997 to<br />
2000. FDI stock was $3 million in 1985, $118 million<br />
in 2000 and $131 million in 2001. Much of this<br />
investment was in tourism. The stock of inward FDI,<br />
excluding tourism as of March 2000 comprised about<br />
50 projects with a total investment of around $65<br />
million. A few of these projects may have some bearing<br />
on construction services but there does not appear to<br />
be any investment in education services.<br />
In spite of having a relatively liberal trade regime,<br />
it can be suggested that the Maldives has among the<br />
fewest commitments in services under GATS. Its<br />
commitments undertaken during the Uruguay Round<br />
are limited to just one service sector – business services.<br />
(In services such as tourism, construction, and<br />
education it has strong interests. In tourism it has<br />
proven advantage and it should seek regional support<br />
to further build on its growth and sustain it in the long<br />
run. However, in education and construction services<br />
it has an import interest and it should aim to gain from<br />
regional integration. Particularly in education, other<br />
South Asian countries could be of great help in respect