Governance in South Asia Implications for Businesses and Foreign Direct Investment

1
Governance in South Asia Implications for
Businesses and Foreign Direct Investment

• Sumit Majumdar
• Professor of technology strategy
• School of Management
• University of Texas at Dallas

2
Agenda

• History of governance
• governance parameters
• governance assessment model
• Business and investor requirements
• Understanding South Asia

3
History of Governance

• Context specificity
• Countries of South Asia
• India
• Pakistan
• Bangladesh
• Sri Lanka
• Myanmar
• Nepal
• Bhutan

4
Implications of History for Governance

• Founding political conditions are important for
  the economy and society
• They define the psychological contract for
  citizen and state interactions

• the contours of this contract influence citizen
  and government relationships
• the nature of relationships influence the
  transactions costs of doing business

5
Classification of South Asian States

• Successionist states
• India
• Myanmar
• Sri Lanka
• Secessionist states
• Bangladesh
• Pakistan
• Monarchist states
• Nepal
• Bhutan

6
Governance Parameters

• three governance parameters
• The nature of agency
• Individual agency
• Collective agency
• The nature of authority
• Personal authority
• Corporate authority
• The nature of absolutism
• Administrative absolutism
• Judicial absolutism

7
Governance Parameters

• The nature of AGENCY
• INDIVIDUAL AGENCY
• Observed in secessionist and monarchist states
• COLLECTIVE AGENCY
• Observed in successionist states

8
Governance Parameters

• The nature of AUTHORITY
• PERSONAL AUTHORITY
• Observed in secessionist and monarchist states
• CORPORATE AUTHORITY
• Observed in successionist states

9
Governance Parameters

• The nature of ABSOLUTISM
• ADMI NISTRATIVE ABSOLUTISM
• Observed in secessionist and monarchist states
• JUDICIAL ABSOLUTISM
• Observed in successionist states

10
The Impact of Parameters on Costs

• In principle transaction costs are lower in the
  presence of
• Collective agency
• Corporate authority
• Judicial absolutism

11
South Asia Business Picture

• South Asia Core investment situation today
• Infrastructure assets
• Knowledge Assets
• Global connectivity for the economy

• South Asia Investors project characteristics
• Moral hazard
• Asset specificity
• Sunk costs

12
Governance Assessment Model

• Institutions
• Delivery
• Enforcement
• Accountability
• Leadership
• Safeguards

13
Governance Assessment Model

• Institutions
• Regulatory
• Normative
• Delivery
• systems
• processes
• Enforcement
• Agencies
• independence

• Accountability
• Mechanisms
• transparency
• Leadership
• Continuity
• confidence
• Safeguards
• Rights
• Protection

14
Investors Governance Requirements

• Project uncertainties enhanced by
• Opportunism
• Hold up problems
• Expropriation of assets

• Project uncertainties reduced by
• Collective agency
• Corporate authority
• Judicial absolutism

15
Implementing Governance Needs

• All in the Implementation!
• Important governance characteristics required
• Communication of credibility
• Articulation of commitments
• Honoring of Property rights
• Reduction of information asymmetries

16
Governance Reality

• Institutions
• Delivery
• Enforcement

• Accountability
• Leadership
• Safeguards

17
What is South Asia Prognosis

• Delivery
• lack of a systemic infrastructure has to be taken
  into account
• Enforcement
• the lack of independence of regulatory bodies
  have to be taken into account
• Accountability
• Opaqueness and the use of discretion rather than
  rules have to be taken into account

18
What is it All About

• All in the management not in the strategy
• All about implementation not formulation
• All about execution not design
• All about implicit relationships