4.

Critical Issues in development

Conflict, Peace and Development
Conflict and development are relevant issue. If there is conflict development is in ruin. On the other
hand if there is development the chance of arising conflict is less. Peace and development are the
welcoming condition while conflict is bad in any sense.
Development broadly refers to social, economic and political processes which aim to better the
quality of life, providing basic infrastructure and social cohesion at all levels, development initiatives
aim to ensure that basic needs are being met and that sustainable livelihood opportunities are being
offered. The Millennium Development Goals illustrate how development is an interdisciplinary field,
which implements programs in various areas and deals with innumerable variables — such as
economic, social, political, gender, cultural, religious and environmental issues.

During times of armed conflict, development issues become increasingly complicated. Although
disputed, most studies view a lack of development, poverty and governance structures as a risk factor
for causing of conflict. At the same time, violent conflicts themselves can cause massive damage to
levels of development. The UN has suggested that “violent conflict is one of the surest and fastest
routes to the bottom of the Human Development Index table – and one of the strongest indicators for
a protracted stay there.”

Given their inter-connected nature, it is not surprising that development and peacebuilding activities
often use similar strategies, for example strengthening governance or building gender equality. Best
practice in both development and peacebuilding emphasizes working at multiple levels, and using
participatory, consultative methods which link grassroots to higher level perspectives. However,
there is a danger that all development activities in conflict-affected areas are defined as
peacebuilding. Development alone, even if it is conflict-sensitive, is unlikely to bring peace
– evidence suggests at best a weak relationship between development and conflict prevention.

Aid Dependency
Much of Africa relies on foreign aid, despite economic growth in parts of the continent significantly
outpacing the global average. Ethiopia has come a long way since images of drought and famine
broadcast around the world prompted the Live Aid fundraising concerts of 1985. But the country's
growth does not tell the whole story. Ethiopia remains one of the poorest countries on the planet.
About a third of the population earn less than $1 a day and it received $504m from the UK
government in 2011/12, making it the biggest recipient of bilateral aid from the country that year.
The aid was used for healthcare, primary school education and the provision of clean drinking water.

Why do some nations that receive U.S. foreign aid year after year never seem to improve, or move
beyond the dependency phase? Perhaps the largest reason is corruption. It’s the “pre-existing
condition” that keeps many aid recipients from ever recovering. It’s a major obstacle to economic
growth, which is why any U.S. development assistance program that does not make anti-corruption
efforts a top priority is doomed to fail.

Foreign Direct Investment Controversy

According to the International Monetary Fund, foreign direct investment, commonly known as FDI,
"... refers to an investment made to acquire lasting or long-term interest in enterprises operating
outside of the economy of the investor." The investment is direct because the investor, which could
be a foreign person, company or group of entities, is seeking to control, manage, or have significant
influence over the foreign enterprise.

A Foreign Direct Investment (FDI) is a controlling ownership in a business enterprise in one

country by an entity based in another country. Foreign direct investment is distinguished
from portfolio foreign investment, a passive investment in the securities of another country such as
public stocks and bonds, by the element of "control". According to the Financial Times, "Standard
definitions of control use the internationally agreed 10 percent threshold of voting shares, but this is a
grey area as often a smaller block of shares will give control in widely held companies. Moreover,
control of technology, management, even crucial inputs can confer de facto control."
The origin of the investment does not impact the definition as an FDI, i.e., the investment may be
made either "inorganically" by buying a company in the target country or "organically" by expanding
operations of an existing business in that country.

FDI flows to Nepal have historically been very low. In the 1990s, there was significant improvement.
The trade treaty with India signed in 1991 undoubtedly helped, as did the policy liberalization of
1992. After peaking in 1997 at $23 million, FDI declined sharply but rose again in 2000. The decline
probably reflects the uncertainty caused by frequent changes of Government and the insecurity
created by the Maoist insurgency.

Types
 Horizontal FDI arises when a firm duplicates its home country-based activities at the same
value chain stage in a host country through FDI.
 Vertical FDI takes place when a firm through FDI moves upstream or downstream in
different value chains i.e., when firms perform value-adding activities stage by stage in a
vertical fashion in a host country.
 Platform FDI Foreign direct investment from a source country into a destination country for
the purpose of exporting to a third country.

Methods
The foreign direct investor may acquire voting power of an enterprise in an economy through any of
the following methods:
 By incorporating a wholly owned subsidiary or company anywhere
 By acquiring shares in an associated enterprise
 Through a merger or an acquisition of an unrelated enterprise
 Participating in an equity joint venture with another investor or enterprise

Forms of FDI incentives

 Tax holidays
 Low corporate tax and individual income tax rates
 Other types of tax concessions
 SEZ- Special economic zones
 EPZ- export processing zones
 Bonded warehouses
 Infrastructure subsidies
 Investment financial subsidies
 Free land or land subsidies
 R&D support
 Relocation & expatriation
 Preferential tariffs

What Investors Look For?

 Law and Order
 Rule of Law
 Trust and Confidence
 Trust with the Government and its policies
  Confidence of Local Investors
 Tax System
 Profitability
 Low Entry Barriers
 WTO Accession and Commitments

 Immense Labor Pool

 Competitive Strengths
• Location Attractiveness
• Reasonable Infrastructure Facility
• Mature Financial Market

Importance/ Advantage of FDI

 FDI is a major source of external finance
 Transfer and provide capital to developing counties
 For added capital, FDI is the source
 Provides foreign exchange
 Increase tax revenue of government
 Influx of capital and increased tax revenues for the host country.
 Introduce advanced technology
 Facilitates transfer of technology
 Job creation and employment
 Increase access to market
 For boosting exports and creating market place, FDI is a good alternative
 Reduce poverty.
 For speeding the growth, FDI plays key role
 For efficiency in manufacturing, trade and services, FDI helps
 Can start new infrastructure and other projects
 Greater competition from new companies
 Increased productivity and greater efficiency
 Foreign entity’s policies to a domestic subsidiary may improve corporate governance
standards.
 Brings foreign executives into the country with sufficient knowledge of macroeconomic
global and local situations

 Transfer of soft skills through training

 Access to research and development resources. 
 Bring capital, skill, innovation, technology to UDCs
 Increase investment level and thereby income & employment
 Encourage managerial revolution through professional management
 Increase exports and reduce import requirements
 Increase competition and break domestic monopolies
 Improves quality and reduces cost of inputs
 Improves the countries’ infrastructures
 Helps in the transition to privatization

Disadvantage
 Capital inflow followed by capital outflow + profits
 Production input importation
  Loss of economic independence
 Threat to national sovereignty and autonomy

FDI is not utilizing properly because:

 Lack of absorptive capacity
 Political interest of donner nation
 Lack of supportive framework and policies
 Foreign aid could not be made compatible with development strategy of developing
countries.

The US and FDI

Enterprises from other countries invested $260.4 billion dollars in the US in 2008 according to the
Department of Commerce. The US tends to be open to foreign investment from other countries. In
2006, DP World, a company based in Dubai, United Arab Emirates, bought the UK-based firm
managing many of the major seaports in the United States.

NGOs and Private Sector Development

The term "non-governmental organization" was first coined in 1945, when the United Nations (UN)
was created. The UN, itself an inter-governmental organization, made it possible for certain approved
specialized international non-state agencies.

NGOs is “private organizations that pursue activities to relieve suffering, promote the interests of the
poor, protect the environment, provide basic social services, or undertake community development.”
“In wider usage, the term NGO can be applied to any non-profit organization which is independent
from government. NGOs are typically value-based organizations which depend, in whole or in part,
on charitable donations and voluntary service. Although the NGO sector has become increasingly
professionalized over the last two decades, principles of humanity and voluntarism remain key
defining characteristics.”

Different sources refer to these groups with different names, using NGOs, Civil Society
Organizations (CSOs), Private Voluntary Organizations (PVOs), charities, non-profits
charities/charitable organizations, third sector organizations and so on.

The main activities are climate change, malaria prevention or a global ban on landmines, human
rights, environmental, improving health, or development work. An NGO's level of operation
indicates the scale at which an organization works, such as local, regional, national, or international.

Non-governmental organizations (NGOs) have played a major role in pushing for sustainable
development at the international level. Campaigning groups have been key drivers of inter-
governmental negotiations, ranging from the regulation of hazardous wastes to a global ban on land
mines and the elimination of slavery.

Types
By orientation
 Charitable orientation 
 Service orientation 
 Participatory orientation 
 Empowering orientation 

By level of operation
 Community-based
 City-wide.
 National organizations
 International

Activities
There are also numerous classifications of NGOs. The typology the World Bank uses divides them
into Operational and Advocacy:
 Oxfam- concerned with poverty alleviation, might provide needy people with the equipment
and skills to find food and clean drinking water.
 FFDA- helps through investigation and documentation of human rights violations and
provides legal assistance to victims of human rights abuses.

Advantage:
 Technological transfer and innovation
 Employment creation
 Changing mode of production
 Transfer of capital
 Human capital development
 Changing the consumption pattern
 NGO provide a third approach of development of development between market led and state
led strategies.
 Participatory and people approach policy
 Focus on grassroots and deprived population
 Promotes equity and brotherhood

Critiques
 NGO's can be uncoordinated, duplicated, creating parallel projects among different
organizations.
 The NGO is an alternative to the state, leaving intact global and regional relations of power
and production.
 Others argue that NGOs are often imperialist in nature, that they sometimes operate in
a racialized manner in third world countries, and that they fulfill a similar function to that of
the clergy during the high colonial era.
 They are being designed and used as extensions of the normal foreign-policy instruments of
certain Western countries and groups of countries. 
 Only small percentages go to people in need, that a lot goes to recover costs, and some have
even been used to pay very high salaries of the people at the top of these organizations.
 Try to implement their own vested interest.
 Uncontrolled
 Increase the desire, right of the people and make the country unstable.