By Laxman Kafle Kathmandu, Sept. 10: Despite COVID-19 pandemic, Foreign Direct Investment (FDI) stock has increased moderately in the fiscal year 2019/20. A survey report on Foreign Direct Investment in Nepal showed the stock of FDI in Nepal increased by 8.5 per cent to Rs. 198.52 billion at the end of fiscal year 2019/20. Paid-up capital is the major component in the FDI stock as it accounted for 54.4 per cent of total FDI stock whereas the reserves and loans in total FDI stock accounted for 33.8 per cent and 11.8 per cent respectively. The increase in total foreign direct investment was due to increase in paid up capital by 22.6 per cent, NRB said.
Total foreign direct investment in Nepal had declined by 8.8 per cent to Rs. 182.92 billion by the end of fiscal year 2018/19. Out of the total foreign investment, the share of paid-up capital was 48.2 per cent, reserve was 42.8 per cent and loan was 9.0 per cent.
In the fiscal year 2019/20, a total of 198 companies were selected from the foreign direct investment companies in Nepal and the survey report on FDI 2019/20 was prepared on the basis of the analysis of the data and other details obtained from the survey, according to NRB.
56% of FDI in industrial and 44% in manufacturing sector Nepal received foreign investment from 52 different economies as of mid-July 2020. In terms of total FDI stock, India ranked top with Rs. 62.45 billion followed by China (Rs. 30.97 billion), Saint Kitts and Nevis (Rs. 15.27 billion), Ireland (Rs. 12.93 billion) and Singapore (Rs. 12.43 billion). Of the foreign direct investment in Nepal, 56 per cent is in the industrial sector and 43.9 per cent in the service sector.
Within industrial sector, manufacturing, mining and quarrying industry constitutes 28.3 per cent and electricity sector 27.5 per cent of total FDI stock. Similarly, banks and financial institutions and insurance companies accounted for 27.3 per cent of the total foreign direct investment within the service sector. The electricity generation sector, particularly hydropower sector in Nepal, has been emerging as a preferred sector for FDI in recent years, NRB said.
The latest survey showed that 27.5 per cent of FDI stock and 36.4 per cent of total paid-up capital is in this sector. Moreover, hydropower sector has also attracted other sources of external financing such as foreign loans in addition to FDI. According to the NRB survey, the capacity utilisation of FDI-based manufacturing companies is constrained by COVID-19 pandemic while the profitability of FDI companies remained satisfactory in the review year. The COVID-19 pandemic has a sizeable impact on global foreign direct investment (FDI) flows as it declined by around 35 per cent in 2020.
It poses significant challenges for many developing countries where FDI has been seen as a potential source of external financing in recent years FDI has a major role to play in sustainable growth and recovery. In this context, Nepal has been gradually making reforms in policies and procedures to promote and facilitate foreign investment inflows, considering it as an important external source of development finance.
The Department of Economic Research under the NRB has been conducting a field survey on FDI and publishing a report with the objective of assisting the formulation of necessary policy on the basis of regional situation and trend analysis of such investment by collecting necessary data on FDI.