Nepal is in dire need of Foreign Direct Investment (FDI) in boosting infrastructure, energy, tourism and Information and Technology (IT) sector, thereby increasing job opportunities and improving living standards of people. FDI is essential to bring in new technology and managerial expertise. Nepal can be an attractive destination for foreign direct investment because of its liberal economic policy and lower labour cost but there are also bottlenecks such as high interest rate, widespread irregularities, lack of skilled manpower and infrastructure, procedural delays, managerial hassles and the bureaucratic red tape, which have hampered the flow of FDI into the country.
Nepal has enacted Foreign Investment and Technology Transfer Act, brought about amendment to the Industrial Enterprise Act and Special Economic Zone Act. The Public Private Partnership and Investment Act has also come into force to facilitate foreign direct investment and protect the interest of investors. The nation has lowered the minimum threshold limit for FDI from Rs. 50 million to Rs. 20 million but still is unable to reverse the trend of decline in FDI commitment and implementation. Prime Minister Pushpa Kamal Dahal Prachanda, speaking at a programme organised the other day by the Investment Board Nepal to mark its the 12th anniversary, assured that the government is committed to reforming policies for attracting FDI and ensuring effective handholding of the development projects that are in various stages of implementation, particularly under the Public Private Partnership (PPP) model.
Investors want certain conditions to meet before they show their willingness to make investments. They put the returns from the project in priority and for that, they want to make sure works proceed without hindrance and hassles from day one till the end of the tenure. Legal facilitation, simplification of bureaucratic procedures, security and favourable market condition are some of the pre-requisites that need to be met by the host country. For instance, investors in the country’s hydropower sector will look at the potential of electricity consumption market both within and outside the country. Surplus electricity generation needs export market as well as reliable power transmission infrastructure. The recent agreement with India to export 10,000 megawatts of electricity in coming 10 years is a positive initiative that has boosted the confidence of investors.
In the past 12 years, the Investment Board Nepal has approved investment of Rs. 1.25 trillion in 42 projects. Hongsi Shivam Cement and Huaxin Cement Narayani are among the foreign investment projects facilitated by IBN. The Arun III Hydropower Project, with 900 MW installed capacity, is in the advanced stage of construction. Likewise, the 900-MW Upper Karnali Hydroelectricity Project has reached the financial closer stage. Besides hydropower, Information Technology and tourism are other potential sectors to lure FDI. In its budget for the fiscal year 2023-24, the government has proposed removing minimum threshold on foreign direct investment in the IT sector and has proposed to provide up to 10 per cent foreign currency facilities for exporting services abroad.
FDI’s contribution to the country’s GDP is nominal and the nation lacks far behind its South Asian counterparts in terms of attracting FDI. The government has provisioned one window policy but investors still have to face inconvenience for company registration and approval, land and transmission line, among others. The prolonged poor infrastructure of transportation infrastructure has added challenges to investors’ assurance. The immediate neighbours India and China are among the top destination for FDI inflow and it is time for Nepal to learn from them.