Facilitate FDI From Nepali Diaspora

According to the 2021 census, 2.2 million Nepalis reside overseas. In the fiscal year 2022/23 Nepal received remittance of Rs 1220.56. What would be the impact on the economy if even a fraction of the overseas population invested in productive sectors in Nepal instead of merely sending money home? In most cases, the remittance is primarily used to pay off personal debt. One of the unintended consequences of the massive amount of cash flow into the market from remittance is that it is helping family members spend money on unproductive consumer goods, further exacerbating the already skyrocketing inflation.

What would the capital and investment market look like if part of the remittance were capital investment instead of being simply a passive and unproductive money transfer? From the principle of velocity of money, an investment framework will have a positive contribution to the GDP and add value to the economy more positively than that from an economically passive remittance model. FDI is a vast and complex issue. 

Game changer

FDI from the global Nepali diaspora could be instrumental to attract capital in Nepal. The post COVID-19 global economic climate is already in a state of recession. Indicators are painting a potentially dire scenario for Nepal’s economic future. In such a volatile economic outlook, FDI has potential to not only make a positive contribution but also to be a game changer to shift Nepal’s economy significantly towards a more capital and investment ecosystem. In the past, there have been instances of FDI in Nepal from the Nepali diaspora community, albeit few and far between. What we are proposing here is a mass-scale FDI as a norm instead of a handful of exceptional cases.

On behalf of the global diaspora the authors of this article would like to request the Nepal government to convey, through a liberal FDI policy, a message to the wider global Nepali diaspora about its approach to welcome capital investment from them. We believe that such an approach will encourage positive action from all relevant stakeholders, most importantly from the potential expatriate investors.

An owner of an overseas based consulting company has been trying to invest through their sister company in Nepal. The owner, who is a member of the diaspora community, said that they have been going around in circles without being able to make any progress. "For years, we have bounced around from here and there, from this office to that desk. There are unnecessary and unreasonable barriers for consulting and engineering sectors to invest in the country. Out of sheer frustration, we have diverted our capital somewhere else," the owner said. Similar to the above described real-life case studies, acknowledging that there is a large list of barriers, a few key issues and solutions are outlined below. 

The existing minimum investment threshold of Rs 20 million is a barrier to attract FDI, as are restrictions in certain sectors for investment and lack of clarity about the FDI in the Nepal Citizenship (First Amendment) Bill, 2079. Likewise, there are multiple layers of bureaucratic hurdles, cumbersome process to repatriate earnings and issues related to tax. To address these issues, it is necessary to revise the minimum amount threshold of FDI investment to Rs 10 million. Also necessary is removing all existing restrictions, except for sectors sensitive to national security, exclusively for FDI to encourage capital, talent and technology transfer. 

What's more, there must be clarity on FDI mechanism and options in the context of the new Citizenship Bill to give confidence to the potential investors that there are no uncertainty or barriers at the structural and legislative level. Besides, it is imperative to streamline and accelerate official processes and paperwork, to remove the existing barriers to repatriate earnings, and to initiate negotiations for dual taxation avoidance agreement and bilateral investment agreements with countries such as the USA, Japan, Australia and New Zealand from where there is potential of FDI flow.

Official statistics paint a poor outlook of Nepal’s economy. Only a few weeks ahead of the festive season, the markets are relatively quieter. Large and small business houses have been saying for some time that business is bad. Business confidence is not encouraging. These are only the tip of the iceberg. It won’t be an exaggeration to say that Nepal’s economy seems to be heading towards a crisis. In the budget of 2022/23, it was revealed that there was a budget deficit of Rs. 400 billion in the previous fiscal year. It is obvious that the economy would do better with a bit of capital injection. The government’s past FDI policies haven't so far yielded a significant amount of investment, barring a few exceptional cases. 

Low confidence

The diaspora today is capable of and willing to help their home country in the capital investment sector. However, its confidence is at a dismally low level due to the existing investment ecosystem. If the government wants the community to make mass-scale investment in the country, cutting the existing red tape, streamlining the investment process, simplifying taxation, and ensuring a seamless repatriation of return on investment are good places to start.

To facilitate and advance the ideas discussed above, we think that a high-level committee of relevant stakeholders involving the government institutions, the Nepal-based business community and the diaspora business communities is the first essential step. This committee will conduct a due diligence and make recommendations for a road map to improve the FDI ecosystem to facilitate a better flow of capital as investment. Suggested members of this committee are representatives from all directly relevant ministries, line agencies, departments, Investment Board, Nepal Rastra Bank and representatives of the global diaspora investor community. The authors are willing to contribute and share ideas to such a committee. Provided a favourable environment and a supportive framework, capital flow is possible. The diaspora is ready and is willing to collaborate with the government and the private sector to make a positive contribution towards uplifting the economy.

(Maharjan and Kharel are active members of the diaspora Nepali community based in Auckland and Sydney respectively.)