FDI Flows and its Prospects in Nepal

Nepal aims to become a middle-income country and achieve the Sustainable Development Goals by 2030. But the current level of investment is not enough for the country to reach the middle-income stage from the current low-income status as targeted, according to a World Bank report. Foreign direct investment is vital for accessing new technologies, business practices, and markets. In the past few years, FDI inflow in Nepal has seen an upward trend but lags behind most South Asian countries.

FDI Inflow in Last 5 Years

According to an assessment by the United Nations Conference on Trade and Investment (UNCTAD), Nepal was ahead of only Afghanistan and Bhutan in attracting FDI in 2017-2018. Nepal received an FDI of Rs. 17.55 Billion or $161 Million in that year against $139 million by Afghanistan and $6 million by Bhutan. Countries like Bangladesh and Sri Lanka are far ahead of Nepal in attracting FDI in South Asia.

According to Nepal Rastra Bank, the FDI inflow decreased in the fiscal year 2018-19 to $115.5 million despite the increase in few years.  Realisation of FDI has remained poor although commitments have remained relatively much higher. FDI commitment to Nepal in fiscal years 2017-18 stood at Rs55.76 billion and 2018-19 at Rs23.94 billion, according to the Department of Industry but the country received FDIs of Rs. 17.55 Billion ($161 Million) in 2017/18 and Rs. 13.02 Billion ($115.5 Million) in 2018/19 respectively.

FDI flow in South Asia (2018)

Nepal has jumped to an all-time high of 94 among 190 economies in the World Bank’s ease of doing business rankings and 3rd in South Asia. It is backed by improved credit information availability, easier cross-border trade, and enforcement of contracts. The Ease of doing business index ranks countries against each other based on how the regulatory environment is conducive to business operation stronger protections of property rights. Economies with a high rank (1 to 20) have simpler and friendlier regulations for businesses.  It is the biggest leap—of 16 places—the country has made in over a decade in the rankings, according to a recent report. In 2008, the Doing Business Rank was only 123.

What to do to improve FDI Status in Nepal ?

  • Our pre-investment administrative processes that an investor has to go through are lengthy and difficult. Hence, One Window Policy should be initiated to reduce such burdens
  • We should also provide more incentives such as lower tax rates and lower tariffs on import of raw materials and export of final goods which will reduce the relative cost to foreign investor
  • Reducing Corruption and Liberalizing Foreign Investors Visa Policy in Nepal might add some ease on FDI
  • Political stability and investors security should be guaranteed and cushions should be provided to motivate foreign investment
  • For attracting FDI and optimizing it, greater policy transparency, especially through increasing information flows, is essential for boosting investor confidence.
  • Lessening investor risk through upgrading quality and effectiveness of laws, and predictability and efficiency of their implementation, are necessary.
  • Even the threshold of Rs. 50 Million+ investment has created obstacle in development of small scale business which needs to be adjusted
  • Intellectual Property right safeguarding and its monitoring should be made stronger since it has created problems in past : KNP vs KNP Nepal case
  • Militancy of trade unions, which have become emboldened particularly in the aftermath of the declaration of Nepal as a republic, has created havoc for the overall business climate of the country and it should be adjusted likewise

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