Adopting Innovative Methods to Promote Investment

While unveiling the budget for the upcoming fiscal year, Finance Minister Bishnu Paudel emphasized the term “investment” no fewer than 65 times, underscoring the government’s strategic focus on fostering a conducive investment environment in Nepal. However, such proclamations are far from unprecedented; successive administrations have consistently placed investment promotion at the forefront of their policy agendas and have undertaken various initiatives to realize this objective. Despite these policy declarations and promotional efforts, the outcomes have fallen short of expectations, with limited tangible success in attracting substantial investment into the country.

Despite organizing three high-profile investment summits and repeatedly declaring itself appealing for investment, Nepal continues to struggle with one of the lowest foreign direct investment (FDI) inflows in the region. As of 2023, FDI net inflows stood at a mere 0.18% of GDP, according to World Bank data, raising serious questions about the effectiveness of Nepal’s current investment promotion strategies that are largely focused on event-based outreach.

While investment summits offer a platform for visibility and dialogues, they lack continuity, follow-through, and institutional backing to translate investors’ interest into commitment. As global investment flows become increasingly competitive, Nepal must rethink its approach, from ceremonial promotions to a sustained, strategic engagement initiative.This requires not only political will but also institutional reform, targeted diplomacy, sectoral prioritization, and the intelligent use of digital platforms. Recent efforts of the government for legal and policy reform are a welcome gesture, but not sufficient, and require effective implementation capacity.

The relationship between investment and economic growth is generally positive and well-established in both theory and practice. Investment—particularly in physical infrastructure, human capital, and technology—expands a country’s productive capacity and generates employment, which in turn fuels economic growth. In low-income countries like Nepal, foreign direct investment (FDI) can have a significant impact on growth, particularly when it is accompanied by sound infrastructure, good governance, and supportive policies. Studies have shown that a 1% increase in FDI as a share of GDP can result in a 0.2% to 0.5% increase in GDP growth in developing economies.

Passive Promotion, Persistent Problems

Nepal’s current FDI landscape is marred by several systemic challenges. First, Nepal’s diplomatic missions abroad remain largely passive in investment promotion. Many lack trained economic officers or clearly defined mandates to attract investors. Without proactive outreach, relationship-building, and country-specific investment pitches, Nepal fails to stay on the radar of serious international investors. Second, the country’s physical and digital infrastructure remains underdeveloped. Poor connectivity, high logistics costs, and power reliability issues—despite hydropower potential—diminish Nepal’s competitiveness. Third, Nepal’s domestic market is relatively small, and its private sector is fragmented and risk-averse, limiting the scope for large-scale joint ventures. Moreover, inconsistent regulations, cumbersome approval processes, and lack of aftercare services for investors further erode trust in Nepal’s investment ecosystem.

However, Nepal is not alone in facing such challenges. Several countries with similar limitations have managed to turn their fortunes around by adopting innovative and sustained investment promotion strategies. Vietnam is a notable example. By developing investor-friendly special economic zones, maintaining long-term policy stability, and focusing on sectors like electronics and manufacturing, Vietnam has positioned itself as a key FDI hub in Asia. Rwanda, often praised for its governance reforms, created a proactive and professional investment board that offers streamlined services and clear post-investment support. Similarly, Estonia transformed itself into a digital economy through initiatives like e-residency, offering investors the ability to start and manage businesses remotely. Closer to home, Bangladesh has successfully promoted industrial clusters in garments, leveraging infrastructure, labor, and export incentives. These cases show that strategic, sector-specific promotion backed by capable institutions can deliver results, even in low-income economies.

Drawing lessons from others

Nepal can draw valuable lessons from these models. First and foremost, it must reform its diplomatic missions to make investment promotion a key mandate. Embassies should be staffed with trained investment officers equipped with sectoral knowledge, promotional tools, and the authority to engage meaningfully with business communities abroad. Secondly, Nepal needs to fully automate the Investment Board Nepal and the Department of Industry and initiate an integrated one-stop service center, not just in name but in action. This agency should facilitate not only approvals but also post-entry services such as grievance handling, networking opportunities, and reinvestment support.Sectoral targeting is crucial. Nepal can focus on high-potential areas such as hydropower, ICT outsourcing, organic agriculture, and tourism. Dedicated industrial zones, customized incentives, and virtual investor engagement through digital platforms can make these sectors more appealing.

As digitization is expanding in every sector, investment promotion can also be carried out leveraging digital technology, with Artificial Intelligence (AI) the newest tool. Invest India, the Indian government agency for investment promotion and facilitation, has been leveraging AI-powered chatbots to assist investors around the clock, responding to queries in real-time and offering personalized support. Its digital dashboard provides transparent and up-to-date information on projects, policies, and incentives. providing positive results in investment promotion.This is a glaring example of how an innovative investment promotion platform can be instrumental in facilitating investors.

Time for Targeted Outreach, Not Just Talk

Nepal must also abandon its reliance on general summits and embrace a more focused investor engagement model. One recommendation: launch a “head-hunting” program targeting at least ten multinational companies already operating in India and China. These firms understand the regional market and may see Nepal as a cost-effective expansion opportunity—if offered compelling incentives and reliable support.Mobilizing Nepal’s diplomatic corps and foreign embassies in Kathmandu to facilitate such engagements could yield tangible outcomes far superior to broad promotional declarations.

Leveraging Regional Spillovers

Nepal’s economically strategic location between two economic powerhouses—India and China—offers opportunities for supply chain integration and cost-efficient manufacturing. As wages and production costs rise in these countries, Nepal can position itself as a viable alternative for industries such as agri-business, clean energy, and IT services. For instance, ICT is one sector where Nepal can achieve a quick win, with improved internet access and a growing talent pool. Similarly, modernizing agriculture through targeted FDI can generate rural employment, enhance food security, and help retain youth in the sector.

Recently, the Federation of European Businesses in India (FEBI) held high-level engagements with Nepal’s top government officials, business leaders, and young entrepreneurs to explore avenues for promoting European investment in the country. This initiative underscores a growing recognition of Nepal's untapped potential amid regional dynamism. India, for example, has emerged as a major investment destination, hosting top businesses from the US, Europe, Japan, Korea, Canada, China, and Australia, significantly boosting its job market and tax base. Both neighbors, now central players in global production and trade, offer more than just lessons for Nepal—they present opportunities for spillover effects. As wages and the cost of doing business rise in India and China, Nepal can position itself as a lower-cost alternative for certain industries, especially in manufacturing, agri-business, IT outsourcing, and green energy. By leveraging its proximity to these economic giants and integrating into their supply chains, Nepal could attract investors seeking cost efficiency and regional diversification, provided it improves infrastructure, policy clarity, and investor facilitation mechanisms.

Furthermore, Nepal’s private sector should be actively engaged in investment promotion efforts. Chambers of commerce, industry associations, and local entrepreneurs can play a key role in presenting success stories, hosting investor delegations, and offering practical insights into doing business in Nepal. Finally, Nepal should reposition itself not just as a domestic market but as a strategic gateway to South Asia. With improving trade ties with India and China, and potential regional linkages, Nepal can present itself as a regional hub for access to over two billion consumers.

Nepal must also move beyond broad-based promotional campaigns and adopt a more targeted, proactive approach to investor outreach. Instead of relying solely on mega investment summits, which often risk becoming ritualistic events with limited tangible outcomes, the government should initiate a strategic "head-hunting" program to identify and approach high-potential foreign investors. Under the leadership of the Finance Minister, who also serves as the Vice-Chairman of the Investment Board Nepal, the government should personally engage with at least ten major multinational companies already operating in India and China. These companies are familiar with the South Asian investment climate and may be open to expansion in cost-competitive locations like Nepal. Nepal’s diplomatic missions abroad, as well as foreign missions based in Kathmandu, should be mobilized to facilitate these engagements. Tailored outreach backed by sectoral data, incentives, and credible follow-up mechanisms can yield far better results than generic summit declarations.

A Lesson in Smart Diplomacy

The recent visit by the US President to Saudi Arabia, the UAE, and Qatar secured over $2 trillion in investment pledges, equal to about 7% of US GDP. This illustrates how high-level engagement and smart diplomacy can mobilize substantial capital. Nepal can draw inspiration here: strategic outreach, especially led by top officials like the Finance Minister, can significantly boost credibility and investor interest.

Conclusion

Nepal needs an annual investment worth over Rs 2025 billion from 2016 to 2030 to achieve the Sustainable Development Goals. To arrange such a huge amount for investment, Nepal has no option but to make sustained and precise efforts to boost investment. Promoting FDI in Nepal requires a fundamental shift in approach. While big events like investment summits have their significance for a specific purpose,they cannot be a substitute for a comprehensive strategy built on diplomacy, sector focus, institutional capacity, and digital engagement. Periodic summits dominated investment promotion efforts have yielded limited success, with FDI’s negligible contribution to the economy.

Nepal must embrace a forward-looking vision that emphasizes consistency, credibility, and investor-centered communication. By learning from global best practices and tailoring them to its unique context, Nepal can gradually move from a low-investment economy to a competitive, reliable, and welcoming destination for foreign capital.

To transform its investment landscape, Nepal must embrace a strategic shift: one that empowers diplomatic missions, prioritizes sectoral strengths, streamlines investor services, and actively pursues high-potential investors already operating in neighboring giants like India and China. With targeted reforms, focused outreach, and digital innovation, Nepal can not only overcome its structural limitations but also emerge as a competitive, credible destination for global capital. The message is simple: In the global race for investment, Nepal must stop waiting to be discovered—and start making itself impossible to ignore.

(The author worked with the Office of Investment Board Nepal as Communication Expert)