KATHMANDU, July 23: Foreign direct investment (FDI) commitments to Nepal fell in the last fiscal year despite government efforts to attract overseas investors through legal and policy reforms.
According to the Department of Industry, Nepal approved FDI commitments worth Rs 58.01 billion for 1,116 industries and projects in fiscal year 2025 to 2026, down nearly 11 percent from about Rs 64.96 billion recorded a year earlier. Commitments declined by around Rs 7 billion in one year.
Private sector leaders believe investor confidence weakened after attacks on private businesses during the Gen Z protests and uncertainty over the post-election political landscape. The September 23 and 24 protests caused an estimated Rs 80 billion in losses to the private sector.
Prabal Jung Pandey, vice president of the Federation of Nepalese Chambers of Commerce and Industry, said the attacks created fear among investors and exposed the government's failure to build confidence.
"The attacks on private businesses during the Gen Z movement created panic," Pandey said. "The inability to reassure investors was another major reason."
He expressed optimism that commitments would improve this year following the formation of a stronger government.
Foreign investment commitments decrease by over Rs 21 billion
Although the government amended the Foreign Investment and Technology Transfer Act, expanded the automatic approval system, announced a single window mechanism and organized investment summits, the measures have yet to produce the expected results.
Business leaders say policy uncertainty, bureaucratic hurdles, delays in project implementation and an unfriendly investment climate continue to discourage foreign investors.
Department data show the information and communication technology sector attracted the largest number of approved projects. A total of 727 ICT projects, about 65 percent of all approved projects, received FDI approval last fiscal year. Tourism followed with 227 projects, services with 71, manufacturing with 63 and agriculture and forestry with 18.
Despite having the fewest projects, agriculture and forestry attracted the highest investment commitments at Rs 23.19 billion. Tourism received commitments worth Rs 13.99 billion, energy Rs 7.17 billion, services Rs 4.91 billion, manufacturing Rs 3.91 billion and ICT Rs 2.83 billion.
The department said 897 projects registered through the automatic approval system, while 219 obtained approval through the standard process. It also approved 59 share purchase and sale proposals, involving investment commitments exceeding Rs 12 billion.
Foreign investors continue to invest mainly by establishing new industries or buying shares in Nepali companies.
Business leaders said the automatic approval system has made Nepal more attractive for small and medium investors, but large projects still face lengthy administrative procedures.
"Administrative hassles remain a major obstacle," Pandey said. "The government needs to simplify the process."
The department also recommended 1,818 business visas during the last fiscal year and approved applications related to dividend and royalty repatriation.
Nepal has revised several investment related laws in recent years, including the Foreign Investment and Technology Transfer Act, public private partnership provisions and the Industrial Enterprises Act. It has also held two investment summits to promote Nepal as an investment destination.
Even after securing approval, many projects remain stalled for years because of land acquisition problems, environmental clearances, power supply issues, court disputes, tax disagreements and poor coordination among government agencies.
Economists say Nepal's location between India and China offers significant opportunities, but weak infrastructure, high production costs, a small domestic market and limited export competitiveness continue to deter investors.
Nepal's recent placement on the Financial Action Task Force, FATF, grey list has also prompted some investors to become more cautious. However, analysts say the decline in FDI cannot be blamed on the grey list alone. Policy instability, bureaucratic delays, weak infrastructure, slow project execution and concerns over investment security have all contributed to the slowdown.
The private sector argues that frequent policy shifts with every change of government, slow implementation of decisions and the lack of a clear long-term industrial strategy have left investors uncertain.
Nepal still offers strong investment potential in tourism, agriculture, information technology, energy and manufacturing. Realizing that potential, however, will require stable policies, faster decision making, better infrastructure, stronger investment protection and timely implementation of approved projects.
