KATHMANDU, Nov 13: Nepal has seen less than half the pledged amount of foreign direct investment (FDI) materialize in each of the last five years. Data from the Department of Industry shows that Nepal received commitments for cumulative foreign investment of Rs 114.96 billion in the past five years.
However, the country was able to receive actual investment of only Rs 54.38 billion during the period, according to Nepal Rastra Bank. This is about 47% of the pledged amount.
Despite a number of reforms on the legal and administrative fronts, the realization amount remained poor in the last fiscal year also, according to government records.
In FY 2018/19, Nepal received Rs 13.07 billion in FDI against the pledged total of Rs 24.99 billion. Likewise, as against FDI commitment of Rs 55.73 billion in FY 2017/18, the highest year-on-year figure for the past five years, Nepal was able to see only Rs 17.51 billion in actual investment.
Nepal aims to become a middle-income country and achieve its Sustainable Development Goals (SDGs) by 2030. The National Planning Commission, in a report published in June, stated that the country faces a financing gap of Rs 585 billion per year to meet the SDGs.
Keshab Acharya, a freelance economist, said Nepal has been unable to attract big investors due to its small market size. “The issue of transit and a number of non-tariff barriers have also not helped investor confidence,” said Acharya.
Acharya said the government's weak economic diplomacy has been detrimental to investment growth. Poor infrastructure, including inadequate electricity supply and road connectivity, lack of investment security and absence of stringent laws to protect intellectual property are among the major reasons for low capital inflow. “Complications in profit repatriation procedures also erode the confidence of foreign investors,” Acharya added.
He stressed the need for improving the country's performance indices in the global market, apart from implementing its revised laws and policies. The Logistics Performance Index-2018 of the World Bank has ranked Nepal 114 out of 167 countries. The multilateral lending institution has pointed to poor transport infrastructure as a major hurdle in the country's development.
The World Bank's Doing Business Report 2019 ranked Nepal at 110. The country's position this year has however improved to the 94th position.
Uttar Kumar Khatri, spokesperson at the Ministry of Finance, said an FDI commitment is only a proposal to start doing business. “Depending on the overall cost-benefit analysis, investors might change their plan before actually pouring capital into a particular country,” he said.
Investors may just wait and see if they smell a possible change in government policies. “In addition, many of them might look to the long term and register their patents in the concerned market before starting business,” said Khatri.
The government has introduced a number of laws to attract both domestic and foreign investment. The new Foreign Investment and Technology Transfer Act, the amended Industrial Enterprises Act, the Special Economic Zone Act and the Public-Private Partnership and Investment Act came into force within the past two years.
Likewise, the government has opened a one-stop service center to help foreign investors.
Nepal received investment commitments worth Rs 10.76 billion in the first three months of the current fiscal year, up from Rs 4.8 billion during the same period last year.
Dipendra Bahadur Chhetri, a former vice-chairman of the National Planning Commission, said an improved Balance of Payments position and the growing attraction of hydro-power, in particular, could help increase FDI commitments.