Investment Potentials And Need Of FDIs



Ratna Prajapati


The two-day Nepal Investment Summit jointly organised by the Ministry of Industry (MoI) and Investment Board of Nepal (IBN) concluded in Kathmandu on March 3. About 300 foreign investors including government officials from 23 different countries participated in the summit. During the summit, Nepal received commitments for investment from many countries. Prior to the summit, Nepal had expected commitment of one billion US dollars, but, ultimately commitments of over 13.52 billion US dollars were received. This should be taken as an opportunity as well as challenge for Nepal to achieve economic prosperity through foreign direct investments (FDIs).


Suitable destination


No doubt, Nepal is suitable for investments in areas which are barely touched by foreign investors. There is an abundance of natural resources and Nepal needs huge amount of investment to explore and harness these resources. So, investment is always needed and expected.  Investors from within and outside the country can choose highly potential and profitable sectors to invest from among various sectors. The IBN have identified eight highly potential areas of investment i.e. agriculture, manufacturing, tourism, infrastructure, transportation, energy, information technology as well as mining and minerals. Yet, past experience shows that investors are mainly keen about investing in energy, tourism, manufacturing, infrastructures and information technology.


Nepal's GDP composition is very small compared to our neighbouring countries such as China and India. At present, Nepal's GDP composition is Rs. 2,249 billion. According to the latest data, Nepal has managed to attain annual growth rate of GDP only at 0.77 per cent. Due to the small size of GDP and less capital formation, Nepal has been facing a big problem in terms of investment in the big projects. Manufacturing industry, tourism, energy and infrastructure development projects need a huge investment, which Nepal cannot provide. Nepal's private sector also has not become capable to invest huge money in the aforesaid areas.


The Government of Nepal has been trying to attract foreign investment in Nepal since the inception of economic liberalisation and open market economic policy. Although investors from different countries are keen to invest in Nepal, poor governance, corrupt bureaucracy and lengthy procedures have discouraged them from making investment.  Obsolete and inconvenient policies along with corrupt bureaucrats have only caused investors to become disheartened.  Very lengthy legal and administrative processes add misery to the aspiring investors. Due to these reasons, investors who come here with an intention of  investing in different sectors are compelled to go back without investing. This is one of the major reasons why investment commitment remains unfulfilled. Nepal is getting minimum amount of FDI commitment and lesser investment as well. In this context, genuine efforts from the government are needed to convert the FDI commitment into real investment.


According to data of the Department of Industry (DoI) till fiscal year 2072/73, Nepal has received commitment for investment of Rs. 198.56 billion from different countries for more than 3,700 industries. Within the eight months of the current fiscal year 2073/74, Nepal has received commitment of FDIs for Rs. 9.5 billion for 244 different industries. Majority of the commitments for investment are focused on tourism, service and manufacturing sectors.



Many foreign investors are keen to invest in Nepal. It was evident from the successful conclusion  of the investment summit.  But due to political instability, lack of investment friendly environment, unstable policies, very lengthy administrative and legal procedures and lack of good governance the investors are reluctant to invest. Lack of safety regarding investment and assurance of returns from the investment are the basic problems faced by the foreign investors in Nepal. In this regard, the government has to assure the investors regarding the safety of their investments and smooth procedures for the process. During the investment summit, these issues were strongly raised.


During the investment summit, majority of the investors showed concern regarding political stability, stable policy, One Window Policy, Labour Act, Intellectual Property Act and Foreign Investment and Technology Transfer Act. The investors also advised the government to implement these acts as soon as possible so that the investment commitment will be converted into real investment. Since long the government has been trying to implement the One Window Policy and make new Foreign Investment and Technology Transfer Act to facilitate foreign investment, but these efforts have been limited only in paper works. Now, the government should not delay  to prepare investment friendly policies and implement them effectively for investment enhancement and achieve economic prosperity through the development of industry, energy, tourism, infrastructure, information technology and many more sectors. 



As we know well that all the commitments have not been converted into real investment, there is a need for  regular follow up to ensure that all  these commitments are converted into actual investment. The fact that the investors during the investment summit committed to invest about 13.52 billion US dollars against the expectation of the organisers to attract only about one billion US dollar investment shows that Nepal's huge potential for investment has tempted investors to commit more. Keeping this in mind, the Ministry of Industry has formed four different committees to carry out regular follow-ups to convert the commitment into investment after the summit. The Ministry of Industry (MoI) has assured that it would monitor these committees. Certainly, these committees can help build solid ground for investment promotion in the near future.



No doubt,  more and more foreign investors have expressed their commitment to invest in Nepal. Now it is the government’s turn to commit to provide all the necessary services and formulate necessary acts and policies and effectively implement them. If the concerned bodies i.e. Ministry of Industry, Department of Industry, Industrial Promotion Board and Investment Promotion Board work in coordination, undoubtedly the investor's commitment can be converted into actual investment. By doing these we will be ultimately leading Nepal towards the path of economic prosperity and meet our goal of graduating to the status of a developing country by 2022.


Now, we can only hope that the government, major political parties and their leaders, bureaucrats and policy makers focus on good governance and investment-friendly environment that will prove that Nepal is in fact a highly potential destination for investment that fetches expected returns.


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