Unlocking investment potential with Nepal

KATHMANDU, April 28: The much-awaited Nepal Investment Summit 2024 is beginning today (Sunday), with the prime objective to attract foreign direct investment in Nepal’s mega development projects.

The third-edition of the Investment Summit is bringing together over 1600 prospective foreign investors from more than 55 countries in Kathmandu, according to Joint Secretary Pradhyumna Prasad Upadhyay, spokesperson for the Investment Board Nepal (IBN).

Nepal is considered as a liberal country for trade promotion and an attractive destination for investment. 

The country adopting liberal economic and foreign investment policies presents harmonized trade and investment opportunities. Additionally, the good relationship between employers and trade unions, coupled with the availability of relatively affordable labor and burgeoning markets, offers enticing opportunities for investors. Around 71.5 percent of the country’s population is of working age. 

In the wake of numerous global economic challenges, many countries are grappling with recovery efforts. In this context, Nepal can be one of the prime destinations offering secure and efficient investment opportunities, serving as an ideal alternative for investors seeking stability amidst uncertainty.

There are multiple examples of success stories of numerous foreign companies that have earned lucrative amounts through their investment in the country.

Nepal, with relatively low capital formation, is keen to attract potential investors in its mega projects and untapped areas. Its aim is not just to receive adequate capital injection, but also to ensure technology transfers along with innovative ideas from the newly emerging investors in the global market.

Nevertheless, the landlocked Himalayan country struggles to achieve notable size of investment to thrive sustainably. At a time when the country is witnessing a huge gap in pledged capital by foreign investors and the actual realization, the government has maintained high hope of materializing the commitments from foreign investors through this summit. 

Major highlights:

The interest to invest in Nepal is seen particularly evident from immediate neighbors—India and China. While over 300 prospective investors from China including the Chairman of SIDCA have arrived in Nepal, around 150 prospective investors from India are also currently in Nepal to participate in the Investment Summit. High-level representatives from the business community and the governments of various other countries including Japan, the US, the UK, Germany, Bangladesh and the United Arab Emirates are also in the town. In addition, there will be a notable number of domestic investors participating in the mega event.

According to the IBN, it extended invitations to over 2,400 persons. Investors from 55 countries will be joining the summit while there will be 385 participants from Nepal.

A total of 265 investors will be representing China followed by 143 from India, 33 from the US, 28 from Japan, 14 from the UK, 13 from Bangladesh, 13 from the UAE, and 10 from Germany. Similarly, nine each will be arriving from South Korea, Australia, and Malaysia, eight from Pakistan, six from Singapore, and five each from Qatar and Ghana.  Four each will be representing Saudi Arabia, France, and Bahrain in the summit.

Likewise, three each will be attending the summit from Switzerland, Finland, Russia, Austria, Sri Lanka, and Colombia, and two each from the Philippines, Kuwait, Canada, Mauritius, Belarus, and Belgium.

Investors from Egypt, Italy, Norway, Senegal, the Netherlands, Poland, Indonesia, Tajikistan, South Africa, Romania, Mexico and Cyprus. Investors from Ireland, Slovenia, Vietnam, Bosnia, Morocco, Turkey, Vanuatu, Mauritania, and Hong Kong will also be attending the summit.

Sushil Bhatta, chief executive officer of the IBN, said the IBN board meeting last Tuesday permitted a total of 150 projects to be showcased during the summit. Most of them are related to hydroelectricity production.

The government will be forwarding seven projects under ‘Showcasing for Market Sounding.’ The preliminary studies of these projects have already been conducted but the detailed studies are yet to be done. Likewise, 31 projects are in the category of ‘Ideation Projects,’ for which the feasibility study and development concept have not been finalized.

Mugu-Karnali Reservoir Hydroelectric Project will be one of the largest projects to be showcased in the event. The project is estimated to cost Rs 400 billion. As the government aims to promote reservoir-based hydropower projects, the government has accorded high priority to the Mugu-Karnali Reservoir Hydroelectric Project. Likewise, Karnali-Chisapani Multipurpose Project will be another Karnali River-based project to be presented in the summit with priority.

Prospects for investment

Many investment experts believe that agriculture and mining will produce the best returns around the world in the next 20-30 years. Food prices are expected to go up because the growing middle-class population in emerging markets will demand more expensive food including meat and more jewelry. Worldwide inflation will be higher than expected, experts say. Jeremy Grantham, a famous investor, suggests state-of-the-art organic farming as the best investment in the world to solve the possible crisis. In Nepal, we can combine both traditional and modern organic farming techniques to grow food in anticipation of skyrocketing food prices.

The government has identified agriculture and agro-processing, tourism, hydropower generation and infrastructure development as major priority areas for the country’s development. The additional areas having high potential are IT related services, biodiversity, human resource development, education and health sectors and pharmaceuticals.

Nepal has a huge stock of untapped mineral resources including high quality limestones and other mines related products. Among others, Nepal has made a conditional commitment to open up sectors like legal service, engineering, architecture, research and development, advertising, market research, courier, telecom, musical products, higher education, financial service, hotels and restaurants. Foreign investment in these specified areas is safe, secure and most profitable in Nepal.

Being the second largest source of hydropower in the world, Nepal has the potential of generating 83,000 MW of hydropower. A land of over 6,000 rivers and streams with a combined length of more than 45,000 km, Nepal has many hydropower projects currently at hand, and many of them are economically lucrative.

The trade and transit treaty with India offers significant and preferential access to the largest market in the South Asia region. The country is connected to a number of alliances including SAARC, the WTO, BIMSTEC, UNESCAP, MIGA, UNCTAD and BRI.

Nepal also has duty-free access to the European Union under its Everything-But-Arms initiatives. Implementation of SAFTA has added more space for trade and investment. The competitive markets for manufacturing and untapped resources and diversified agricultural production base provide a myriad of mutually beneficial areas for investment.

Outcomes of past investment summits

In the aftermath of the promulgation of the new constitution in 2015, the government underlined the vital role of FDI in the country’s development. The first two events held in 2017 and 2019 have helped the government explore the potential investment areas, its underlying strength and the existing legal and procedural hurdles to realize the FDI commitments.

The highly anticipated summit organized in 2017 attracted 16 companies from six countries, securing commitments of nearly US$13.51 billion, predominantly from China for hydro and cement plants. The FDI, however, did not materialize as per the commitments made during the summit.

Building on this, the 2019 summit was carefully planned with substantial policy reforms in acts like the Foreign Investment and Technology Transfer Act 2019, Companies Act, Special Economic Zone Act, and Labor Act, along with introducing a Hedging Policy to address investment obstacles. Government agencies pledged to act as facilitators with less bureaucratic red-tape. Among the 50 projects showcased, 15 project investment agreements totaling $12 billion, were signed. It included the Nijgadh International Airport, the Kathmandu Outer Ring Road Project and others in hydroelectricity and agriculture. However, FDI inflow fell short by 30 percent compared to the $17 billion committed.

IBN’s CEO Bhatta said the government through the first summit conveyed the message that Nepal is a potential destination. In the second summit organized in 2019, the government promoted the event to give the message that ‘Nepal is an appropriate investment destination’. “Through the summit this time, we are trying to convey the message that Nepal is also a reliable investment destination.”

Review of government policies 

Nepal offers a one-stop service center to minimize procedural hassles to potential foreign investors. The center located at the premises of the Department of Industry provides all services related to the approval of foreign investment of up to Rs 6 billion, visa recommendations for foreign investors, their authorized representatives and concerned experts and foreign exchange facilities under one roof.

In addition, the government always appears flexible to revise its laws in order to comfort the investors. Recently, the government has stepped up efforts to introduce an ordinance to amend several acts related to investment facilitation. A total of nine acts will be amended through this ordinance.

The proposed laws for amendment include the Lands Act 1964, National Parks and Wildlife Conservation Act 1973, Land Acquisition Act 1977, Electronic Transactions Act 2006, Special Economic Zone Act 2016, and Public Private Partnership and Investment Act 2019.

Similarly, the Foreign Investment and Technology Transfer Act 2019, Forests Act of 2019, and Industrial Enterprises Act of 2020 will also undergo amendments through this ordinance.

In the aftermath of the investment summit held four years ago, Nepal has amended laws pertaining to labor and technology transfer to improve the investment climate. However, a number of other laws related to the issues like intellectual property rights and repatriation procedures are still on the flip side.

Better late than never, the government’s efforts to facilitate investors through revision of necessary laws are commendable. Additionally, the government this time organized a number of pre-events and bilateral meetings with potential investors globally to align commitments with actual inflow.

Challenges

According to an FDI Survey conducted by Nepal Rastra Bank (NRB), there is a significant gap between approved FDI and actual net FDI inflows in Nepal. In 2021/22, the total actual net FDI inflow stood at only around 36.2 percent of the total FDI approval. In addition, the net FDI inflows to Nepal decreased 4.9 percent to a mere Rs 18.6 billion in the year.

Notably, in 2022/23 when the total investment commitment was Rs 38.45 billion, the actual FDI inflow amounted to Rs 5.98 billion. This highlights a huge gap in promises and reality in terms of the foreign investment. It calls for the necessity of a huge paradigm shift throughout the government working mechanism.

Despite the provision to amend laws through an ordinance, the issues raised by the private sector over the years remain unaddressed. Domestic and foreign investors continue to question Nepal’s investment-friendly legal environment.

Chandra Prasad Dhakal, president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said that the government should immediately amend the laws to create an environment of trust among foreign investors. “Although the government has recently moved to amend a few laws, they are not sufficient. However, it has ensured some comfort to the private investors,” Dhakal said.  According to him, traditional laws, policies, and regulations are major obstacles to investment. 

Rajesh Kumar Agrawal, president of the Confederation of Nepalese Industries (CNI), has sought the need to amend 24 laws and regulations, retract five laws, and introduce three new laws to foster an investment-friendly environment in the country.

 
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