KATHMANDU, Aug 23: The manufacturing sector, one of the most lucrative sectors for foreign investors, has recorded a dramatic fall in foreign direct investment (FDI) commitment in 2011/12 due to factors such as power crisis, increasing labor costs, frequent labor disputes, eroding competitiveness of the Nepali products in the international market and political instability in the country.
Statistics show that the FDI commitment in the manufacturing sector fell by whopping 83 percent during the fiscal year 2011/12 compared to the figure a year earlier.
The manufacturing sector, which has stagnated to 6.2 percent of Gross Domestic Product (GDP) for two consecutive fiscal years 2010/11 and 2011/12, got commitment for just Rs 988 million during the fiscal year 2011/12.
The sharp decline in the FDI commitment in the manufacturing sector has resulted in a loss of 1,541 jobs in the domestic market. According to statistics compiled by Department of Industry (DoI), the FDI inflow in the manufacturing sector had created 3,312 jobs in the country during the fiscal year 2010/11.
“Load-shedding, eroding competitiveness of the Nepali products in the international market, increasing labor costs, frequent labor disputes and political instability are the reasons for this fall of FDI in the manufacturing sector,” Kush Kumar Joshi, former president of the Nepalese Chambers of Commerce and Industry (FNCCI) said.
The manufacturing sector, which comprises industries such as food, beverage and tobacco, textiles and readymade garment, chemical and plastic products, mining products, among others, had receive Rs 6.13 billion FDI commitment in fiscal year 2010/11.
“Organized international business houses have lost faith in the government and its commitment to ensure the investment climate in the country,” Joshi said, highlighting the investment psychology of the foreign investors.
The FDI commitment in the manufacturing sector was increasing at a rapid pace since fiscal year 2008/09. The FDI commitment increased by 156 percent during the fiscal year 2009/10 compared to the fiscal year 2008/09 and reached Rs 3.75 billion. Likewise, the increase was 67 percent during the fiscal year 2009/10 and reached Rs 6.13 billion.
Underlining the importance of smooth and service orientated bureaucracy, Bhawani Rana, vice president of the FNCCI said that the international investors were losing interest to come to Nepal with investment due to rampant bureaucratic hassles to register and start a business in the country.
“Political instability is just a small reason. Labor disputes and heavily politicized trade unions and their irrational behavior are major barriers that the international investors are facing in Nepal,” Rana told Republica. “There are policies and frameworks but their enforcement is very weak.”
The FDI commitment has declined by 30 percent in aggregate during the fiscal year 2011/12 compared to a year earlier. According to statistics, the fall in FDI commitment is highest compared to other sectors such as agriculture, energy and mineral based industries.