GreenTick Insight on Foreign Direct Investment in context of Nepal Foreign Direct Investment is the investment made by the foreign investor in the company located in foreign land. It is sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments.
FDI has also enabled the country to export non- traditional manufactured products such as micro-transformers and personal consumer products UNCTAD, b. Investment was mainly in low-technology, labour-intensive production.
The impact of FDI had also been modest, primarily in job creation. According to the study, FDI inflow was constrained by political instability, outdated foreign investment law, rigid labour regulations and poor physical infrastructure. This situation remains current due to political instability and political transition.
FDI is considered beneficial in view of its contribution to technological transfers, enhancement of managerial capability and new opportunities for market access. FDI, particularly in the form of equity investment, adds to the capital stock of the country and thus enables the recipient country to achieve faster economic growth through momentum in capital formation.
Increases in FDI are also seen as leading to increases in exports by creating international markets through new marketing and organizational skills. The inflow of FDI in Nepal began in the early s through the gradual opening up of the economy.
A reversal in the rising trend took place from the beginning of the s. The fact that Nepal is landlocked, coupled with its infrastructure and low level of labour productivity has also constrained FDI inflow into the country.
Many foreign investors in Nepal are individuals rather than corporate entities. FDI is highly concentrated in the manufacturing Foreign direct investment in nepal, which accounted for slightly more than 45 per cent of approved FDI projects.
Within the manufacturing sector, the textile and garment industry accounts for 28 per cent of total foreign investment, followed by the chemical and plastic industries at Tourism is second, accounting for almost 25 per cent of total FDI projects, followed by the service sector with 20 per cent of FDI projects.
Although the electricity, water and gas sector has just a few FDI projects, it ranks fourth highest in terms of the size of FDI inflow.
In total, FDI comes from 50 countries. But the scale and number of projects by each country vary considerably. Of that total, in terms of investment, India alone accounted for more than 40 per cent, followed by the United States and China.
Those three countries alone account for two-thirds of cumulative FDI in Nepal. Nepalese and Indian nationals do not need passports or visas when traveling between their countries.
Similarly, the Indian currency is freely convertible in Nepal. A special relationship with India regarding preferential trade arrangements also provides an additional incentive to Indian investors. So Nepal has been given priority for the attraction of FDI and its development by different polices and rules in national and international level to promote foreign investment and technology transfer for making the economy viable, dynamic and competitive through the maximum mobilization of the capital, human and other natural resources.
Global level Today, Nepal is one of the most liberalized countries in the South Asian region. However, growth performance has been very poor in recent years. In this context, a closer examination of the linkages between foreign direct investment and growth is critically important from a policy point of view.
In the aftermath of liberalization that began in the early s, FDI increased substantially. However, that could not be sustained for long. New initiatives on FDI have been taken with the aim of enhancing sustained growth and reducing poverty. Incentive Level Although the Government of Nepal GON is open to foreign direct investment, implementation of its policies is often distorted by bureaucratic delays and inefficiency.
Besides this, Nepal is still facing some problems for FDI because of lack of direct access to seaports, difficult land transport and lack of trained personnel, scarce raw materials, inadequate power insufficient water supply, non-transparent capricious tax administration inadequate and obscure commercial legislation, and unclear rules regarding labor relations.
In the pre-liberalization period, the investment regime was more restrictive. Investors had to obtain a government licence before undertaking any production and business activities. The FDI was almost nil before Although some attempts to liberalize the investment policy were made from the beginning of the s, it was speeded up only after To ensure investment, both domestic and foreign, the Government adopted various liberal policies, which are still in operation.
In a positive development, Nepal passed the Copyright Act in etc.Nepal's Foreign Direct Investment (FDI) increased by USD mn in Apr , compared with an increase of USD mn in the previous quarter. Nepal's Foreign Direct Investment: USD mn net flows data is updated quarterly, available from Oct to Apr The data reached an all-time high of USD mn in Jan and a record low of USD mn in Apr Foreign Direct Investment in Nepal Nepal had attracted modest FDI in niche sectors such as tourism, herbal products, mineral deposits (lime stone), and light manufacturing apparel; hydro power and that it had positive impacts on exports, particularly garments.
Although Nepal has one of the most liberal investment regimes in the region, it has lagged behind many other developing countries in attracting FDI.
(1) A foreign national visiting Nepal in connection with undertaking any study or carrying out any research with the objective of making investment in Nepal shall be provided a non-tourist visa.
Foreign Direct Investment and One Window Policy of , Foreign Investment and Technology Transfer Acts of , Privatization Act of and Industrial enterprises Act of are the major trade and FDI related acts in Nepal.5/5(1).
Foreign direct investment, net inflows (BoP, current US$) International Monetary Fund, Balance of Payments database, supplemented by data from the United Nations Conference on Trade and Development and official national sources.