It is encouraging to know that the foreign investors pledged Rs 64.96 billion in Nepal during the last fiscal year, 2024/2025, which is a growth of 4.9 percent compared to the previous fiscal year. The figure is a growth of Rs 3.06 billion over FY 2022/23, when the pledges of investors stood at Rs 61.90 billion, according to the Department of Industries. Of the total, Rs 4.61 billion worth of projects were sanctioned automatically, while the remaining Rs 60.35 billion were approved through the approval route. Altogether, 840 projects were given the green signal, with the maximum number of proposals coming in the field of information technology. While IT attracted 382 projects, investors pledged more money in services and tourism sectors. The service industry alone received FDI commitments of Rs 30.9 billion for 84 projects, and the tourism industry received Rs 26.82 billion for 304 new projects. In the manufacturing sector, 55 projects received Rs 3.84 billion, and 123 agriculture projects received Rs 1.46 billion. One energy project received Rs 25.5 million, while two infrastructure proposals got Rs 50 million. Foreign investors have promised around Rs 600 billion over the years, but according to the Nepal Rastra Bank, only about a third of that has materialized so far. The Foreign Investment and Technology Transfer Rule 2021 requires investors to inject at least a portion of their committed amount within a year, which is 5 to 50 percent based on investment size.
The numbers reflect interest in Nepal as an investment destination, but the paltry conversion of commitment into investment says otherwise. Investors are hesitant to move due to administrative red tape, policy indecision, and bureaucratic snags. Even after getting approval, setting up operations or transferring funds can be cumbersome and disheartening. For a small economy such as that of Nepal, this barrier keeps much-needed capital and technology from entering into industries that can stimulate jobs, productivity, and exports. Nepal has seen improvement in obtaining service-related and tourism-associated investment. This is reflective of the investor's confidence in sectors that require relatively less physical infrastructure and offer faster returns. However, the country is unable to attract sizeable commitments in the manufacturing, infrastructure, energy and other sectors with long-term economic relevance. Gaps should be addressed with favorable attractive policies and faster administrative processing. Failure to have these will continue to widen the gap between pledges for investment and actual inflow of such investments.
Take holistic measures to boost FDI in Nepal
To improve this, the government needs to simplify processes, reduce unnecessary compliance burdens, and institute a one-window system that works. Investors should not need to visit many offices for clearance or licenses. Imposing time frames on approvals and strictly enforcing rules can reduce uncertainty among investors. The organizational structure of government departments also needs to be streamlined so that it can facilitate investors rather than perplex them or delay processes. Confidence is created when governments pass legislation that is fair and accessible to all investors. A nondiscriminatory policy, hassle-free repatriation of earnings, and enhanced protection of property rights can go a long way in attracting investors. Extending fast-track facilities to large investors, land acquisition clearance, and providing reliable data are also steps that would be useful. FDI does not only invest money; it brings in skills, technology, and jobs. Therefore, creating a friendly investment climate benefits everyone.
