Despite establishing some investment-friendly policies and regulations, Nepal still holds many significant barriers that undermine foreign investments, according to a recent report of the US Department of State.

In its report titled ‘2020 Investment Climate Statement: Nepal’, the US Department said several factors are impeding foreign investments in Nepal.

Some of the barriers include:

• Corruption
• Laws limiting the operations of foreign banks
• Limitations on the repatriation of profits
• Limited currency exchange facilities
• Government’s monopoly over specific sectors such as electricity transmission and petroleum distribution
• Political instability

The US Department said that despite passing several laws and regulations in recent months, the current Nepali Government has failed to attract increased foreign investment.

“In policy pronouncements, Nepal welcomes Foreign Direct Investment (FDI) and has passed several laws during the past three years that modestly improve the investment climate,” stated the Department.

“Though Nepal’s attitude toward FDI is positive, it has not yet translated into practice. Persistent corruption and bureaucratic hindrances remain unaddressed, impeding the smooth conduct of business,” it added.

However, the Department said, Nepal offers opportunities for foreign investors willing to accept inherent risks and business uncertainty in the country.

“As Nepal struggles to confront the economic and social effects of the COVID pandemic, it is unlikely a concentrated effort to improve the investment climate will be a high priority,” read the statement.

The US Department further added that the intraparty disputes in the ruling Nepal Communist Party (NCP) have restricted foreign investments in the country.

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Nepali Ambassador to Bahrain Padam Sundas interacted with the local Nepali community including representatives of various organizations and the Non-Resident Nepali Association (NRNA) at the Nepali Embassy in Manama on July 6, 2018.

As part of the meet, the Nepali envoy called on Nepalis in Bahrain to properly utilize their incomes in Bahrain in order to start investing in their home country.

In this meet organized by the Deputy Chief of Mission Khagaraj Adhikari, Chartered Accountant Ramesh Dhital highlighted Nepal’s economic indicators, investment potential, related procedures & tax policies along with key areas of focus for making investment.

Investment from Japan
In another interesting update, the Nepali Ministry of Energy, Water Resources and Irrigation (MoEWRI) welcomed Japanese investment in the country’s energy sector.

In a program organized by the Ministry, Energy Minister Barsha Man Pun called on the Japanese Ambassador to Nepal Masamichi Saigo to push for Japanese investment in Nepal’s Nalgadh hydropower project.

In the discussion, Pun informed Saigo that the project is one of the priorities for Nepal Government and is in a ready-to-develop condition.

We expect the Japanese Government to invest in the energy sector of Nepal and we also believe that the Japanese Government will help Nepal with financial assistance in the form of grants, soft loans and investments, Pun said in a statement.

This move is part of Nepal’s Government’s efforts to mark the 2018-2028 period as the ‘Decade of Energy and Hydropower’ under its ‘Prosperous Nepal, Happy Nepali’ goal.

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Towards this end, Nepal Rastra Bank issued a Letter of Intent (LoI) to the country’s renowned public-private equity platform Emerging Nepal directing the latter to set up the Infrastructure Development Bank (IDB).

IDB, Nepal’s first such bank, with nearly 40 promoters is set to focus on financing mega infrastructure projects of the country and will begin its operations officially in the next six months.

According to NRB spokesperson Narayan Prasad Paudel, the process followed IDB’s deposit of 50 percent of its paid-up capital (45 percent in six commercial banks and 5 percent in the application phase) for setting up the needed infrastructure.

Why IDB?

With the prime objective of offering financial assistance, IDB will support the infrastructure projects by making the required equity investment and opening letters of credit to facilitate the import of equipment required for the projects.

Besides, IDB mobilizes long-term deposits and also issues currency bonds (domestic & foreign) and debentures to facilitate the required financial resources.

Process Ahead

According to NRB spokesperson Narayan Prasad Paudel, the process followed IDB’s deposit of 50 percent of its paid-up capital (45 percent in six commercial banks and 5 percent in the application phase) for setting up the needed infrastructure.

Post LoI from NRB, IDB will be registered as the public limited company within the next six months.

“In addition, the bank needs to manage the logistics besides developing the necessary software and appointing senior officials. NRB will then carry out an inspection of the financial institution before issuing the operating license,” says Paudel.

Background

IDB is part of the Government of Nepal’s plan to set up a mega bank to support and was envisaged to set up as an entity under public-private partnership.

“The establishment of IDB, which was initiated in the current fiscal year with the participation of national and international banks in order to increase private and foreign investment in the infrastructure sector, will be completed in the coming fiscal year,” reads the budget statement for FY 2017-18.

Following the government’s decision, NRB issued the relevant Licensing Policy for IDB in 2017 calling on the interested parties for their participation and Emerging Nepal was finalized for the deal.

Emerging Nepal has a joint investment of 40 Nepali promoters including insurance firms, five commercial banks and corporate bodies.

When it comes to public-private partnership, government and promoters hold 10 percent and 50 percent shares, respectively, and the remaining 40 percent capital will be raised through Initial Public Offering (IPO).

IDB will be operating according to the Banks and Financial Institutions Act (BAFIA) under the chairmanship of the former Chief Secretary Bimal Koirala.

According to Paudel, NRB is open to welcome more such IDBs provided the necessary requirements are met, and these banks also allow foreign investment.

Let’s hope the new initiative will drive Nepal’s infrastructure development to the next level!

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Under the theme ‘Showcasing Nepal & The Globe’, this five-day fair (March 8-12, 2018) is showcasing a wide variety of Information Technology, electronics, agriculture, textiles, handicrafts construction, energy and consumer goods products being presented by Nepali, Indian, Bangladeshi, Pakistani and Chinese manufacturers.

In total, the fair is hosting around 300 stalls including 15 each from India and Bangladesh, 22 from Pakistan and 74 stalls from China.

The Nepali Federation of Nepalese Chambers of Commerce and Industry (FNCCI) is organizing this fair with the support from the Nepali Ministry of Industry, Commerce and Supplies, Nepal Trade and Export Promotion Centre (TEPC), Lalitpur Chamber of Commerce and Industry (LCCI) and the Federation of Handicraft Associations of Nepal.

For Foreign Investment and Private Sector

Inaugurating the fair on March 08, 2018, Prime Minister KP Sharma Oli expressed hope that this fair would promote Nepal’s investor-friendly environment on a global scale taking ahead the country’s policy for foreign investment.

“I believe that this fair will contribute to promote the country’s internal trade. The international expo should promote Nepali products at the international level and draw the attention of foreign investors towards Nepal, which holds immense investment potential,” said Oli.

On the occasion, PM also pitched for a strong collaboration between the government and private sectors for the overall development.

Meanwhile, Nepali Finance Minister Yubaraj Khatiwada said the Government of Nepal is keen on facilitating a favorable environment for the private sector and also termed foreign investment as key for employment generation and technology transfer.

“The government is not a competitor to the private sector. It will play a complementary role with businesses to accomplish the national target of reducing the trade deficit and achieving sustainable development.” says Khatiwada.

The Minister for Industry, Commerce and Supplies Matrika Yadav opined that this trade fair would add to the government’s economic objectives.

According to Dil Sundar Shrestha, Chairman of the Fair Organizing Committee at FNCCI, the fair is aimed at facilitating ways for B2B relationships further to attract joint investment in across potential areas.

The trade fair is expected to witness a total participation of 200,000 members.

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The International Finance Corporation’s (IFC) report titled ‘Climate Investment Opportunities in South Asia’, released last week, said Nepal holds USD 46.1 billion worth investment potential and would also fulfil its national climate targets promised under the Paris Agreement by 2030.

According to the report, Nepal offers such opportunities in key sectors such as transport infrastructure, renewable energy and municipal solid waste for the 2008-13 period as part of its moves towards achieving climate change targets.

IFC’s assessment was based on Nepal’s commitment under Nationally Determined Contributions (NDC) to the United Nations Framework Convention on Climate Change in October 2016.

Hydropower and Solar Energy, Among Others

In its NDC, Nepal promised generation and distribution of 12,000 MW hydroelectricity and 2,100 MW solar energy, better waste management and control of methane emission, while also equipping every rural household with smokeless cooking stoves by 2030.

Meeting all these requirements would mean almost USD 46.1 billion investment with 12,000 MW hydropower generation alone requiring USD 22.5 billion investment, says the report.

Besides, the Nepali Government’s policy to integrate technological solutions in the country’s agricultural sector would need another USD 4.8 billion.

Private Sector Participation

While highlighting the role of private sector, IFC called on the Government of Nepal to facilitate private-public partnerships and also conduct awareness programs on climate smart-projects to understand the financial benefits of investing in green projects.

The report also recommended revision of foreign ownership limits, restrictions on non-equity investments and sector caps for attracting foreign investment.

Overall, the South Asian countries, which contribute to seven percent of global CO₂ emissions, hold USD 3.4 trillion climate-smart investment opportunities to fulfil their national targets, highlights the report.

“The only way that the South Asian countries can take advantage of these climate investment opportunities is with a strong and engaged private sector,” says Philippe Le Houérou, CEO, IFC.

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The program, organized in collaboration with the Embassy of Republic of Korea (RoK) in Nepal, witnessed the participation of various representatives from the concerned organizations.

Speaking on the theme, “Role of private sector for sustainable development”, the representatives stressed on the need for public-private partnership for achieving SDG goals of Nepal.

Global Compact Nepal Vice-Chair Pradeep Vaidya called for public-private partnership for progress in Nepal’s SDG targets.

Highlighting the role of private sector, the representatives called for the creation of investment-friendly environment for the private sector to contribute to the country’s efforts to alleviate poverty.

While stating that Nepal holds good potential in various sectors such as agriculture, among others, the participants urged on the need for drawing foreign investment in Nepal.

In his address at the program, the National Planning Commission Vice-Chair Dr Swarnim Wagle informed that the local governmental policies and regulations are also in line with the Nepal’s UNSDG goals.

“Nepal has witnessed significant improvements in the areas of health and education in the recent years and the government is doing a role of facilitator to promote domestic and foreign investment in big projects,” he added.

Meanwhile, the Secretary at the Ministry of Industry Yam Kumari Khatiwada informed that the government has created a friendly environment to ensure skill development and employment at home.

RoK’s Ambassador for Nepal Park Young-Sik felt agriculture, tourism and hydropower sectors are key for Nepal’s SDGs.

UNDP Resident Representative in Nepal Valerie Julliand called for special focus on economic growth for attaining SDG goals.

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