Analysis: FDI inflow to Nepal

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    KATHMANDU, Aug 15:

    Investors fail to live up to commitments

    FDI Making a commitment is far easier than implementing it — a phenomenon which is being experienced in the context of Foreign Direct Investment (FDI) in Nepal.

    Statistics show a huge mismatch between commitments made by foreign firms to invest here and the actual investment figures recorded during the particular year.
    Joint-venture companies secure their registration making attractive commitments to employment generation and investment. However, the figures of actual implementation of the commitments make anyone discontent.

    “FDI commitment shot up sharply over the last few years, the actual investment volume is comparatively far lower. FDI commitment should be reflected in employment generation and its other forms of contribution to the economy,” economist Bishwambher Pyakuryal, said.
    Even top bureaucrats do not know much about the exact reason for the limited the FDI inflows to the country.

    “We have no idea about the exact reasons responsible for limiting FDI though we have embraced FDI congenial laws and other assurances. We have to do some soul-searching about our behavior that might have hampered FDI,” said Krishna Hari Baskota, the secretary at the Office of the Prime Minister, who is also a former finance secretary.
    Worse still, Nepal lags behind in South Asia in term of bringing in FDI. Nepal was seventh — ahead only of Bhutan — in the eight-member SAARC in 2012, according to a recent report of United Nations Conference on Trade and Development (UNCTAD).

    Pyakuryal attributed the slow pace to lack of favorable policy from the government.
    “We need to analyze the state of FDI in terms of number of projects, investment sectors, employment generation, volume of capital inflow and impact on income of the people before formulating appropriate FDI policies for our country,” said Pyakuryal.

    There is no harmony in the statistics published by the two responsible government agencies — Nepal Rastra Bank and DoI — regarding FDI figures.
    Yam Kumari Khatiwada, the spokesperson for the Ministry of Industry, said that keeping in view the absence of reliable data, the ministry has already proposed for installation of database of proper records of FDI.

    Frequent industrial strikes, energy deficit, limited market and political instability have been denting the prospects for promotion of FDI in the country. “Of late, strengthening of the US dollar against the Nepali rupees, which has eventually jacked up the cost of production, has raised the eyebrows of potential foreign investors,” added Pyakuryal.
    Big investment demands big market for better return. However, a small market within Nepal has been the major concern of investors despite the fact that Nepal has a huge potentiality to tap the vast markets of the giant Asian economies — India and China.

    “It would be difficult to lure more investment until and unless we can´t assure there are markets in both these countries for products produced in our country,” he added.
    Bhaskar Raj Rajkarnikar, Senior Vice-president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), put the blame on the country´s lingering political instability with uncertainty hovering over the next election of the Constituent Assembly (CA).
    “Investors demand security of their investment, which can´t be assured without political stability in the country,” said Rajkarnikar.

    Radhesh Pant, CEO of Investment Board of Nepal (IBN), also echoed Rajkarnikar´s views, adding that investors are scared of possible economic policy changes.
    IBN, an entity established for creating an investment friendly environment for bringing in foreign investment for economic development of the country in 2011, however, has not been able to attract investors as anticipated.

    However, the process is going on through IBN to lure an investment worth US$ 8 billion in five mega-hydropower projects combined.
    All are in different stages of implementation — from the survey phase to the Project Development Agreement (PDA) stage.

    China Three Gorges International, a Chinese investor, is studying West Seti (750 MW). Likewise, GMR, an Indian company, has been working on Upper Karnali (900 MW) and Upper Marshyangdi (600 MW). A PDA with Sutlej, an Indian investor, is underway for Arun III (900 MW).

    Pyakuryal underlined the need for effective bilateral trade talks with major trade partner countries.
    He also suggested that the government promote the 19 products listed in the Nepal Trade Integration Strategy (NTIS) — a strategic paper for trade promotion — to lure foreign investment beside other key sectors.

    Source : Republica