by Surath Giri
KATHMANDU: The Ministry of Industry has recently come up with the draft of the new proposed Foreign Investment Policy 2014, whose lack of common sense has surprised even the most ardent believers of bureaucracy in Nepal. Notwithstanding the fact that countries around the world, especially those lacking capital, are courting foreign investors for capital and technology to spearhead economic growth, Nepal’s attitude seems to be of a nation that already has too much investment and can afford to be selective in choosing investors. The policy is an example of how our bureaucracy is so out of touch with reality.
A few provisions proposed by the policy will prove this assertion.
Trying to attract or fend off investment?
One of the provisions made by this policy is to ban foreign investment less than USD 200,000 which is a four-fold increase from the existing floor of USD 50,000. It also bans foreign investment in hydro power projects of less than 30 Mega Watts and less than three star hotels. It is difficult to understand why the government wants to dissuade small scale investment when it is already among the countries with the least amount of FDI in the world.
This increases the possibility of undue influence among policy makers and government officials by the few large scale investors. Such a floor also prevents foreign investment and technology transfer in small and medium scale enterprises whose capital requirements are lower compared to their labour requirements such as restaurants, tourism agencies and information technology companies. The majority of IT companies in Nepal are small and medium enterprises requiring investments much lesser than the minimum floor proposed by the policy. Implementation of such policy would eventually result in elimination of small scale IT companies who have been providing a large number of lucrative employment opportunities to Nepali IT professionals.
Similarly, the provision of not allowing foreign investment in hydro power projects less than 30 Mega Watts will bring nothing more than harm to the economy. The cost of production for one mega watt of hydro electricity ranges from 150 to 180 million rupees which is unlikely to be raised from Nepali investors alone. On the tourism sector too, what we need is more innovation in more destinations rather than large scale investment in already crowded sectors and activities.
Hence, the prudent step for the government would be to encourage more small scale foreign investment. Some government officials have been quoted saying that the minimum floor of investment is needed to prevent some foreigners from opening up small scale
enterprises and using such investments as a reason to keep staying in Nepal. One would wonder why that is a problem. On one hand, Nepal is trying to attract a million plus tourist. On the other hand, the government does not want these people to make small scale
investment and use it as a reason to stay here. It is definitely hard to find logic in these contradictory approaches.
And if foreigners staying in Nepal using small scale investment to their advantage is a problem then is it not a problem of the department of immigration? Banning all small scale investments just because some foreigners are ‘misusing’ them
is tantamount to throwing the baby out with the bathwater.
Another provision in the policy that raises huge concern is the formation of a Foreign Investment Promotion Council. The council, per se, would be a positive step towards facilitating the investment process in Nepal but the way it is staffed raises concern. The council is supposed to be chaired by the Minister of Industry and consists of representatives of more than 12 government agencies. Since the membership is so diverse and the council duties are the priority for officials, the council is likely to never convene or be efficient enough for making decisions which will ultimately end up leaving investment processes in limbo.
What next then?
With all these clauses, the new proposed policy is more likely to do more harm than good to economy and can be considered a regressive policy when compared to the existing foreign investment policy.
The right thing to do for a developing economy like Nepal, is to attract as much investment (both local and foreign) as possible and not discourage them. In this era of globalisation, too many countries are courting foreign investment and we cannot afford to be choosy regarding investment. The best policy for Nepal would be to welcome any investor with any amount of money who is willing to create jobs and prosperity for our citizens. It is imperative that policy makers understand this reality and revise the policy accordingly.
Look who’s talking
• As of February 2014, total foreign investment in Nepal is valued at around USD 1.14 billion from 78 countries which is very low compared to not only its huge neighbours but even other economies in the region.
• Sri Lanka attracted USD 870 million as foreign investment in 2013 alone whereas Pakistan received about USD 1.4 billion during the same period.
• Putting a minimum floor on foreign investment not only decreases the amount of foreign investment coming to the country but also helps concentrate those investments towards larger businesses and industries only.
The author is research and publications coordinator at Samriddhi, The Prosperity Foundation and can be reached at surath @ samriddhi . org . Samriddhi is an independent research and educational public policy institute based in Kathmandu.
Source : The Himalayan Times