Attracting FDI still a pipe dream

KATHMANDU:

Despite the optimism that the successful completion of the second Constituent Assembly election and formation of a relatively liberal government would draw more foreign investors to the country, the current trend suggests otherwise.

Nepal saw a whopping 68.3 per cent drop in flow of foreign direct investment (FDI) in the first nine months of the current fiscal to Rs 1.86 billion, the latest statistics of Nepal Rastra Bank (NRB) show. In the same period last fiscal, the country had received Rs 5.87 billion in foreign investment.

The reasons for the slowdown during the period, as per experts, were fears of violence during the election and the delay in formation of a new government — which took nearly three months. These factors, they say, played a key role in keeping foreign investors at bay.

But even after the election, the country was able to draw only Rs 980.7 million in foreign investment, while after the formation of the new government only Rs 74 million entered the country, NRB statistics reveal.

The optimistic lot asserts that things will improve next fiscal as foreign investment commitments have topped over Rs 19 billion so far this year.

But wasn’t the situation pretty much the same last fiscal as well?

In the last fiscal, Nepal had received a record foreign investment commitment of Rs 19.39 billion. But not even 10 per cent of the pledged funds have entered the country so far.

So is there any guarantee that a similar situation would not repeat next fiscal?

“The private sector is really optimistic this time,” said Pradeep Jung Pandey, president of the Federation of Nepalese Chambers of Commerce and Industry, the largest private sector umbrella body. “This is because the government has vowed to launch second generation of reforms, address power shortage problem within three years, and work towards reducing the production cost. If the government can press ahead with these reforms, FDI flow will definitely swell next fiscal.”

Nepal currently has higher chances of luring foreign investment because of a relatively weaker currency and positive sentiments in India following the election, which has raised prospects of investments meant for the Indian economy spilling over to Nepal. Also, the 5.15 per cent growth forecast for this fiscal shows that the economy is finally turning a corner, which is another good news for foreign investors.

Countries like Nepal desperately need FDI because of shortage of financial resources in the domestic market to build mega projects, like hydropower. These funds,

concurrently, help in job creation process and, most importantly, aid technology transfer through which the country can enhance skills of workers and learn the tricks of streamlining production processes.

But to reap these benefits, Nepal needs to cut down on red tape, establish a separate office to deal with foreign investors, reduce procedures to acquire various permits, and streamline visa issuance process for foreign investors and workers. At the same time major policy overhauls for labour markets need to be launched, as rigid labour laws have been blamed for keeping many foreign investors away. “Also, tax rebate needs to be extended to certain sectors,” Pandey said.

Recently, during a casual conversation, a top official of a leading multilateral donor agency told The Himalayan Times that Nepal may not be able to draw much investment towards sectors like hydropower unless government makes strong commitment to provide security to foreign investment.

“If not, investment will be diverted to countries like Pakistan and Bangladesh where governments are offering sovereign guarantee for hydro projects.”

Source: THT