Foreign investment prospects look up for the country
KATHMANDU:
At one of the sessions of recently-concluded Nepal Economic Summit 2014, the managing director of the Indian wing of Australia-based Leighton Contractors, Jim Salmon, made a remark that warmed up senses of the audience.
In a no-nonsense tone, he said: “Many multinationals operating in India, like Leighton, are looking at Nepal as a potential destination for investment.”
His comment was an indication that savvy investors like Salmon are seeing the latest political changes in Nepal and installment of a liberal government as an opportunity to step into the country. His comment also implied that Nepal’s economy that has so far been of interest only to Nepalis and a few foreigners who have set up base here has once again started to fall under the radar of global investors.
But there was a caveat in Salmon’s message: Nepal needs to come up with correct legislative frameworks to increase the flow of foreign investment.
Nepal has largely failed to attract foreign direct investment in the last one-and-a-half decades, while its immediate neighbours, India and China, saw droves of foreign investors landing at their doorsteps during that period. Things have become so worse in Nepal that real FDI flow plunged 65.6 per cent to Rs 1.28 billion in first half of the current fiscal.
Part of the problem in failing to attract foreign investment lies in the decade-long armed conflict and political instability. But part of the problem also lies in the inability to frame policies that encourage foreigners to invest in Nepal and protect their interest.
The government, for instance, claims to have enforced the Foreign Direct Investment and Technology Transfer Act 1992 to aid foreign investment.
“The content of the Act does not have many flaws,” said director general of the Federation of Nepalese Chambers of Commerce and Industry Dr Hemant Dabadi. “But it’s the procedures that are hectic and time consuming.”
Also, the government’s inability to chart out clear procedures has annoyed many foreign investors. And because of this loophole, chiefs of many government offices are wielding discretionary powers, giving them the leeway to bend the rules the way they want.
No wonder, multinationals here have to wait for up to three-and-a-half months to get work permits for foreign staff — a process that can be wrapped up in 15 days. “Similar delays are reported when foreign companies operating here intend to repatriate earnings,” Dr Dabadi said.
Another problem here is related to shutting down a firm, which can take up to five years. And average recovery rate upon completion of insolvency proceedings is mere 24.5 cents on the dollar, says the World Bank’s Doing Business Report 2014. Similar is the problem in settling commercial disputes at courts, which can take around 910 days, cost 26.8 per cent of the value of the claim, and 39 procedures.
“These are impediments that shake the faith of foreign investors and keep them away,” Dr Dabadi said.
Despite these drawbacks, things have started to look up, as a fairly liberal government has come to power. Also, the appointment of Dr Ram Sharan Mahat as the finance minister is being seen in a positive light, as he has worked in the same capacity a couple of times before and does not need ‘training’ from officials of the Ministry of Finance on how to execute his task, which usually takes several months.
This means he can immediately start his job of framing suitable policies to create an investor-friendly climate.
To begin with, Dr Mahat can focus on areas of agriculture, energy and tourism — identified as priority sectors by the Nepal Economic Summit 2014 — and introduce policy and procedural reforms to rouse the interest of investors.
And as said by administrator of the United States Agency for International Development Dr Rajiv Shah yesterday at the closing ceremony of the economic forum: “Now it is up to Nepal’s leaders
to take advantage of the moment of history... and send a message to the world that the country is open to business, investment and growth.”
Yet, no one should expect quick results, warned economic advisor to the prime minister Dr Chiranjibi Nepal. “Drawing foreign investment is not an easy thing to do. For this, we need at least one year,” he further said, advising the domestic private sector to ramp up investment here to show foreign investors that investment climate has started to improve.
Source: THT
