Real FDI flow plunges 65.6 per cent in first half

KATHMANDU:

The real flow of foreign direct investment plunged by 65.6 per cent in the first half of the current fiscal year, as fear of violence during the November election, and political uncertainty coupled with introduction of budget in three installments last fiscal kept foreign investors at bay.

The country received foreign direct investment—money brought in by foreigners to set up businesses or factories, for instance — of Rs 1.28 billion between mid-July and mid-January, as against Rs 3.73 billion in the same period last fiscal, the latest statistics of Nepal Rastra Bank show. “The lower flow of

FDI this fiscal is largely due to uncertainties in the run up to the second Constituent Assembly election,” said Min Bahadur Shrestha, Chief, Research Department, Nepal Rastra Bank.

Activities like elections usually affect FDI flow in countries like Nepal, where political situation is volatile. So investors usually wait for the new government to announce its policies. “Also, political bickering during the last fiscal that prevented the government from introducing full budget did not set a good example among foreign investors,” Dr Shrestha added.

Lower flow of FDI in countries like Nepal affects job creation process and economic growth as domestic capital is not enough to give the impetus to many activities and set up industries, which are necessary to keep the economy robust.

“Hopefully, the recent installation of a newly elected government will send positive signals and put Nepal on the map of FDI destinations,” said Shrestha.

Already, there are indications of things looking up for the country in this regard. In the first seven months of the current fiscal, FDI commitments rose to Rs 18.09 billion, which is almost on a par with Rs 19.94 billion in FDI commitments recorded in 12 months of the last fiscal. However, of the total foreign investment pledged in the last fiscal, only Rs 9.08 billion entered the country throughout the year. To narrow the gap between FDI commitments and real FDI flow, the country needs to make lots of procedural and legal changes and focus on cutting down red tape, officials recently said at an interaction held at the office of the Secretary of the Office of the Prime Minister and Council of Ministers. These include simplification in visa issuance process for foreign investors and workers, establishment of separate office to deal with foreign investors and reduction in procedures to acquire permits, among others.

If these changes are made Nepal’s position in the World Bank’s ‘Doing Business’ index is likely to go up, which could encourage foreign investors to channel money into the country. Nepal is ranked 105th out of 189 economies in the world in the ‘Doing Business 2014’ report.

Foreign money in country

• The country received foreign direct investment of Rs 1.28 billion between mid-July and mid-January, as against Rs 3.73 billion in the same period in the last fiscal

• In the first seven months of the current fiscal, FDI commitments rose to Rs 18.09 billion, which is almost on a par with Rs 19.94 billion in FDI commitments recorded in 12 months

• Of the total foreign investment pledged in the last fiscal, only Rs 9.08 billion entered the country throughout the year

Source: THT