Technology transfer from FDI sees a slump

KATHMANDU, SEP 29 -

Technology transfer from foreign direct investment (FDI) lessened during the period 2005-2010, although one of the main objectives of foreign investment is to facilitate technology transfer.

According to a paper presented by economist Keshav Prasad Acharya at a function here on Friday, the percentage of FDI commitments with components of transferring technology declined to 2.95 percent as of fiscal year 2010-11 from 5.06 percent in FY 2005-06. The figures are based on statistics at the Department of Industries (DoI).

In the paper ‘Foreign Investment and Nepal: Trend, issues and Proposals,’ Acharya said the percentage of industries with components of both technology and equity slid to 2.8 percent as of FY 2010-11 from 4.7 percent in 2005-06.

There was no FDI commitment that would ensure technology transfer as well as equity and technology transfer in FY 2010-11. All the 209 FDI commitments that year concentrated on equity investment only. The government received a total of 2108 FDI commitments as of FY 2010-11. Only 58 of them had components of technology transfer, while 53 had both equity and technology transfer, according to the DoI.

“This trend shows the government and private sector’s apathy to technology transfer while giving high emphasis on equity alone,” said Acharya. “There is a need for public awareness on the importance of technology economic growth.” He said that despite the government’s policy behind FDI is also to boost technology transfer, the objective has not been met.

However, government officials say Nepal should first focus on how to attract foreign investment itself as the country lags far behind against other countries in this regard.

“If we increase foreign investment in the country, technology transfer will automatically go up,” said Dhruba Raj Rajbanshi, the director general at the DoI.

According to Acharya’s presentation based on a report prepared by the Nepal Rastra Bank (NRB) and the United Nations Conference on Trade and Development (UNCTAD), Nepal attracted just 0.23 percent FDI from 1998-2000 in South Asia, which came down to 0.04 percent during the period of 2005-2010.

Only Bhutan is behind Nepal among the seven South Asian countries. Other countries ranked were India, Pakistan, Bangladesh, Sri Lanka and the Maldives.

Another trend of the FDI observed during 2006-2010 was that there has been a larger FDI commitment for small industries, while commitment for medium scale industries came second. The FDI commitment for large scale industries is the least. Another trend is that the commitment for both medium and large scale industries has gone down during the period 2006-2010, while commitments for small industries went up. “Nepal cannot benefit with the inflow of FDI for small scale industries such as educational consultancies,” said Acharya, who is also the former chief economic advisor at the finance ministry.

In order to bring quality foreign investment, the government has recently increased the ceiling for FDI to Rs 5 million from the earlier Rs 2 million. Acharya said the revised rate was still low in the present context.

He said there are plenty of opportunities for FDI in Nepal in areas of water resources such as hydropower and drinking water, other physical infrastructure such as railways and fast track roads, tourism, urban development, education, health and information technology.

“What we need to ensure for them is political and policy stability, security, access to land and intellectual property protection,” Acharya said.

Source: The Kathmandu Post