Vast difference in commitment and real FDI flow

KATHMANDU:

The real flow of foreign direct investment in the country is way too low than commitment made by foreign investors, indicating many potential investors from abroad are not bringing in money that they had pledged.

In the first four months of the current fiscal year, real flow of foreign direct investment (FDI) in the country stood at Rs 881.50 million, down 66.6 per cent than in the same period last fiscal, the latest statistics of Nepal Rastra Bank show.

The amount received by Nepal in between mid-July and mid-November is not even five per cent of the total FDI commitment of Rs 19.94 billion made by foreign investors in the last fiscal.

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

“One of the reasons for the fall in foreign direct investment is the election,” director at the Research Department of Nepal Rastra Bank Dr Bhubanesh Pant said.

Usually activities like elections affect FDI flow as investors wait until the new government is formed and announcements on policies are made. “The investors decide to bring in money only if favourable policies are introduced,” Dr Pant said.

Another reason for the fall in FDI could be Nepal’s standing in the ‘Doing Business’ index. Nepal is ranked 105th out of 189 economies in the world in the ‘Doing Business 2014’ report prepared by the World Bank and the International Finance Corporation, a private sector investment arm of the WB.

Nepal has not been able to improve its ranking significantly in ‘Doing Business’ index because of presence of red tape, tedious processes at different government agencies, and various other bottlenecks. One example is the number of days it takes to conduct trading activities across borders.

The latest ‘Doing Business Report’ says it still takes 42 days to export goods and 39 days to import them. Till last year, it used to take 41 days to export goods and 38 days to import them. Because of this slide, Nepal secured 177th position in ‘trading across borders’ segment, as against 171st last year. “Despite these shortcomings we hope the real FDI flow will grow this fiscal year because election has been successfully completed and chances of restoration of political stability are high,” director at the Department of Industry (DoI) Bipin Rajbhandari said.

Last fiscal, the FDI commitment had shot up by 179 per cent to Rs 19.94 billion, DoI statistics show. The data compiled by the DoI only include FDI commitments for projects that have paid up capital of less than Rs 10 billion, as projects with a capital of over Rs 10 billion are handled by the Investment Board Nepal.

Of the total amount pledged last fiscal, Rs 7.54 billion was for services sector, Rs 4.05 billion for manufacturing sector, and Rs 3.97 billion for tourism sector. However, of the total FDI commitment made last fiscal, only Rs 9.08 billion was channelled into the country, NRB data show.

Source: THT