FDI pledges high but actual investments low

FDI pledges high but actual investments low

SANJEEV GIRI, Kathmandu Post

Aug 24, 2015- Nepal receives a large number of foreign direct investment (FDI) commitments, but only a fraction of them are translated into actual funding, Nepal Rastra Bank (NRB) said. In the last fiscal year 2014-15, the actual FDI flow amounted to Rs6.16 billion against pledges totalling Rs67.25 billion, according to the statistics of NRB and the Department of Industry. According to NRB, the amount of FDI received by the country since it was opened to foreign investment totalled Rs63.42 billion as of mid-July 2015. The figure stood at Rs57.26 billion as of mid-July 2014, which means there was an FDI inflow of Rs6.16 billion during the one-year period, representing a rise of 10.8 percent in the total FDI inflow into the country.

“The government is happy with the increase in investment pledges. However, actual investment isn’t happening much,” said Pashupati Murarka, president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI). “Despite the private sector’s pressing for a favorable investment climate, the country’s political establishment does not seem to be very serious about it.”Murarka slammed the political parties for not being sensitive enough about the provisions in the upcoming constitution related to business and the economy, which could determine whether the country will be able to attract foreign and domestic capital or not. The Nepali private sector believes that the reference in the draft constitution about leading the country towards socialism instead of a liberal economy and the provision treating labour rights as a fundamental right could discourage investors. “If the draft is passed in its current state, it will not be considered as an investment-friendly constitution,” said Murarka.

“You look for legal clarity when you think about making an investment in a particular country,” Murarka said. “There is no provision in the draft constitution about shutting down industrial enterprises while it supports the rights of workers. This is unfair and won’t promote foreign investment.”
Meanwhile, the government said that poor infrastructure was to be blamed for the large number of FDI commitments not being translated into actual investments.“Investors do a detailed study after making an investment commitment. Most of them seem to become reluctant to invest after seeing the weak infrastructure development,” said Rudra Bahadur Malla, spokesperson of the Department of Industry. He added that most of the potential foreign investors were still in a wait-and-watch mode.
According to Malla, the department has been working to digitize the office in a bid to reduce procedural hassles. “The task of digitizing the department will start from the Foreign Investment Section. And this is to attract foreign investment in particular,” Malla said, adding that the department was also involved in several other initiatives to convert FDI pledges into actual investments Anuj Agrawal, vice-president of the Confederation of Nepalese Industries (CNI), however, feels that the weak infrastructure cannot be the sole reason behind the low conversion of FDI commitments into actual investment. “When one makes investment commitment, one is aware of the situation in that particular country,” Agrawal said. “The main reason behind the low conversion of commitment into investment is the lethargic government procedure.”According to Agrawal, though the government has been claiming that bringing FDI is among its focal priorities, little has been done to boost foreign investment.Agrawal said that another reason for the low rate of FDI was the issue of repatriation. “When investors make an investment in a foreign country, it’s obvious that they look for a way to send a certain amount of the profits back home. There is no clarity over the repatriation of profits. Every authority points to the other when investors try to repatriate their profits,” said Agrawal, adding that the government should be clear about foreign investment to boost commitments into actual investment.