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Nepse surges by 11. 17 points on Wednesday.

The Nepal Stock Exchange (NEPSE) gained 11.17 points to close at 2,165.24 points on Wednesday.

Similarly, the sensitive index surged by 3.32 points to close at 410. 46 points.

A total of 8,674,109-unit shares of 260 companies were traded for Rs 3. 34 billion.

Meanwhile, BPW Laghubitta Bittiya Sanstha Limited was the top gainer today, with its price surging by 10. 00 percent. Likewise, NIBL Samriddhi Fund -2 was the top loser as its price fell by 9.64 percent.

At the end of the day, total market capitalization stood at Rs 3. 18 trillion.

Despite government assurances of an improved business environment in the country, Nepal has failed to attract significant foreign direct investment in the last fiscal year.  Foreign direct investment (FDI) pledges in the country dropped by 22.20 percent in FY 2022/23. FDI commitments totaled Rs 38.457bn in FY 2022/23 compared to Rs 49.431bn in FY 2021/22.

A total of 327 industries having FDI pledges have been registered at the Department of Industry (DoI) during the last fiscal year. The majority of industries approved by the department are small-scale industries. The DoI approved 297 small-scale industries, 25 medium-level, and five large-scale industries. The department has also approved 64 technology transfer agreements.

The service sector and tourism sector are the two most preferred areas of foreign investors in Nepal in the last fiscal. According to DoI, 82 percent of the registered industries are in the service sector and tourism sector categories. Only nine percent of industries have been registered for the manufacturing sector while it was five percent for the IT sector.

Government officials point out the global economic downturn, the lowering of the minimum threshold for FDI, and the tightening of visa rules for foreign investors by the Nepal government for the decline in FDI pledges. In November last year, the government lowered the minimum threshold for FDI to Rs 20 million from Rs 50 million to attract even the small foreign investors in the country. Since the FDI threshold has been lowered, there is an increment in the number of industries' registration but the investment amount has remained lower than that of the last fiscal year.

There has been growth in the number of companies registered in the IT sector. A total of 16 IT companies were registered in FY 2022/23 compared to seven in FY 2021/22.

FDI commitments also declined this fiscal due to a slowdown in investment commitments from China. The investors from the northern neighbor have been committing the largest amount of FDI in the last several years to Nepal. With China facing economic problems due to renewed Covid-19 crisis, and supply chain disruptions, investment pledges from the northern neighbor have also been affected. 

Nepal falls among the countries that receive the lowest FDI in the world. Despite many talks on attracting FDI in the country, the country has failed to attract foreign investors as expected. At less than one percent of GDP, Nepal’s current levels of FDI are the lowest among similar economies.

Economists and industrialists say it has become imperative to improve the existing policy and structural system to bring more foreign investment into Nepal. According to them, while the immediate reason for the decline in FDI might be the global recession and domestic political situation, there are structural and procedural obstacles in Nepal that discourage investors. 

Despite introducing a one-door system in the Investment Board Nepal and Industry Department, FDI has not come in as expected. “It has failed to facilitate FDI so far because it has failed to become a complete one-stop service center,” the economist said.

In the second week of March, Prime Minister Pushpa Kamal Dahal had said that the government is seriously working on further simplifying the procedures, fully operationalizing the one-stop service, and developing necessary rules for the automatic approval of foreign direct investments (FDIs) applications. 

Of late, the government has eased procedures related to FDI. The Department of Industry (DoI), the government agency responsible for providing services to foreign investors, has developed a mechanism to approve foreign direct investments (FDIs) through the online channel. The mechanism that allows the department to approve FDI worth Rs 100 million automatically has come into implementation from Jestha 1. 

The private sector says the country has not received the net FDI as per the investment pledges. "The actual FDI inflow is much less than what has been committed by the foreign investors," said Pashupati Murarka, former president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI). 

According to Murarka, there was a huge drop in the demand for goods and services in the last fiscal year.  “At a time when domestic investors are reluctant to invest, we cannot expect foreigners to invest in the country,” said Murarka. 

Net FDI inflow plunges by 73.2 percent

Nepal received less than Rs 5bn in net foreign direct investment (FDI) in the first 11 months of FY 2022/23. According to the latest macroeconomic data of the Nepal Rastra Bank (NRB), net FDI inflow as of mid-June stood at Rs 4.64bn, a decline of 73.2 percent. The country received net FDI worth Rs 17.35bn during the first 11 months of FY 2021/22.

Box 1

Month wise FDI commitment

Box 2

Net FDI in Nepal (First 11 months)

The price of gold has increased by Rs 600 per tola in the domestic market on Wednesday.

According to the Federation of Nepal Gold and Silver Dealers’ Association, the precious yellow metal is being traded at Rs 113, 100 per tola today. It was traded at Rs 112, 500 per tola on Tuesday.

Meanwhile, tejabi gold is being traded at Rs 112, 550 per tola. It was traded at Rs 111, 950 per tola.

Similarly, the silver is being traded at Rs 1,490 per tola today.  

The Gandaki Province Plan included a plan to build a road and bridge within 30 months at Ngaldighat of Tanahun in the budget for the fiscal year 2018/19. However, people wouldn't have been able to use this infrastructure even if the project had been completed within the stipulated deadline. This is because it would have been submerged by the reservoir of the under-construction Tanahun Hydropower Project.

Lumbini-National JV won the contract to build the project, quoting Rs 166.11m. The contractor was also provided Rs 14.4m as mobilization funds. Despite not doing any work, the contractor submitted an invoice of Rs 9.2m, citing reasons like delay in design approval, site clearance, and non-utilization of workers and equipment. The contractor even moved the Pokhara High Court, demanding compensation. However, the court rejected its petition and ordered the contractor to return the mobilization amount that was released to it.

Shreekanta Baral, the chief attorney of the provincial government, stated that the government nearly spent hundreds of millions of rupees on infrastructure that would have gone under water.

The bridge was the personal project of the then law minister, Hari Bahadur Chuman. The project area falls under his constituency.

Rule 22 of the Public Procurement Rules, 2007 states that the public body must complete the construction work within the stipulated time. Similarly, Section 62 of the Public Procurement Act, 2006 states that the bidder must comply with the procurement contract and obligations related to procurement.

Earlier, the Office of the Auditor General had recommended that the province government recover Rs 11.99m mobilization funds provided to the contractor because work hadn’t been started on a similar project in Masdighat. This also forced the provincial government to sue the contractor of the Ngaldighat bridge project. Although state resources could be saved, haphazard project selection turned into a headache for the provincial government officials.

In another incident, the provincial government built a motorable bridge on the Daraundi River in Jarebar, Gorkha, with a budget of Rs 50m. However, it became of no use as there were no motorable roads on either side of the bridge. While there is a dense forest on one side of the bridge, paddy fields lie on the other side.

Locals claim that the then physical infrastructure development minister of the province, Ram Sharan Basent, constructed the bridge so that his paddy field would get road access. Since the 50-meter bridge, built with an investment of Rs 53.98bn, became useless, the Commission for the Investigation of Abuse of Authority (CIAA) has filed corruption cases against the secretary Ishwar Chandra Marahattha, then officiating director of the Provincial Road Directorate Ram Kumar Shrestha, and Chief Divisional Engineer of Gorkha Omraj Dhungana. The anti-graft body has sought a 10-year jail term and a fine of Rs 54.55m for the three individuals. Investigations showed that the bridge was designed and approved by citing a road that never existed.

This is not the only case of building bridges without roads. A bridge built over the Bijayapur River in Daharesanghu in provincial capital Pokhara, which was completed two years ago, hasn’t come into use as there is no road on one of its sides. Although there is a road on the eastern side of the bridge, no road exists on the western side.

According to the Office of the Auditor General, the Transport Infrastructure Directorate illegally released Rs 26.99m to the contractor by including variation costs in the contract agreement, which goes against the law. The project was awarded under a lump sum contract.

Along with flouting financial discipline in development projects, the provincial government is also found to have made unnecessary spending in unproductive areas. The provincial government spent Rs 570m on the procurement of motor vehicles in the past three years.

“The cost of maintenance and fuel will also increase along with the purchase of vehicles, so such expenses should be managed by preparing procurement standards,” suggested the Office of the Auditor General in its report.

The province has gone beyond financial discipline by purchasing vehicles. It is against financial discipline to make spending by creating headings not included in the budget speech. Most of the ministries of the provincial government offices have misused funds transferred to procure motor vehicles. For example, the Ministry of Internal Affairs procured a motor vehicle for Rs 5.99m by transferring a budget of Rs 6m, although the austerity measures adopted by the government prohibit government offices from procuring four-wheelers except for the purpose of elections and health services programs.

The Office of the Auditor General has also questioned the distribution of different grants without conducting a cost and benefit analysis. The OAG stated that the provincial government has not studied whether the Rs 460.24bn distributed to homestay operators, Rs 378.15m distributed through the model agricultural village project, and Rs 143.57m distributed to promote apple farming have achieved their targeted objectives. Stating that these programs are of a distributive nature, the OAG added that such programs should only be implemented if they can deliver the desired results.

Another program of the provincial government that doesn't deliver desired results is the parliamentary development fund. Every year, Rs 720m is invested through provincial assembly members, but no effective results have been seen.

Then finance minister Ramji Baral removed the program even without informing the Chief Minister in the budget of 2022/23. However, he couldn’t sustain the pressure from ruling and opposition assembly members and had to allocate funds under the miscellaneous heading. Only then could the fiscal budget be passed.

The first Chief Minister of the Province, Prithvi Subba Gurung, didn’t include the program in the first budget of his government. But he was forced to include the program in the second year, bowing to the pressure of assembly members.

Former finance minister Baral stated that assembly members shouldn’t be given budgets as development at the local level falls under the jurisdiction of the local units. “Ward offices will take care of development at the local level now. Provincial assembly members should focus their attention on formulating rules and regulations,” he added. He also claimed that the fund is being misused. “I can’t provide any proof, but I have information about assembly members providing Rs 1m for projects on the condition that Rs 300,000 is returned to them.”

The government, which is making unnecessary spending in unproductive sectors, is weak in implementing its annual budget. The Gandaki provincial government was only able to spend 66.07 percent of the budget in 2022/23. Out of the allocated Rs 35.9bn, the provincial government could only spend Rs 23.72bn.

Finance minister Jit Prakash Ale has presented a budget of Rs 33bn for the fiscal year 2023/24, which began on July 17.