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Despite  political and policy uncertainty, the Nepal government’s decision to organize the ‘Third Investment  Conference’ (TIC) on April 28-29 to attract foreign investment is a welcome step. Major issues/obstacles to such investment remain unaddressed amid a change of guard at Singhadurbar, including the ascension of a new finance minister. To make TIC successful is indeed a major challenge, but it is heartening to find the new finance minister committed to the cause. This article will analyze major issues related to investment and prescribe practical solutions expected to play a crucial role in making the conference successful.

A paltry FDI 

Investment, which helps to produce and reproduce goods and services, plays a pivotal role in national economic development. Despite different kinds of investment like public/private, domestic/foreign investment, the focus of this article is on private and foreign investment, especially foreign direct investment (FDI). For rapid economic development and growth, Nepal needs at least Rs 500bn in annual additional investment. Domestic investment alone will not be enough to fill this gap, so FDI is necessary.

Due to the lack of a conducive investment climate, ratio of real fixed investment (total fixed capital formation) to GDP has plunged from 34 percent (which should be around 60 percent, ideally) to 25 percent in a five-year period, whereas the share of total fixed investment of the private sector has gone down from 28 percent to 25 percent. Over the last 30 years (up to the fiscal 2023-24), FDI amounted to Rs 265bn with the average annual increment of a paltry Rs 8.5bn, marked by a receding flow in recent years. In terms of global FDI flow, Nepal’s position is pitiable, registering a 66 percent decline last year and standing shakily at the 6th position in South Asia, as the NRB Survey Report on FDI Flows in South Asia, 2021-22 shows. It is quite discouraging to note that FDI outflow is greater than its inflow.

Policy uncertainty and inconsistency is a major hindrance to both domestic as well as FDI. 

For example, the current government under Maoist leader Prime Minister Dahal is venturing into an undesirable sector by allowing the Nepali Army to run the already-privatized Hetauda Textile Factory, undermining the private sector (TPS) that contributes around 80 percent to the national economy. All this comes even as foreign investors remain quite afraid of pro-socialist provisions of the current constitution, including on the labor rights front. 

Capital flight

Worryingly, the private sector is diverting investment to a low-risk, high-profit trading sector at the expense of the industrial sector. This is not an overnight development, though. For several years, this sector had been urging the government to create a conducive environment for industrial investment in Nepal by amending relevant laws and enacting more than two dozen acts/regulations, to little avail. Instances of strikes and donation terror—the practice of seeking donations by flexing muscles—have gone down, but strong labor laws are still spoiling the investment climate. 

Notwithstanding a one-door policy on investment, there practically are three doors—the line ministry, the subordinate department and the Investment Board. Then there are infrastructural problems like load-shedding in the industrial sector, local communities’ grievances/concerns and political problems that create hurdles in the establishment of industries/factories. All these factors are also discouraging Nepali investors and triggering huge capital flight, formally and informally.  In such a situation, how can Nepal attract foreign investment?

A great dilemma

Globally, the control regime has become obsolete, thanks to a liberal economic policy adopted in the late 80s and 90s. Our neighbors—communist China and democratic India—adopted liberal economic policies and entered an era of economic growth and prosperity. In the case of Nepal and several other developing countries, some problems have appeared in the execution of liberal economic policy due to a higher degree of liberalization than their respective regulatory/supervisory capacities.  In our case, major leftwing parties have not so far committed to the liberal policy adopted 30 years ago, the need for FDI and a stronger role of the private sector for economic development. This is a great dilemma.

The author is an economist

As Nepal is soon going to approach the milestone of graduating from the list of Least Developed Countries (LDCs), there is an urgency to develop a comprehensive foreign policy that goes beyond the traditional approach of the so-called “yam between two boulders”.

Frankly speaking, I always struggled to understand the intrinsic meaning of the reasoning behind it.

Why should a nation like Nepal that, objectively speaking, is not a tiny geographical spot on the global map, reduce itself to a binary thinking that is dictated by an over reference towards India and China?

Perhaps in the past, this thinking could have been justified.

In the realm of geopolitics and international relations, there is no room for naïveté and it is impossible for a country like Nepal not to take into consideration the strategic interest of its two gigantic neighbors.

But this isn’t the last time that Nepal forged its own strategic interests beyond those of China, India or the United States of America.

But what would take for Nepal to be able to formulate a future forward, confident foreign policy?

The spirit of amity and cooperation with all the nations is a key pillar of the country’s foreign policy.

Together with the successful (though not fully completed) transition from the civil conflict, and the creation of a federal democracy, this internationalist attitude, should represent the “north star” of Nepal’s foreign policy.

Moreover, Nepal’s incredible diversity in cultures and traditions, magnificent landscapes and cordial nature of its people could also help its ways to project itself to the world.

But how to concretely leverage these sacrosanct principles and unique endowed features of the country rhetoric?

Nepal will soon do away with the “least” developed nation label that, from the marketing and branding point of view, has been disastrous, especially if you want to bring in international investors.

This development will require a reset in the way foreign policy is framed because, between now and the next few years, Nepal will have a unique opportunity to rebrand itself and not only in terms of being an attractive investment destination.

Perhaps, reminding ourselves that foreign policy is a mirror of national politics and the way of governing a nation, could be a way to start a reflection on the links between national and foreign policies.

If national politics changes for the better and becomes more transparent and effective, then the foreign policy of the nation can, consequently, also get more strategic and ambitious so that, finally, Nepal could get rid of “yam between two boulders” thinking.

Foreign policy should be instrumental in this phase of national development but a lot will depend on how politicians perform and behave at home.

The country is trying to turn from being a net recipient of international aid to being a net recipient of foreign investments.

A vision, albeit not yet perfect, is being formulated in this regard.

There is an overarching aspiration to attract business even though, for this to happen, it might mean doing away with some convenient “double standards” like the existing limitations in the shares that a foreign investor can own.

In addition, being successful at attracting investments won’t only depend on running a successful summit or in putting in place better rules that incentivise investors.

Instead, what will count will be creating a favorable investor climate thanks to better policies that enhance good governance in the realm of the economy, including serious interventions in the fight against cartels and corruption.

In addition, unless the country manages its delivery of services better, especially in the field of education and health, it will hardly succeed at becoming an investors’ magnet.

For example, there have been discussions about Nepal becoming a medical or educational hub.

Knowing the quality of the expertise and knowhow within the country, I am confident that it is possible.

There are already enough best practices and the more the country attracts back its citizens who had decided to emigrate in places like Australia and the USA, the better.

It would be even conceivable to imagine, in the near future, “Nepal Educational Expos” around the world with the best national educational institutions attracting students, starting from continents that the country has never, so far, even remotely imagined engaging with.

But can Nepal become such a hub without the right foundations?

Fixing its foundations, improving its education system at the grassroots and raising the current level of public education would be instrumental in promoting a “whole of nation” approach rather than few best practices amid a sea of mediocrity or worse.

What about starting to think about the first ever investment-focused mission of a Nepali Prime Minister to emerging nations in Central Asia or even to Africa and Latin America?

An official state delegation could discuss bilateral cooperation, including investments and the selling of some of the country’s unique proposition, tourism and of course its education and health institutions.

A substantial effort at enhancing good governance would, consequently, also be instrumental in propelling a foreign policy capable of shaping a new narrative.

The story of a country with many imperfections and unsolved challenges but also a nation that is ambitious and attempting at building a more just and developed society that can attract high human capital investments rather than low-cost manufacturing.

Good governance could also enable and facilitate innovative policy and contributions that Nepal can offer to the world, all ideas that its diplomacy could amplify and promote.

If you read the speeches of every single Prime Minister in the international forums, it is always the same leitmotif, starting from the usual (though correct) story that the country is among the most at risk of climate warming.

It is not that Nepal must stop bringing forward its legitimate grievances but it can do this differently with practical propositions, from adaptation to climate financing.

These are just some examples where Nepal could contribute not as a “bagger” but as promoter of solutions to some of the key global challenges.

But we need a non-partisan foreign policy vision of at least five years, a very pragmatic document that does not waste time in pleasing the neighborhood or other super powers but rather is purposefully fit to serve the nation’s new development aspirations.

Formulating this vision document will compel the policy-makers to truly align national priorities with its foreign policy ones.

This would help Nepal start thinking and not only in terms of foreign policy, from the perspective of being a middle-income nation even if it is, at the moment, just an aspiring one.

But it remains essential to fix the governance first.

The nation needs to really turn its mediocre at the best governance into a “good” one so that it can be in a position to truly assert its own interests, no matter what others might expect from it.

This is a real chance for Nepal to reach the point of thinking beyond what its powerful neighbors want and need from it.

Otherwise, we will continue to read about this absurd but sadly true story that Nepal is just a “yam between two boulders”.

The author is the co-founder of ENGAGE and The Good Leadership. Views are personal

The presumption of innocence is the greatest shield ever to have been provided to an accused in criminal lawsuits. It is a vital aspect of the criminal legal system around the world. It states that every accused is ‘innocent’ until proven guilty and the burden to prove their guilt lies with the prosecution i.e., the State. Whenever a person is arrested by the government for their alleged involvement in a crime, the government must collect all evidence to prove that person’s guilt in an independent, impartial, and competent court, beyond reasonable doubt. Until that happens, the arrested individual cannot be deemed to be a ‘criminal.’

The right to be treated as innocent until proven guilty is a fundamental constitutional right and it is protected in Article 20(5) of the Constitution. Similarly, Section 12 of the National Penal Code (Act), 2017 perpetuates the presumption of innocence in criminal lawsuits. 

This legal notion has become the standard of the ‘civilized’ legal system and it has enabled States to perpetuate their obligations to protect, promote and fulfill human rights of their citizens. The US case Coffin v. United States (1895) posited that the notion of presumption of innocence lied at the foundation of the administration of criminal law. Similarly, the case of Rabindra Bhattarai v His Majesty’s Government of Nepal, Nepal Law Magazine 2055 (BS), Decision Number 6622 meticulously iterated the essence of this presumption and held that no person shall be deemed as a criminal merely based on an accusation. Thus, it is undoubtedly an elementary legal principle that helps to protect a civilian’s freedoms. 

What would happen if an accused were deemed guilty until proven innocent? The accused would have to collect evidence of their innocence with limited resources available to them. On the other hand, the court would be ready to convict them merely based on accusations. Therefore, it would be unscientific and contrary to people’s human and legal rights. 

How should an accused be treated? Theoretically, they must be granted the same respect as that of unaccused individuals. Their fundamental rights must be protected by the State, and no person shall slander them or label them as ‘criminal’ until the court finds their guilt. But does society view such a person accordingly, with no biases at all? Does it comprehend easily that such a person is still a respected citizen and deserves no eccentric remarks until the court decides?

One of the best ways to assess the social psychology of Nepali society is to skim through various social media and observe the comments and remarks people express in various criminal matters. We can fairly observe that most people are quick to judge the accused and label them as ‘criminals’ based on rumors and whims influenced by news headlines and incomplete details from case files. It is as if an individual instantly becomes a criminal the moment they are accused of committing a crime. But does it happen if the accused is rich, influential, and admired by many?

The answer is generally ‘no’ and a recent example is how people (on social media) not only declared Sandeep Lamichhane (former captain of the Nepali cricket team) as innocent on a rape charge but also slandered the victim and perpetuated how ‘baseless’ the lawsuit was. To say that the entire nation was shocked would be an understatement. When he was released on bail in Jan 2023, a mass of people rushed to him to “celebrate” his release and many women were seen chanting his name as he left the court premises. What image of Nepali society does this “influence” paint? Why were people chanting his name knowing that the victim of rape was allegedly a minor? Why did they not think the cantillation of his name would directly attack the victim’s status and shake her belief in society and the justice system?

One of the answers to this is rape myth acceptance. RMA refers to acceptance of prejudicial, stereotyped, and distorted beliefs about rape, rape victims and rapists. These are the false attitudes and beliefs about the crime, yet widely held to serve and even justify male sexual aggression especially against women. When news of rape is broadcast, people in the first instance ask questions like “Why was the woman with the man?”; “Was she wearing revealing clothes?”; “Was she provocative?”; “Why did she not come for help sooner?”; “Why would a successful man risk his life and career?”

This attitude is not only prevalent in Nepal but also in countries all over the world. Due to RMA, many women tend to blame themselves and not bring the matter to light, let alone seek legal remedy. Patricia A. Resick in her journal article “The Psychological Impact of Rape” enumerated a wide range of problems faced by women such as fear, anxiety, PTSD, depression, sexual dysfunctions, issues with self-esteem, declined social adjustment and more. Yet many people in Nepali social media, in many instances, are quick to assassinate victims’ character. 

What could be the general ways to “fix” this attitude? Nepali society must understand that every accused has their fundamental rights intact until they are proven guilty by the court. Their rights to live with dignity, to freedom, to privacy, to health, to food, to housing and such, shall be respected. At the same time, if the accused is an influential personality, he or she shall not be celebrated or given a clean chit by the public. The people should let the law do its work and refrain from lionizing such individuals. They must think about the victim who is claiming that they were subjected to abhorrent injustice. 

To alleviate this attitude, the quickest short-term measure is to strengthen laws legislated to protect women. Courts play a crucial role in establishing and nourishing robust criminal jurisprudence in favor of women’s security and clarifying the idea of sexual consent. The more pragmatic the definition and boundaries of sexual crimes, the better social and legal understanding of sex crimes. This is also where strict monitoring of social media behavior comes into place. Nepal requires an upgrade in cyber laws to prevent online sexual misconducts. 

The best long-term measure would be to educate children from early ages to protect themselves, to call out for help in need, and to teach them the idea of consent. It would be beneficial if every workplace had a periodic mandatory anti-sexual harassment training to educate employees about respect and positive behavior. As time goes on, people must be cognizant about condemning lewd remarks on women through jokes, songs, and stereotypical narratives. If we could only adopt half of these measures, our society will be a safer place for women and girls. We could prevent numerous sex offenses and maintain a victim-centric attitude to make victims believe in social restoration. 

The author is student of BA LLB at Kathmandu School of Law

An investment-friendly political and socio-economic environment is urgently needed in today’s Nepal. Foreign Direct Investment (FDI) and national private investors must be encouraged and supported by the friendly policies and programs of the Nepal government. Such policies and programs are necessary to increase the pace of economic development, achieve relevant Sustainable Development Goals (SDGs) and create concrete economic grounds for graduation from the LDC status in the year 2026. There is a high potential and possibility for such an investment-friendly atmosphere in Nepal. The lack of political willpower, interest, honesty and clear-cut policies and implementation programs are preventing the creation of such an atmosphere.

FDI flow in S Asia

Nepal is in the sixth position in South Asia regarding FDI inflow, just above Bhutan, according to World Bank data for 2022. FDI inflow was just $65m in 2022 Nepal, which is a 0.15 FDI-GDP ratio. The Maldives is on the top, having $722m in 2022, and the FDI-GDP ratio is 11.7. India was second, and Bangladesh was fourth that year. Bangladesh had $3,480m with a 0.75 FDI-GDP ratio in 2022, whereas India had $49,355m with a 1.44 FDI-GDP ratio in the same year. The 2024 data show India received $105.23bn whereas China received just $70.23bn.

According to the same source, net FDI inflows to Nepal decreased by 4.9 percent to Rs 60bn in 2021-22. There is a significant gap between approved FDI and actual net FDI inflows in Nepal. Between 1995-96 and 2021-22, the total net FDI inflow stood at around 36.2 percent of total FDI approval. This is one of the weighty matters of concern for Nepal.

Vietnam and Cambodia

According to Vietnam’s Foreign Trade Agency, the country experienced a surge in FDI in January and February of 2024, recording an influx of over $4.29bn, marking a significant increase of 38.6 percent compared to the previous year. The major areas of FDI investment are Manufacturing, Services, Agriculture and Travel.

Cambodia’s FDI registered a growth of 12.1 percent of the country’s nominal GDP in Dec 2022, while it stood at 12.9 percent in the previous year. The significant areas of FDI investment in Cambodia are agro-processing, electronics/machinery, health, industrial parts, infrastructure and green energy.

Nepal’s failure

Some of the reasons behind Nepal’s failure to attract FDI are as follows:

Legal hurdles: Some Acts and Regulations responsible for this need to be immediately amended. For example, government itself has said Industrial Enterprise Act 2020, Foreign Investment and Technology Transfer Act 2019, Special Economic Zone Act 2016, Forest Act -2019, National Parks and Wildlife Protection Act 1973, Land Act 1964, Land Acquisition Act 1977, Environment Protection Act 2019, Electronic Transaction Act 2008, Civil Aviation Act 1959, Foreign Investment and Technology Transfer Regulation 2021 and Forest Regulation 2023 need to be revised. Also, some new Acts are needed to encourage the investors with mutual advantages and benefits with clear-cut policies from the point of license receiving to total facilities and support to be given and remittances (dividend) for return.

Bureaucratic hurdles: Bribery, corruption and red-tape are the main hurdles here. Whether national or foreign investors, this is their main complaint and grievance. Our legal and executive decisions and discipline should be such that they penalize and discourage the corrupt actors.

Political hurdle: We should be very fair and impartial, and it will be unfair to blame the bureaucrats alone. Our political circle is also tainted. Our politicians, bureaucrats and brokers have some kind of nexus through which they engage in corrupt practices and discourage investors. So, concerned government authorities and relevant agencies should pay attention here, and the culprits must be brought to justice.

Instability: Lack of political instability, marked by frequent changes in government, is one of the important reasons behind the failure to attract FDI in Nepal. Investors want political stability and policy consistency, and they hardly invest in politically-unstable countries. The political parties of Nepal must pay serious attention to this matter.

Facilities and taxation: FDI calls for a clear-cut taxation policy that is congenial to them and that provides information to them about facilities they are entitled to in a transparent manner. Our taxation policy should be distinctly clear and investment-friendly. We should provide them with all basic facilities that good plants and industries need. Why should we not offer them a special industrial zone like other countries by taking a cue from this saying: Facilities attract and invite capital and capitalists?

Trade union and exit plan: The FDI needs a transparent, solid, stable and investment-friendly labor policy. Foreign investors do not accept workers’ strikes and other forms of disturbances in the industries. They do not accept politics and politically-motivated activities within industrial areas. Does the government have a political will to address these concerns? Foreign investors are also very much concerned about their exit plans. They want to take their profit safely and smoothly back to their countries. They are also apprehensive about the principal amount they invest in. Our legal system, executive decisions and practices should be amicable and supportive of their exit plan.

Proposed areas: Our priority and proposed area must be clear and solid to attract FDI. As per the need and potential of Nepal, agriculture, tourism, hydro, connectivity, education, health, IT, and agro and forest-based industries are the appropriate areas for FDI investment in Nepal.

Learning lessons: In-depth studies are necessary to find the reasons behind Nepal’s failure to attract FDI. Serious studies of countries that have managed to bring in FDI big time, especially on the facilities and incentives they provide to foreign investors,  can show Nepal the way forward when it comes to attracting FDI. 

Conclusion

In conclusion, Nepal urgently requires a conducive environment for investment to accelerate economic growth and achieve SDGs. Legal, bureaucratic and political hurdles, along with instability and unclear policies, deter FDI inflows. To address this, Nepal must enact investor-friendly laws, combat corruption, ensure political stability, offer transparent taxation policies, provide facilities and address labor issues. Learning from successful FDI attractors like India, Bangladesh, Vietnam and Cambodia, Nepal should focus on sectors like agriculture, tourism, hydro, connectivity, education, health, IT and agroforestry, at a time when the country is gearing up to organize the Third Investment Summit.