Twelve candidates from a wide range of sectors and backgrounds have formally expressed interest in serving as the Chief Executive Officer (CEO) of the Investment Board of Nepal (IBN). The new CEO will face a daunting challenge in revitalizing investments in Nepal.
To energize investment growth, the IBN must move away from government-led projects and focus entirely on securing investments for private sector-led projects.
Government projects don’t need IBN
The IBN isn’t short on projects. At its recent board meeting in June, seven projects totalling Rs 186 billion were approved. At the investment summit in March, the board showcased 77 projects with investment requirements of Rs 3,500 billion ($32 billion).
The narrative for investments in Nepal hasn’t been on the difficulty of identifying projects—clearly there is enough of them. The challenge has rather been describing who drives investments in Nepal.
One of the biggest challenges to foreign investments in Nepal is the growing role of the government. Across the sector, particularly on energy and infrastructure, the government is eagerly taking the lead with project identification, development, and investment. This has eroded and crowded out space for private sector.
We should not confuse investments in government-led projects with foreign investments. Foreign investors on government-led projects in Nepal typically come from non-commercial sources, i.e., foreign governments, development agencies, or funds backed by foreign governments. Such investments are often driven by government relations and rarely reflect “project economic considerations” alone.
Government-led projects financed by non-commercial investments alone do little to enhance the attractiveness of Nepal as an investment destination. Such projects also do little to reduce the complexity of domestic regulatory approvals—a key bottleneck to investments. Although government-led projects must adhere to the same set of domestic regulatory approvals, they are treated separately. If all else fails, the government can change its own rules or offer a special dispensation. Government projects, therefore, fail to create pressure for simplifying domestic regulatory complexity.
The IBN must emerge from the shadow of the government. One way to do this is not to take on any project development that is majority owned by the government (or where the government exercises decision making-authority in operation).
Let private sector lead
A new era of government ownership is unfolding in Nepal. The country’s political leaders, many of them with real authority for the first time under Nepal’s new democratic system, are eager to fulfil their development commitments. How else do you showcase development except by building roads, hospitals, airports, power plants—anything that can be built and showcased? The bigger the project, the better.
Nepal’s investment story is now straightforward. Eager to showcase development, the government wants to lead the development of large projects, even in areas where private sector may be better placed to lead.
Large projects will remain out of reach for the private sector for the next decade or so as Nepal’s new political leaders rush to make their mark on development. The government doesn’t need the IBN’s help to develop and finance its projects. The IBN must, therefore, pivot and become an institution dedicated solely to promoting private sector investments.
Below the layer of government-led projects, there are many exciting projects being led and developed by the private sector. These projects may be smaller on average but collectively offer large portfolios.
New regulation on public-private partnership now allows the board to take on projects above Rs 6 billion. The IBN must try to push this minimum requirement further down, for example, by creatively aggregating smaller private sector projects into portfolios.
For the private sector, structuring and accessing international capital is the most difficult and expensive part of project development. This is where the IBN must support, not just as facilitators but as active partners that can take Nepali private sector led projects to global investors.
Securing financing and structuring investment deals is where the private sector needs the most assistance and where the IBN can really help. Once the investment deal is done, private sector promoters will be far better at navigating the regulatory complexities than the board ever will.
The Public-Private Partnership and Investment Bill approved in March 2019 provides the IBN scope to realign its vision, strategy, and approach. To revitalize foreign investments in Nepal, it must do more than playing the role of the government’s investment promotion bureau. It must rather become an investment broker to Nepal’s private sector.