The policy reforms initiated by the government through different ordinances seem to have started delivering results. Nepal received the highest foreign investment commitment so far in the fiscal year 2024-25 in the eighth month i.e., mid-February to mid-March.
According to the Department of Industry, it provided approvals for foreign investment worth Rs 17.79bn for 40 projects during the review month. The monthly report of foreign investment approval shows 19 applications for foreign direct investment came through the automatic route, while 21 came through the traditional route. These projects will create 833 new jobs. With this, the total investment commitments received over the eight months of the current fiscal year have reached Rs 44.66bn for 427 projects.
In the previous month, Nepal received foreign investment commitments worth Rs 1.06bn for 32 projects. The government introduced ordinances in the second week of January to amend several laws to improve the business environment in the country. A study conducted by the department has revealed that policy shortcomings are the main reason for low FDI inflows. The study found that several policy and practical challenges were affecting the implementation of the Foreign Investment and Technology Transfer Act, 2018. The government has tried to address some of them through the ordinances.
Several acts like the Foreign Exchange (Regulation) Act (1962), Company Act (2006), Special Economic Zone Act (2016), Foreign Investment and Technology Transfer Act (2019), Public Private Partnership and Investment Act (2019), Industrial Enterprise Act (2020) and Arbitration Act (1999) have been amended through the ordinances. The ordinances have been approved by both chambers of the Parliament, and replacement bills are being introduced.
Of the total foreign investment commitments received in mid-February to mid-March, 39 are for small industries, and one is for medium-scale industries. The growing increase in FDI toward small industries can be attributed to the government’s decision to lower the minimum foreign investment threshold to Rs 20m.
According to the report, 50 percent of the total committed amount received so far in 2023-24 is in the service sector, followed by tourism (40 percent), manufacturing (six percent), ICT (2 percent), and agriculture (two percent). In terms of the number of industries, 180 are in the tourism sector (42 percent), 154 in the ICT sector (36 percent), 54 in the service sector (13 percent), 50 in manufacturing (seven percent), seven in the agriculture sector (two percent) and one each in the energy and infrastructure sector.
However, there is a significant gap between FDI commitments and actual realization with only a fraction of pledged amount flowing into the country. In 2023-24, only 13.59 percent of the pledged Rs 61.78bn, amounting to Rs 8.4bn, translated into actual FDI inflows whereas in 2022-23, just Rs 6.17bn out of the Rs 38.4bn in approved foreign investments materialized as actual investments. In 2021-22, Rs 18.56bn out of the Rs 54.15bn in commitments flowed into the country as actual investments.
