Nepal is seeing an increasing flow of Foreign Direct Investment (FDI), bringing both opportunities and challenges to the country’s economy. FDI occurs when individuals, companies, or investors from other countries put money into Nepalese businesses. This could mean building factories, opening hotels, setting up IT companies, or purchasing shares in existing enterprises.
Unlike simple trade, FDI means that foreign investors become a part of Nepal’s economy, contributing not only money but also skills, technology, and know-how. Over the past few years, the Nepalese government has worked to create a favorable environment for investors by simplifying laws, streamlining approval processes, and offering incentives in priority sectors. These measures are intended to encourage investment across agriculture, tourism, manufacturing, energy, and technology. FDI plays a critical role in Nepal’s development because it brings much-needed capital for growth, generates employment, transfers technology, and strengthens the country’s global economic connections.
Recent data through Sept 2025 highlights a promising trend for Nepal. During the first two months of the fiscal year, Nepal secured Rs 33.09bn in FDI commitments across 236 projects, including 225 small-scale, four medium-scale, and seven large-scale industries. The agriculture sector accounted for the highest value of commitments, with Rs 21.598bn pledged for nine projects. Tourism followed with Rs 6.692bn for 79 projects, while manufacturing, services, and energy sectors received Rs 1.24bn, Rs 2.815bn, and Rs 182.55m, respectively. Additionally, the Information Technology sector secured Rs 562.754m across 120 projects. These investments are expected to generate employment for thousands of Nepalis, provide new opportunities for local businesses to partner with foreign investors, and bring in advanced technologies and modern business practices.
Since the establishment of the Department of Industry, Nepal has approved 7,475 projects with total FDI commitments amounting to Rs 684.51bn. Despite the strong commitments, only a portion of this promised investment has been realized, with net FDI inflows for fiscal year 2023/24 totaling Rs 8.4bn, marking a 36.1 percent increase from the previous year. The total FDI stock in Nepal as of mid-2024 reached Rs 333bn, with the service sector holding the largest share at 40.5 percent, followed by industry and manufacturing at 29 percent each. Investors originate from around 60 countries, with India, China, Singapore, Ireland, and South Korea topping the list, while Bagmati Province continues to receive the highest concentration of investments, accounting for 62 percent of total FDI stock.
Several reforms and government initiatives have contributed to this upward trend in investment. Legal changes have simplified procedures for investors, including the introduction of an automatic approval route for certain projects, allowing investors to receive faster approval without multiple layers of bureaucracy. Foreign investors can now invest through registered venture capital or specialized funds, while some restrictions remain in certain agricultural sectors, such as dairy or vegetable production, unless projects focus on exports.
The Department of Industry has also improved visa arrangements for investors, their representatives, and family members, making Nepal a more welcoming destination for foreign capital. Faster approval processes reduce delays and costs, encouraging investors to launch projects promptly. The government’s support, combined with sector-specific incentives and reforms, has improved Nepal’s appeal as an investment destination and fostered confidence among international companies looking to participate in the country’s economic growth.
Despite these positive developments, challenges remain in ensuring that FDI commitments translate into actual investments. Historically, only about 31.9 percent of approved projects are realized due to delays in project implementation, long setup times, or changes in investor priorities. Weak infrastructure, including limited access to reliable electricity, water, and transport networks, continues to impede large-scale projects, particularly in less developed regions. Governance and risk management remain concerns for investors, as corruption, bureaucratic delays, and uncertainties about property rights can affect the safety of capital and the return on investment.
Long-term projects, such as hydropower plants, industrial complexes, and large-scale tourism initiatives, require stability, robust regulatory frameworks, and efficient administration. Furthermore, foreign investors often need guidance on repatriation of profits and management of financial obligations to avoid excessive debt accumulation. These factors highlight the importance of addressing institutional weaknesses, upgrading infrastructure, and ensuring transparent and predictable legal processes.
Corporate law firm in Nepal have emerged as vital partners in supporting foreign investors. These firms provide comprehensive legal guidance on FDI regulations, company registration, tax obligations, and compliance requirements. They assist investors in setting up businesses, whether as joint ventures with local partners or as wholly foreign-owned entities.
Legal experts also draft and negotiate complex agreements, including Share Subscription Agreements, Share Purchase Agreements, and Technology Transfer Agreements. Law firms support investors in obtaining regulatory approvals, managing visas, and resolving disputes, ensuring contractual rights are protected. By advising on finance structures, dividend repatriation, and ongoing compliance, corporate law firms reduce risk and improve the likelihood of successful long-term investment.
With the right legal and regulatory support, combined with continued reforms and government incentives, Nepal has the potential to leverage FDI as a powerful engine for sustainable economic growth, regional development, employment generation, and technological advancement, ultimately benefiting the country’s economy and its citizens.
Prabin Kumar Yadav
Kathmandu School of Law
