Though the country has been receiving investment commitments worth billions of rupees from foreign investors in recent years, the actual foreign direct investment inflow has remained poor. Similarly, the progress of ongoing FDI projects in the country is also lean. Despite the government claiming that the business environment in the country has improved lately, investors are still reluctant to pour in investments. Sujan Dhungana of The Himalayan Times spoke to Maha Prasad Adhikari, chief executive officer of Investment Board Nepal, to know about the impediments for investment in the country and IBN’s future plans.
How will you evaluate the FDI scenario in Nepal in recent years, especially after your appointment at IBN?
The growth of foreign direct investment (FDI) around the world in 2017 was negative and FDI among developing nations during the year fell by almost 14 per cent. However, FDI in Nepal last year was positive unlike other developing countries. Nepal received actual FDI worth Rs 10.6 billion in fiscal year 2016-17, as per the central bank’s statistics, which is historically the highest annual FDI figure in Nepal. This figure though is relatively much less than what other countries have been drawing. However, if compared to Nepal’s gross domestic product, the FDI figure is above the world average of FDI to GDP ratio. Despite this, Nepal needs to increase FDI dramatically to fill the infrastructure gap and for overall development of the country. Meanwhile, the FDI inflow in the first six months of the ongoing fiscal has surpassed the country’s annual FDI inflow of the previous fiscal, which is highly encouraging. Nepal has already received Rs 14.5 billion FDI in the first half of fiscal 2017-18. The increasing FDI shows that the investment climate is improving in Nepal gradually. Following instability and political turmoil in the country, Nepal was certainly not an investment destination for foreign investors in previous years. Along with the country’s politics becoming stable in recent years, commitments from political parties for development and different reformative works undertaken by the government at the policy level Nepal’s business climate has improved lately. This will be crucial in boosting FDI in the country in coming years.
Despite the country receiving ample investment pledges in recent times, the government and IBN have not been able to materialise those pledges. What is the reason behind this?
The investment climate in Nepal has become better comparatively at present. However, a foreign investor analyses and evaluates all the minute details in any country before injecting investments. What I mean is that while most of us are encouraging FDI for development, an opposing view towards FDI from anyone — private sector, a political leadership or a wing of any political party — is enough to scare foreigners from investing in Nepal. If a foreigner learns that any section of a society is opposed to FDI, the investor will take it as a risk and defer his plans to invest in the country. Thus, all sections of the country should whole-heartedly welcome FDI and our policies should also be open to foreign investments. Before investing in any country, an investor will study the country’s investment-related policies, political will, facilities offered by the government, repatriation laws and rate of return in that country. Thus, we first should seriously work on these factors and make them attractive to investors. Our understanding and awareness level on the need of FDI for development is still unclear. Different sections in the society still feel that FDI is not necessary citing that the country itself has enough resources for investment while the fact is that FDI is a must to substitute imports, increase employment opportunities and boost productivity. The entire nation should acknowledge the need of FDI for economic growth and development. In general, political instability, labour problems, infrastructure deficit and bureaucratic hurdles are four major impediments for FDI around the globe and particularly in Nepal. In recent years, Nepal has been making gradual progress in doing away with these impeding factors, except infrastructure deficiency. The weak state of
infrastructure in Nepal — though in itself is an opportunity for investors — is preventing adequate investment in the country. Infrastructure deficit makes projects costlier and time consuming thereby discouraging foreign investors. Thus, the focus should now be on improving the infrastructure in the country. We should satisfy foreign investors through all means possible. If one potential investor is discouraged, it will have a ripple-effect and discourage other potential foreign investors. A satisfied foreign investor is a source for other foreign investors.
The government had signed Letters of Intent worth almost $14 billion with foreign investors during the Nepal Investment Summit last year? What progress has been made on that front?
The Nepal Investment Summit was highly encouraging and successful. Its primary aim was to convey reform measures Nepal has been undertaking to potential foreign investors. Similarly, it also intended to showcase investment potential of country. I believe the current rise in FDI inflow is also a result of the positive message about the investment environment that was delivered through the summit. With regard to materialising those commitments the progress has been low. This is basically because all the projects we had showcased in the summit and received commitments for were big projects whose progress will take some time. For instance, we had received three separate Letters of Intent (LoIs) for development of second international airport that alone amounted to Rs 600 billion. Though we showcased this airport project at the summit, we ourselves are not fully prepared with it. We are still not clear on modality to develop the second international airport. Similarly, we had received investment commitment for Kathmandu Metrorail Project. However, we are yet to finalise it. Likewise, those foreigners who had signed LoIs to invest in big projects like these are having further discussions regarding them. Translating actual investment in such mega projects will certainly take time. Meanwhile, we have been constantly following up with investors who had signed LoI.
How friendly do you feel are the government’s policies for investment?
I do not think that the government policies related to business and investment are negative. Nepal’s ranking has been gradually improving in the ‘doing business’ index and other competitive indicators. As the government has been reforming its policies albeit gradually, they have become more investment friendly in recent years. However, we still have numerous practical issues that need to be resolved timely to encourage investment. We still lack actual political will and bureaucratic loyalty towards investment.
Land acquisition has often been the major impeding factor for the progress of any project in Nepal. How can this be solved?
Private land acquisition is challenging not only in Nepal but across the world. However, the government should introduce concept of ‘land bank’ in the long run to address the problem that investors face in land acquisition. If the government separates some land for projects then project developers can use such land on lease and meet their project purpose.
IBN is learned to have been carrying out feasibility studies of eight new projects? What are they?
IBN had developed a project bank last year and has been implementing it gradually. But many investors come to us and seek ready projects for investment. However, we do not have ample ready projects in hand because of which investors return empty-handed. If we are able to provide sector-wise projects whose feasibility studies and other related studies have been carried out, it will certainly encourage investors. Thus, by coordinating with different government agencies, we are planning to study a few projects and make them ready for potential investors. IBN is planning to carry out feasibility studies of projects like glass industry, meat and agro processing industry, sport city projects, education city projects, solar plant projects, luxurious resort project and SEZ development projects, among others.
IBN recently inked an initial agreement with a private company called Nepwaste to manage the Valley’s waste. Do you believe that this project will be successful?
The pact signed between IBN and Nepwaste to manage Valley’s waste is crucial as the project intends to introduce a new practice in the country to address solid waste issues. As the project solely intends to make the Valley free from solid waste and maintain cleanliness, I believe that the implementation of the project will certainly make the Capital city clean.
A version of this article appears in print on March 12, 2018 of The Himalayan Times.