A Difficult Road to FDI

– Karisma Regmi

Ms. Regmi ​​is a research fellow at Samriddhi Foundation, an economic policy think tank based in Kathmandu. The views expressed in this article are the author’s own and do not represent the views of the organization. Author can be reached at Karisma Regmi [email protected].

Nepal recently concluded the much-anticipated Nepal Investment Summit 2024. According to the Department of Industry, Investment worth Rs 9 billion was approved during the event. However, there seems a huge gap between the committed investment and the actual inflow at the end of any fiscal year. According to the report “Foreign Investment in Nepal a synopsis 2022” FDI commitment for the fiscal year 2077/2078 was Rs 32172.81 million while the inflow stood just at Rs 19512.72 million. This is a considerable 40% lack from the committed FDI. 

In light of procedural difficulties faced by foreign investors, the Ministry of Industry, Commerce and Supplies inaugurated one window service center at the Department of Industry in May, 2019. It was to ensure convenience for both domestic and foreign investors. The center has eight different units; registration, foreign currency exchange, visa facilitation, environment, infrastructure, land administration, customs and revenues, administration, and law. Through this service center 14 different government agencies were brought under a single roof. This initiative gathered appraisal and was lauded by the business community in Nepal.

The One Window Service Center was a step ahead of the previous arrangements where Investors had to run into different governmental agencies scattered all over the valley. However, there are various challenges persistent in the center that have inhibited the value obtained in the process of registering and receiving approvals for the FDI. 

No Authority at Desk
Although all the government agencies can receive their respective proposal, the service centers in themselves don’t have the authority to issue related permission. The file(s) presented by investors are received at the desk but have to go through the same hierarchical procedures as before. The desk officers are screening officers without any authority to act on the request. In essence, our “One Window Service Center” is more of a “One Door and Multiple Windows”.

Timeliness of Response
Investors are kept in the dark about the procedural progress and are not given timely responses on the approval/rejection of the project. This adds to frustration and anxiety of investors. Although the Department has a policy, it fails to deliver approval(s)/disapproval(s) in a professional timeline. Apart from policy and structural hurdles foreign Investors in Nepal face bureaucratic harassment and extortion in almost every step involved, the reason of which transcends all the ethical and moral boundaries. Multiple news emphasize on the arbitrary excuses made by the bureaucrats working in Rastra Bank and their unethical demand for bribe money without which they wouldn’t expedite the approval procedure. This is one of the major factors explaining a huge gap between the committed investment and the actual inflow at the end of the year.

One of the investors in the news article stated that he found it very difficult to sign the company’s MOA and AOA which was written and approved in Nepali. The Company Registrar requires that the company’s registration documents be submitted in Nepali. This provision creates trust issues among the foreign investor and one can easily take advantage to put an investor in a disadvantageous position through the use of misleading phrases when registering a company’s document. 

Although Nepal has piled up FDI-friendly policies and incentives it has a lot to work on removing procedural hurdles. At the execution level, a service-oriented, professional, and ethically and morally strong environment has to be delivered to one seeking to invest in Nepal. The government to curb the procedural hassles announced an “automatic route” through online application for pre-approval of projects. However, the effectiveness of this is yet to be felt. A total reevaluation of the system and foreign investment attractive policies based on long-term study must be implemented, not just the ad-hoc and hasty amendments in the law. The long term vision of any foreign direct investment policy should be to make the foreign investment hassle-free, organized, facilitative and guaranteed to secure their investments.