The third Nepal Investment Summit (NIS) 2024 was held on 28-29 April 2024 in Kathmandu. It was organised by the Ministry of Finance, Government of Nepal (GoN) through the Investment Board Nepal (IBN). The main focus of this Summit was on private sector and foreign direct investment (FDI) in Nepal. The objective of the Summit was to promote Nepal as an emerging global investment destination and draw the attention of prospective global investors to the opportunities in Nepal. This issue brief explains Nepal’s development aspirations in the context of the Nepal Investment Summit, FDI in Nepal and India’s role as a development partner.
NIS 2024
The GoN had been collaborating with bilateral and multilateral development partners and Development Finance Institutions (DFIs) for the Summit. In this context, several bilateral visits and meetings with the development partners were arranged by the GoN since January 2024 to promote the NIS 2024. Additionally, promotional pre-events were also organised by the IBN and GoN as part of the development diplomacy of Nepal.
In his speech at the inaugural, Nepalese PM Pushpa Kamla Dahal stated that “Our unwavering commitment to liberal economic policies lays the foundation for a vibrant and investor-friendly business environment. We are strongly committed to carry out continuous reforms to facilitate the investors, industrialists, innovators and ease of doing businesses.”[i] He emphasised the recent amendments of eight different laws governing business and said that these amendments would boost investor confidence. He also emphasised the potential of the hydropower sector of Nepal for investment opportunities and inter alia mentioned the existing and planned cross-border transmission lines with India, the power trade agreement with India and the Memorandum of Understanding (MOU) for power export with Bangladesh. The other major potential investment areas highlighted were, tourism, agribusiness, manufacturing and IT sector.
The main opposition party the Nepali Congress (NC) Chairperson and former PM Sher Bahadur Deuba in his address affirmed the consensus among the major political parties of Nepal, despite the political uncertainty, over promotion of FDI in Nepal. He said, “International and domestic investors can leave a transformative impact on major sectors such as agriculture, tourism, infrastructure development, mining and minerals, hydropower and information technology,”[ii] while remarking that the convening of the high level Summit was significant.
The NIS 2024 concluded with the major parties appealing to foreign investors to increase investment in Nepal. The closing session featured remarks from the Chairman of the ruling Communist Party of Nepal (Unified Marxist-Leninist), an ally of the ruling CPN (M) and former PM KP Sharma Oli. In his concluding address to the NIS 2024, Oli supported the GoN’s move to amend the laws’ establishing favourable conditions for the encouragement of FDI in Nepal. He said “The CPN-UML firmly stands with the government to create more conducive environment for all who have already invested or are exploring opportunities to invest in Nepal.”[iii]
The Summit hosted government officials, potential investors, prominent business persons, professionals and high-level delegations from across the world. Over 2,500 participants, including around 800 foreign participants from 55 different countries took part in the Summit.[iv] According to the IBN, the majority of the participants were from India and China.[v] The GoN showcased 152 potential projects at the Summit[vi] where the majority of the projects were from the hydropower sector.[vii] The Summit concluded with the signing of more than 12 MoUs with Development partners of Nepal and investors.[viii] Besides, the GoN launched an online system for foreign firms to register and get approval for FDI in Nepal. The NIS 2024 was able to get approval for investments worth more than NPR 9.13 billion for four projects in Nepal.[ix] Additionally, the GoN has extended an invitation of Expression of Interest (EOI) on 28th April 2024 from investors to engage in a public-private partnership (PPP) tender process for the advancement of specific projects. These projects include several transport and connectivity projects and hydropower projects.[x]
Past Investment Summits -NIS 2017 & NIS 2019
In the past, the GoN has hosted two Investment Summits, one in 2017 and the other in 2019. During the NIS 2017, a total of US$ 13.7 billion worth of Letters of Intent (LoI) were signed by 16 companies from around the world. However, the commitments made were not entirely fulfilled, as per the FDI data by Nepal Rastra Bank (NRB). The NIS 2019 was organised following substantial policy reforms in the FDI regulatory framework. During the 2nd Summit, 15 project investment agreements worth US$ 12 billion were signed, including international airport development, road construction, hydroelectricity and projects related to agriculture sector development. However, in this instance too, the FDI inflows fell short compared to what was committed during the Summit.[xi]
Despite the efforts by two consecutive governments in organising NISs, the desired goal of attracting foreign investment was not fully achieved. The reasons cited by scholars and academia is the decline in global FDI inflows due to the Russia-Ukraine war, high food and energy prices, fears of a recession and debt pressures. Further, the ongoing political uncertainty in Nepal in terms of frequent changes in the government has also adversely impacted investor sentiment.
Further, Nepal has been witnessing an economic recession for the past few years. A major reduction has been observed in industrial and agricultural production. Further, lower investment and high interest rates have also been observed, besides the liquidity crisis. In addition, Nepal’s trade deficit has also been growing sharply. There has been a decline in revenue collection by the Government of Nepal.[xii] Most importantly, there has been a rise in nationwide unemployment as well.[xiii] The COVID-19 pandemic has adversely affected the Nepalese economy in the last few years. It is in the background of the deepening economic crisis and the quest for economic growth and development that the NIS 2024 was planned.
Development Aspirations of Nepal and FDI
Nepal, being a land-locked country with limited financial resources and technical know-how, needs foreign investment to boost its potential sectors and contribute to fulfilling its developmental aspirations. The country has remained reliant on foreign aid to fulfil its developmental needs since it started opening up to the world in the 1950s. After economic liberalisation was initiated during the mid-1980s, its reliance started shifting gradually towards the services sector. The agriculture and industrial sectors remained underdeveloped, unexplored and underutilised due to a lack of adequate investment. It was anticipated that post-liberalisation Nepal would be able to mobilise FDI in its key sectors, which would help Nepal accomplish its developmental aspirations and overall economic growth. However, Nepal has not been able to mobilise sufficient attention from global investors to invest.
FDI inflows in Nepal remained fluctuating between 0.1 per cent and 0.5 per cent of its GDP during the past 37 years. The data reached an all-time high of 0.7 per cent in 2017 and a record low of -0.1 per cent in 2000. There is a lack of coherent data on the total commitment and actual realisation of FDI in Nepal.[xiv] The latest FDI survey report published by the NRB points to a significant gap between FDI commitments and actual net inflows. As per the NRB data, between fiscal years 1995–96 and 2021–22, the total actual net FDI inflow stood at around 36.2 per cent of total approval.[xv]
The reasons for Nepal not being able to mobilise foreign aid in bulk to foster development are predominantly the constant instability of political regimes and of policy implementation. In this context, at the political level, a comprehensive political transition took place after the November 2017 general elections, both at the federal and provincial levels, which paved the way for political stability. On the policy front, Nepal has brought and revised several legislations on foreign investment and related policies since liberalisation.[xvi] The Council of Ministers of the GoN approved a bill seeking revisions to FDI-related policies on April 22, 2024, in preparation for NIS 2024 to assure potential investors.[xvii] The ordinance was approved by the President of Nepal on Sunday 28th April, 2024, which is the day of the commencement of the NIS 2024.[xviii] The ordinance entails revisions in various Acts, including the Lands Act of 1964, the Land Acquisition Act of 1977, the Public Private Partnership and Investment Act of 2019, the Foreign Investment and Technology Transfer Act of 2019, and the Industrial Enterprises Act of 2020. These amendments are aimed at improving the legal framework to facilitate FDI.
India’s Role as a Development Partner of Nepal
Nepal has been seeking economic and technical support from India since the end of the Rana regime in the late 1940s. In addition, it has also been seeking assistance from the world’s largest developed and developing economies, including the USA, the UK, China and other European countries. However, Nepal’s developmental engagement with India is not comparable with Nepal’s engagement with other countries. India is not only the biggest investor in Nepal’s development sectors, including manufacturing, infrastructure, hydropower and tourism, it is also the largest market for Nepalese agricultural products, manufacturing products, labour migration and more recently hydropower.[xix] This makes the development partnership between the two neighbours unique.
Prospective foreign investments in Nepal require potential markets that are easily accessible and have high connectivity. In this context, India does provide duty-free quota-free access to almost all Nepalese goods to the Indian market and also provides access to its two seaports, Haldia (Kolkata) and Vishakhapatnam, to Nepalese overseas trade.[xx] Besides, Nepal’s proposed hydropower export to Bangladesh necessitates a transmission line through Indian territory. There is a trilateral power exchange agreement in the pipeline. The agreement is expected to be signed by the Bangladesh Power Development Board (BPDB), the NTPC Vidyut Vyapar Nigam Limited (NVVN) of India and the Nepal Electricity Authority (NEA) of Nepal.[xxi] The signing of the trilateral agreement will facilitate cross-border energy trade in the South Asia and BBIN subregions which is unique and first-of-its-kind. Therefore, India’s development cooperation with Nepal is one of the important pillars of Nepal’s quest for FDI and overall foreign trade and commerce.
Preparations for the NIS 2024 started by engaging with prospective Indian businesses and government departments, considering India’s significant presence in Nepal’s development endeavour. The IBN had held meetings with the Indian Chamber of Commerce (ICC) and the PHD Chamber of Commerce and Industry (PHDCCI). Furthermore, Nepalese government officials have also had meetings with prominent Indian business personalities and groups.
During the NIS 2024 a video message of India’s Minister of Commerce and Industry Shri Piyush Goyal was played. In his message Goyal asserted Nepal is a key partner in India’s ‘Neighbourhood First’ policy. He held that “We will continue to invest in Nepal. We will continue to expand our trading and business relationship.”[xxii] He also said, “I urge Indian investors across the globe to invest in Nepal, to seize the opportunity, and become a part of emerging Nepal.” [xxiii]
Challenges and Concerns
Some concerns have been raised as per the media reports about the FDI-related policy reforms that GoN approved and brought through the ordinance on the very day of the commencement of the NIS 2024. Concerns expressed are related to the passage of the ordinance and its adoption as an Act by the Parliament later amidst political uncertainties. To assuage such concerns, the Finance Minister of Nepal, Barshaman Pun, affirmed that the NIS-2024 will not be affected owing to the political change. He said, “Governments can change and so can the ruling coalitions, but they will make no difference with the investment policy of the country.”[xxiv]
Another concern that has been raised is with regard to the frequent changes in the assignment of development projects by GoN from one foreign firm to another which has led to unnecessary delays in project implementations in the past.[xxv] Other challenges include difficulties in land acquisition, and tax-related concerns such as the lack of tax rebates on profits that are reinvested.[xxvi] Further, over the past few years, a rise in copyright, trademark, and patent infringements has been reported in Nepal due to poor enforcement of laws in the country.[xxvii]
Conclusion
Following the conclusion of the Summit, there are comments in certain quarters regarding the commitments made falling short of expectations, especially in the energy sector, and the Summit not being able to overcome the challenges that in general beset the Nepalese polity and economy. However, it remains to be seen whether the efforts made by the GoN in convening the NIS 2024 bear fruit in the long run. Nepal, through development diplomacy, has made efforts to draw the attention of its development partners and prospective investors to invest in Nepal. This effort is significant in light of the difficulties that the Nepalese economy has been facing in recent times. Further, it is also important to note that Nepal’s graduation from a Least Developed Country (LDC) to a developing country is due by November 2026 which would lead to a significant loss of concessions and policy space in key sectors. In this context, the NIS 2024 has concluded with the hope of bringing larger FDI and growth to Nepal, though its success will depend on the actual investment secured in the days to come.
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*Subodh Chandra Bharti, Research Associate, Indian Council of World Affairs, New Delhi.
Disclaimer: Views expressed are personal.
Endnotes
[i] GoN. “Address by Rt. Hon’ble Pushpa Kamal Dahal ‘Prachanda’, Prime Minister of Nepal at the Inaugural Session of the Nepal Investment Summit 2024,” Office of the Prime Minister and Council of Ministers, Government of Nepal, https://www.opmcm.gov.np/en/address-by-rt-honble-pushpa-kamal-dahal-prachanda-prime-minister-of-nepal-at-the-inaugural-session-of-the-nepal-investment-Summit-2024/ (Accessed April 28, 2024).
[ii] The Kathmandu Post. "Ruling and opposition parties close ranks to assure investors," The Kathmandu Post, April 29, 2024, https://kathmandupost.com/national/2024/04/29/ruling-and-opposition-parties-close-ranks-to-assure-investors (Accessed April 30, 2024).
[iii] The Rising Nepal. "Nepal ready to take-off its journey to rapid economic development, says leader Oli," The Rising Nepal, April 29, 2024, https://risingnepaldaily.com/news/42273 (Accessed April 30, 2024).
[iv] Press Trust of India. "Nepal Investment Summit concludes; funding worth NRs 9 billion approved," Business Standard, April 29, 2024, https://www.business-standard.com/world-news/nepal-investment-Summit-concludes-funding-worth-nrs-9-billion-approved-124042901233_1.html (Accessed April 30, 2024).
[v] Sangam Prasain. "Neighbours India and China make tall promises at Nepal Investment Summit," The Kathmandu Post, April 29, 2024, https://kathmandupost.com/money/2024/04/29/neighbours-india-and-china-make-tall-promises-at-nepal-investment-Summit (Accessed April 30, 2024).
[vi] Press Trust of India. "Nepal Investment Summit concludes; funding worth NRs 9 billion approved," Business Standard, April 29, 2024, https://www.business-standard.com/world-news/nepal-investment-Summit-concludes-funding-worth-nrs-9-billion-approved-124042901233_1.html (Accessed April 30, 2024).
[vii] Sangam Prasain. "Neighbours India and China make tall promises at Nepal Investment Summit," The Kathmandu Post, April 29, 2024, https://kathmandupost.com/money/2024/04/29/neighbours-india-and-china-make-tall-promises-at-nepal-investment-Summit (Accessed April 30, 2024).
[viii] Press Trust of India. "Nepal Investment Summit concludes; funding worth NRs 9 billion approved," Business Standard, April 29, 2024, https://www.business-standard.com/world-news/nepal-investment-Summit-concludes-funding-worth-nrs-9-billion-approved-124042901233_1.html (Accessed April 30, 2024).
[ix]My Republica. "Nepal Investment Summit 2024: Investments worth Rs 9.13 billion approved," My Republica, April 30, 2024, https://myrepublica.nagariknetwork.com/news/nepal-investment-Summit-2024-investments-worth-rs-9-13-billion-approved/ (Accessed May 1, 2024.
[x] IBN. “Notice: Invitation for Expression of Interest (EOI) for project application," April 28, 2024, https://ibn.gov.np/ibn-notices/details/notice-invitation-for-expression-of-interest-eoi-for-project-application-8936 (Accessed April 29, 2024).
[xi] Bibhuti Kharel. "What to expect from the investment Summit,” The Kathmandu Post, April 21, 2024, https://kathmandupost.com/columns/2024/04/21/what-to-expect-from-the-investment-Summit (Accessed April 24, 2024).
[xii] Hari Bansh Jha. "Economic crisis on the rise in Nepal," May 18, 2023, https://www.orfonline.org/expert-speak/economic-crisis-on-the-rise-in-nepal (Accessed April 14, 2024).
[xiii] Hari Bansh Jha. "Deepening economic crisis in Nepal," January 23, 2024, https://www.orfonline.org/expert-speak/deepening-economic-crisis-in-nepal#:~:text=Between%20mid-July%20to%20mid,percent%20of%20Nepal's%20overall%20trade (Accessed April 15, 2024).
[xiv] Achyut Wagle. “Chasing the FDI mirage,” The Kathmandu Post, April 8, 2024, https://kathmandupost.com/columns/2024/04/08/chasing-the-fdi-mirage (Accessed April 12, 2024).
[xv] Nepal Rasta Bank. 2023. " Nepal Survey Report on Foreign Direct Investment in Nepal (2021/2022)," https://www.nrb.org.np/contents/uploads/2023/09/FDI-Survey-2021-22-2.pdf (Accessed April 16, 2024).
[xvi] Subodh C Bharti. “Economic Liberalisation and Shifts in Foreign Policy of Nepal” (Ph.D. Thesis, JNU, 2023).
[xvii] My Republica. “Govt amends nine laws through ordinance to attract investors,” My Republica, April 24, 2024, https://myrepublica.nagariknetwork.com/news/govt-amends-nine-laws-to-attract-investors-through-ordinance/ (Accessed April 26, 2024).
[xviii] GoN. 28 April 2024, “लगानी सहजीकरण सम्बन्धी केही नेपाल ऐनलाई संशोधन गर्ने अध्यादेश, -२०८१,” Ministry of Law, Justice and Parliamentary Affairs, https://www.moljpa.gov.np/wp-content/uploads/2024/04/लगानी-सहजीकरण-सम्बन्धी-केही-नेपाल-ऐनलाई-संशोधन-गर्ने-अध्यादेश-२०८१.pdf (Accessed April 29, 2024).
[xix] Subodh C Bharti. “Economic Liberalisation and Shifts in Foreign Policy of Nepal” (Ph.D. Thesis, JNU, 2023).
[xx] Subodh C Bharti. “Nepal’s Accession to the WTO: Challenges and Implications for Trade Policy and Trends” (M.Phil. Dissertation, JNU, 2018).
[xxi] SASEC. News Update. “Landmark Bangladesh-India-Nepal Energy Agreement in Final Discussion,” South Asia Subregional Economic Cooperation, June 29, 2023, https://www.sasec.asia/index.php?page=news&nid=1509&url=bin-trilateral-energy (Accessed April 17, 2024).
[xxii] Sangam Prasain. "Neighbours India and China make tall promises at Nepal Investment Summit,” The Kathmandu Post, April 29, 2024, https://kathmandupost.com/money/2024/04/29/neighbours-india-and-china-make-tall-promises-at-nepal-investment-summit (Accessed April 30, 2024).
[xxiii] Ibid.
[xxiv] Bhimsen Thapaliya. "Finance Minister assures investors of policy stability," The Rising Nepal, April 23, 2024, https://risingnepaldaily.com/news/41966 (Accessed April 25, 2024).
[xxv] Sangam Parsain. “Political uncertainty clouds Nepal’s investment Summit,” The Kathmandu Post, April 16, 2024, https://kathmandupost.com/money/2024/04/18/political-uncertainty-clouds-nepal-s-investment-Summit (Accessed April 25, 2024).
[xxvi] Pankaj Vashisht. 2024. "Analyzing India-Nepal Economic Integration: Status, Challenges and Way Forward," Discussion Paper # 290, Research and Information System for Developing Countries (RIS), https://www.ris.org.in/sites/default/files/Publication/DP%20290%20Pankaj%20Vashisht.pdf (Accessed April 29, 2024).
[xxvii] Krishana Prasain. "Trademark infringement on the rise due to weak law enforcement, officials say," The Kathmandu Post, October 24, 2021, https://kathmandupost.com/national/2021/10/24/trademark-infringement-on-the-rise-due-to-weak-law-enforcement-officials-say (Accessed April 26, 2024).