St Kitts and Nevis, a small two-island nation in the Caribbean, once plagued with high public debt, decline of its outdated sugar industry, limited revenue sources and a weak domestic economy, today boasts a GDP of $1.1 billion. It also has a high literacy rate, a high quality of life and a favourable FDI structure that fosters steady economic growth. Nepal, in comparison, despite its rich natural resources, extensive hydropower potential, strategic location between India and China, a fairly large working population and increasing potential in the IT sector, remains heavily reliant on remittances and foreign aid.

According to the Nepal Rastra Bank, St Kitts and Nevis is one of the top five countries that sends foreign direct investment (FDI) to Nepal, with FDI stock amounting to about Rs15.9 billion ($120 million). This staggering amount reflects Nepal’s increasing integration into the global investment network. With growing dependence on foreign aid and remittances over the years, Nepal’s economy has gradually fallen prey to the handout system. Nepal still faces infrastructural challenges, outdated regulatory frameworks, subsistence agricultural practices and limited industries.

While a complete overhaul may not be possible at this juncture, it is necessary to assess the issues plaguing the development process in Nepal. Addressing it is only the first step; dismantling outdated frameworks and policies that no longer serve their purpose and reinvigorating public institutions with forward-thinking policies follow. It is also imperative to build a robust mechanism that ensures the delivery of long-term and short-term goals that create a conducive business climate and a thriving demographic dividend, which ultimately contributes to economic growth.

As countries worldwide are struggling with fiscal constraints, climate vulnerability and slowing capital inflows, they are exploring unconventional models of FDI. For instance, St Kitts and Nevis introduced the world’s first citizenship by investment programme in 1984, which allows foreign nationals to acquire citizenship in return for substantial economic contributions. Such contributions were then streamlined towards the overall development of essential sectors such as healthcare, literacy, disaster resilience, basic industries, a robust economy and strong institutional frameworks. Today, St Kitts and Nevis is classified as a high-income country, which offers a passport that allows visa-free entry to 154 nations. Its forex value remains stable at 2.7 East Caribbean Dollars (XCD), which is equivalent to $1.

While a citizenship by investment model may not be practicable in Nepal due to its stringent citizenship laws, incentives provided by the government need not necessarily equal citizenship. Many developed economies offer residency pathways instead of citizenship. This framework offers attractive benefits for skilled talent and entrepreneurs, which can create more job opportunities, foster economic diversification and allow openness to capital without compromising national identity. Such frameworks are already being actively implemented, as noted in initiatives like Canada’s Start Up Visa programme, Qatar’s Golden Visa and Portugal’s Golden Visa.

Considering Nepal’s landlockedness and the simultaneous manoeuvring of relations between powerful neighbours India and China, the country would do well to leverage its unique position to reinvigorate its special economic zones, promote the establishment of technology parks, set up well-planned tourism clusters and endorse cross-border transmission lines. The goal is to diversify foreign direct investment sources to position Nepal as a niche economy, which should also generate substantial returns.

Investment flowing into Nepal can also be directed to development-linked initiatives that involve job creation, skill development, cohesive urban and rural planning, efficient transport linkages and financial literacy. A much-needed industry pivot towards sustainability can be achieved by establishing investment funds that channel private capital into public goods in areas such as hydropower, cross-border transmission lines, sustainable tourism, digital services and agri-processing, where Nepali expertise can pave the way for setting global standards in their respective niche industries. Only with the diversification of its investments can Nepal truly fuel its economic growth in the modern age.

Due diligence and transparency should be prioritised. Any incentive-based programme must have thorough guidelines, rigorous follow-up and an accountability-based feedback mechanism which can be placed on the public domain through official websites, allowing the general public to easily access such information. In this context, an ombudsman agency can implement such initiatives. For instance, in Nepal, the functions of an ombudsman are primarily performed by the Commission for the Investigation of Abuse of Authority (CIAA), a constitutional body. The very establishment of the CIAA is anchored in the vision of a corruption-free Nepal, yet its mandate is not without limitations.

It should be noted that attracting capital is only the first step; channelling it into productive outcomes and equitable distribution of resources should be the long-term goal for stable economic growth in Nepal. The experience of St Kitts and Nevis demonstrates that even small economies, when guided by strong policies, data privacy, investment security and accountable institutions focused on social outcomes, can undergo economic transformation that is both sustainable and inclusive.

The challenge for Nepal today is how best to attract additional capital and how to mobilise the investment received into tangible development with a clear strategy, strong governance and a focus on sectors that drive long-term, sustainable economic growth. With strict adherence to this vision, foreign investment can emerge as a catalyst for inclusive prosperity anchored in Nepal’s unique potential and aspirations.