These days, when I speak to fellow businesspeople, I hear the same question repeatedly: When will the investment climate improve? This routine complaint reflects the crisis Nepal’s private sector has faced for several years. Banks have ample liquidity, yet investors remain reluctant to invest. There were hopes that the new government would improve the climate. Yet even six months after it took office, business confidence has not recovered.

We, the private sector, have repeatedly raised these concerns with the state and policymakers. We have called for concrete programmes and policy measures to restore business confidence and create an investment-friendly environment. These proposals are intended to get the wider economy moving and restore investors’ faith, not just cater to one individual or company. 

One of the biggest obstacles to that confidence is uncertainty over regulation and legal protection. Specialised bodies such as the Nepal Rastra Bank, the Nepal Insurance Authority, the Inland Revenue Department, the Securities Board of Nepal and the Office of the Company Registrar are mandated to regulate their respective sectors. Yet even in cases involving ordinary financial, business or procedural errors, security agencies, including the Central Investigation Bureau, increasingly intervene directly and arrest businesspeople. This has created deep fear within the business community.

Business failure is not a crime. Commercial failure and criminal intent are different matters and should not be treated alike. The relevant regulator should conduct the initial investigation. Criminal proceedings should follow only when wrongdoing has been established. Without a predictable legal process, investors cannot put their capital into Nepal with confidence.

Building a successful business takes years. A single bad policy or an atmosphere of distrust can destroy years of effort almost overnight. Businesspeople put their capital, time and aspirations at risk, create jobs, pay taxes and generate economic activity. The state should therefore treat them as partners, provide policy stability and make it easier to operate a business.

The same principle should apply to smaller businesses facing regulatory hurdles. The current system of immediately blacklisting businesses over bounced cheques creates unnecessary difficulties, particularly for small and medium-sized enterprises. Penalties should be graded according to the amount, frequency and nature of the offence so that minor errors do not bring businesses to a halt. 

Legal certainty alone, however, will not unlock the capital already sitting idle in the financial system. Adverse market conditions have left the private sector reluctant to undertake new investments. Commercial banks should therefore be allowed, within a clear regulatory framework, to place deposits with foreign banks, open branches abroad and make overseas investments. Capital could be brought back into Nepal when needed for domestic investment.

Nepal also has considerable capital that could be put to more productive use. Large sums held by institutional investors such as the Employees Provident Fund, Citizen Investment Trust, Social Security Fund and insurance companies remain parked in banks at relatively low returns. A defined share of these funds should be directed towards major strategic projects, infrastructure, agriculture and productive sectors. This could increase returns for these institutions while helping mobilise capital for the economy. An asset management company should also be established immediately, with private-sector participation, to manage non-performing loans and distressed assets.

The capital market can play an equally important role. The Securities Board has numerous files concerning initial public offerings, rights issues and corporate debentures pending for extended periods. These should be processed transparently within defined deadlines so that idle capital can enter the market. A clear, long-term policy should also allow promoters to trade a defined percentage of their shares through the capital market. This would help investors diversify their holdings, revive capital mobilisation and allow projects held back by a shortage of funds to move forward.

The government’s growing tendency to operate industries and compete directly with the private sector has created another source of uncertainty. The state should instead focus on regulation and supervision and leave commercial activity to the private sector. Sick and closed public enterprises should be transferred through public-private partnerships or full privatisation.

The same approach is needed in the energy sector. Nepal has a theoretical hydropower potential of 83,000 megawatts and an economically and technically feasible potential of 43,000 megawatts, yet electricity generation has still not reached 4,000 megawatts. The tendency of the Nepal Electricity Authority to hold attractive projects rather than allowing the private sector to develop them is part of the problem. Stalled projects should therefore be opened to private developers. The authority should focus on regulation and supervision while allowing the private sector to compete in generation, transmission and international power trading. Tax exemptions and customs concessions for hydropower projects should remain until Nepal meets its national generation targets.

The urgency of strengthening infrastructure has become even clearer after the recent floods. The Trishuli and Kaligandaki corridors have suffered severe damage, with roads, bridges and access routes disrupted. They must be rebuilt quickly to maintain supplies, prevent price increases and protect tourism and cross-border trade. Small and medium-sized enterprises and women entrepreneurs affected by floods and landslides should receive immediate relief, loan restructuring and concessional refinancing.

Damaged private hydropower projects should receive full customs, VAT and other tax exemptions on essential equipment. Insurers should conduct immediate field surveys, issue interim payments and settle claims quickly. The state should also provide technical and budgetary support to rebuild access roads, Bailey bridges and transmission lines. 

Beyond immediate recovery, Nepal needs to broaden the sources of investment and foreign exchange. Tourism, a major source of foreign currency and employment, should be recognised as a productive industry and receive concessional industrial loans, tax incentives, easier imports of raw materials and industrial electricity tariffs. To increase tourists’ average stay, private investment should be encouraged in Himalayan tourism, trekking routes, hill stations and religious and cultural tourism across all seven provinces. The state should guarantee basic infrastructure such as roads, electricity and water in remote locations where major tourism projects are developed. Nepal should also pursue strategic plans and bilateral investment agreements to attract public and private capital from the Middle East into tourism, hydropower and infrastructure. 

As Nepal prepares to graduate from the least developed country category, international grants and concessional financing may decline. Private equity, venture capital and other forms of alternative finance should therefore be expanded to mobilise domestic capital for major projects of national importance.

The private sector is not asking for special privileges. It is asking for a clean, safe, predictable and dignified environment in which to work. Unless the money accumulated in banks flows into productive industries, the water flowing through our rivers is converted into electricity and foreign currency, and our mountains become tourism destinations, the prosperity Nepal seeks will remain a subject of debate.

The private sector needs results. The choice is whether to open the door to investment and get the economy moving or remain trapped in policy hesitation. To invest, or not to invest, that is the question. The answer, one expects from the private sector, rests with the state.