Enabling businessForeign direct investment (FDI) to Nepal has shown signs of healthy growth, with pledges registering around a 30 percent spike in the first half of the current fiscal year.
Foreign direct investment (FDI) to Nepal has shown signs of healthy growth, with pledges registering around a 30 percent spike in the first half of the current fiscal year. This is particularly encouraging because it comes amid continued political instability.
Though pledges do not necessarily mean that all of them will translate into investments, they are still a sign that the investor confidence has gone up. Broadly, the confidence level that was down to rock bottom during the bleak border blockade is now on a rebound. A number of factors have contributed.
The first one is an enabling policy framework. The Industrial Enterprises Act offers tax rebate and exemption to certain industries, and the Special Economic Zone Act aids exports through special economic zones. The Bhairahawa corridor, which saw a spike in trade during the blockade last year, seems set to be the first beneficiary of the new legislation.
Other investor-friendly laws include those governing foreign investment and technology transfer and labour, which are at the last stage of discussion in Parliament. While Nepal’s comparative advantage is cheap labour, a number of studies also point out that our industries pay a high price for unionism.
Second, the energy sector has never looked brighter. While load-shedding for the general public was nearly eliminated this winter, the industrialists and investors have much to celebrate too. In another three to four years, we will have added another 1,000MW to our national grid. Upper Tama Koshi (456 MW) will be the country’s largest power project; closer to Kathmandu, Kulekhani 3 will add 14MW in a year or so.
Third, we look set to make some progress on connectivity. India seems determined to dust off the perception that it’s dragging its feet on the development of the Tarai’s Postal Highway; a detailed project report on the Kathmandu-Nijgadh 76-km Fast Track is complete. There are still minor problems with land purchase and the Fast Track’s intersection with the proposed Outer Ring Road, but there’s finally some optimism that Nepal’s most controversial and much talked about road project will finally take its course.
Still, the big question remains: whether the light at the end of the long tunnel will again go out due to political instability? One, because of the continued fight over the legitimacy of the constitution (and that means if the constitutionally mandated three-tier elections will take place by next January); two, because of the uncertainty over whether a protracted political transition will unravel the positive developments.
The onus lies squarely on our power-hungry political leaders to ensure that the recent spike in FDI pledges is not a freak blip but an enduring phenomenon.