The US Department of State in its ‘2019 Investment Climate Statements: Nepal’ has produced a strongly-worded critique of Nepal’s business climate, stating that various institutional and procedural impediments are expected to dissuade all but the most risk-tolerant investors.

“Nepal offers opportunities for investors willing to accept inherent risks and the unpredictability of doing business in the country. While Nepal has established some investment-friendly laws and regulations, significant investment barriers remain," states the report.

As per the report, there are some welcome provisions in several newly enacted laws including the Foreign Investment and Technology Transfer Act, Industrial Enterprise Act, Special Economic Zone Act intended to attract increased foreign investment.

However, questions have been raised over the implementation of such reforms, given the government’s past record of making lofty announcements without delivering them in practice.

The report has also struck a chord with domestic investors who say the laws, despite amendments, pose impediments and restrictions to foreign investment.

“The bureaucracy does things in haste and does not critically review the laws and probable impacts before making amendments,” said Kumar Pandey, vice-president of the Independent Power Producers Association of Nepal. “Instead of demanding higher FDI and posting minimum thresholds on foreign investment, the government should work to minimise business risk while maximising incentives for investors.”

According to Pandey, there is a global competition for capital, and if Nepal wants to capitalise on it, there must be market assurances and minimum risk.

The report echoes Pandey and notes that in March 2019, three laws directly impacting foreign investment were hurriedly revised and passed by Parliament ahead of the 2019 Investment Summit. And this left little time for consultations or transparency in the process.

“Recently, we amended laws before the summit, and after three months there is nothing significant to cheer about,” said Pandey. “If the law or climate was favourable, wouldn’t there be a pool of investment proposals?”

The report also mentions ‘petty bureaucracy’ based hindrances impeding smooth conduct of business and states that the issues remain unaddressed in the absence of pay-offs or personal interventions with cabinet-level officials.

“Many foreign investors note that Nepal’s regulatory system is based largely on personal relationships with government officials, rather than systematic and routine processes," states the report.

The State Department report quoted a World Bank official as saying that corruption in Nepal was 'endemic, institutionalised, and driven from the top' taking note that corruption takes many forms but is pervasive in the awarding of licences, government procurement, and revenue management.

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