Foreign direct investment pledges to Nepal in the first five months of the current fiscal year 2020-21 saw a steep year-on-year drop of 22.88 percent, which the Department of Industry blamed on the coronavirus outbreak.

According to the department, investment commitments totalled Rs21.11 billion during the period mid-July to mid-December.

Officials said 108 firms showed an interest in investing in Nepal. During the same period in the last fiscal year, investment pledges came from 144 foreign firms.

Among the 108 hopeful firms, 98 are from China with a combined investment pledge of Rs17.52 billion. The proposed Chinese investment is mainly in the tourism and service sectors.

There were three Indian firms who planned to make a combined investment of Rs236 million, a sharp fall from Rs2.83 billion previously.

Jiblal Bhusal, director general of the Department of Industry, said foreign investment pledges to Nepal shrank mainly due to the impact of Covid-19. Investment commitments had increased in the initial months after the lockdown was lifted, but they have been slowing since then, he said.

“We have been assisting foreign investors by simplifying the foreign investment act and regulations and introducing a one-window system,” he said.

The cabinet has passed the Foreign Investment and Technology Transfer Act (FITTA) regulation and it will be published in the Nepal Gazette soon, he said.

"The inter-government related law for foreign direct investment is in the process of being introduced,” Bhusal said.

“Prospective investors look at the policy, law and the services we provide, and we have been improving them. I do not expect the recent political environment to impact foreign investment flow to Nepal,” he said.

A draft intellectual property law is at the final stage, and it will address many issues related to information and technology, he said. Many laws related to industry have been prepared, and recent political developments will not hinder the work of making laws, he added.

"Laws can be enacted through an ordinance," said Bhusal. “We believe that many foreign direct investment proposals are in the pipeline, and investments will increase in the future,” he said.

Bhusal said that foreign direct investment commitments from China increased after the tourism sector attracted the lion's share of investment commitments. He added that Nepal’s investment policy and participation in the Belt and Road Initiative had encouraged more investment commitments from China.

During the fifth meeting of the Trade and Investment Framework Agreement (TIFA) Council held between Nepal and the United States on December 15, the American delegation urged Nepal to enforce intellectual property rights which include copyright, patent right and trademark right to attract potential foreign investors.

Narayan Prasad Regmi, joint secretary at the Ministry of Industry, Commerce and Supplies, said some amendments to foreign direct investment rules were being considered.

“A committee has been formed to study the proposed amendments that are particularly related to establishing a company, acquiring land, tax and environment laws in Nepal,” he said. “The ministry has been receiving suggestions from stakeholders too.”

Sunil KC, vice-president of the Nepal-India Chamber of Commerce and Industry, said Nepal was seeing fewer investors from India as they are diversifying their investment portfolio to Bangladesh, Vietnam and Myanmar.

“For the last one and a half decades, there has been a huge gap in communication between Nepal and India on both political and investment levels.”

Political instability is the main reason why Indian investors are not choosing Nepal. “Nepal has not been able to work on bringing leading business investors from India,” KC said.

“Some of the leading business investors in India are interested in putting money in Nepal, but there is no corporate and business culture here,” he said.