The number of new firms registering with the Department of Industry dropped by almost half in the first six months of the fiscal year that started mid-July.

Registrations were down 45.78 percent year-on-year in the first half of fiscal 2020-21, largely due to the impact of Covid-19, officials said. They added the ongoing political instability could further erode foreign and domestic investor confidence, resulting in even fewer new companies being registered.

The Department of Industry said 103 new firms were registered in the first half of the year, compared to 190 during the same period of the previous year.

The new companies will create 6,288 jobs as per their applications.

The drop in registrations was accompanied by a 25.73 percent year-on-year fall in domestic and foreign investment pledges in the first half. Commitments totalled Rs72.62 billion, down from Rs91.30 billion during the same period of the previous fiscal.

Jiblal Bhusal, director general at the Department of Industry, said Covid-19 had hurt the registration of new firms. “Investments in industry are expected to increase in the coming days as the country started the Covid-19 vaccination drive on Wednesday,” he said.

“The immunisation campaign will help build investor confidence, and we expect to see some improvement by the end of this fiscal year.”

But recent political developments could be a hindrance to industrial investment if they are not resolved soon, he said.

“There is no doubt political instability has taken its toll on investments in Nepal. The Doing Business report has been frequently saying that political stability is the key factor for investment.”

Bhusal said that the ongoing political upheaval had forced many investors into a 'wait and see' position.

“The consequences of the current turmoil might not be seen immediately; but if it continues, there will be a disastrous impact on investments and the economy that has already suffered greatly due to the Covid-19 pandemic,” he said.

The department is working to facilitate the industrial sector at the policy level, Bhusal said.

“The government is facilitating industry in an administrative way. We have amended the private firm renewal regulations and extended the deadline till the end of this fiscal year,” he said.

The department is facilitating registration, capacity enhancement and capital growth. Companies that have missed the deadline for starting operations due to Covid-19 have been given extra time.

On the financial side, Nepal Rastra Bank has made provisions for refinancing service and is mulling waiving interest. The government has also introduced a grant for innovative start-ups, he said.

With the impact of Covid-19 declining, the government is planning to bring new packages to help revive the economy in the post-pandemic situation, Bhusal said.

Dinesh Shrestha, vice-president of the Federation of Nepalese Chambers of Commerce and Industry, said that the pandemic had discouraged new investments as the existing companies are struggling to operate at full capacity due to a slowdown in demand.

“Industry has not been able to operate at more than 54 percent of capacity even after the lockdown was lifted in July as there has been no rebound in demand as expected,” he said. “There is a need to boost consumer confidence to increase demand.”

Shrestha said that the government could support industry by slashing taxes and providing facilities according to the amount of taxes paid.

“It would be a great relief if the government provided discounts on electricity bills and fuel costs. The interest rate charged by banks could be reduced to encourage investment. Investors fear that political instability will hurt their current investments with new investors fearing to come forward. So the political environment needs to be fixed to revive the economy,” said Shrestha.

According to the department, 17 large-scale, 21 medium-scale and 65 small-scale companies were registered in the first six months of the current fiscal year.

Among the new firms, 28 are in the manufacturing sector, 19 in the tourism sector, five in information technology and 13 in the energy sector. The rest are agro and forestry, infrastructure, mineral and service-based firms.

According to Bhusal, a preliminary strategic draft is being prepared for the development and growth of industry, investment and the private sector in the post-pandemic situation. Bhusal said that discussions were going on for the preparation of the draft.