Nepal's foreign direct investment (FDI) stock rose 16 percent to Rs264.3 billion at the end of the fiscal year 2021-22, according to a new survey report.

The Survey Report on FDI in Nepal (2021-22) published by Nepal Rastra Bank, the country’s central bank, on Wednesday, shows that in terms of total FDI stock, India ranks top with Rs88.6 billion, followed by China (Rs33.4 billion), Ireland (Rs20.9 billion), Singapore (Rs16.1 billion), and Saint Kitts and Nevis (Rs15.1 billion).

The survey has covered 231 companies—93.8 percent of large-size companies, 88.2 percent of medium-sized companies and 25.5 percent of small-size firms.

The FDI stocks measure the total level of direct investment at a given point in time, usually at the end of a quarter or of a year.

The report said that the paid-up capital is the major component in FDI stock accounting for 53.7 percent. The reserves and loans account for 31.7 percent and 14.6 percent respectively in total FDI stock.

Nepal has received foreign investment from 57 different countries as of mid-July 2022.

The industrial sector accounts for 62.6 percent of total FDI stock. Of which, the electricity, gas, steam and air conditioning sector constitutes 32.8 percent and the manufacturing sector 29.5 percent of total FDI stock.

The report said that about 37.3 percent of total FDI stock is in the service sector. Of which, the financial and insurance services sector constitutes 25.6 percent, the accommodation and food services sector 5.3 percent, and the information and communication sector 4.8 percent of the total FDI stock.

The electricity, gas, steam and air conditioning sector, particularly the hydropower sector, in Nepal, has been a preferred sector for FDI in recent years.

The latest survey shows that 32.8 percent of FDI stock and 41.8 percent of total paid-up capital is in this sector.

Moreover, the hydropower sector has also attracted other sources of external financing such as foreign loans in addition to FDI; the electricity, gas, steam and air conditioning sector accounts for 41.4 percent of outstanding foreign loans at the end of 2021-22.

The capacity utilisation of FDI-based manufacturing companies stands at 71.1 percent, while the profitability of FDI companies remains at 14.3 percent in the review year, the report shows.

The electricity, gas, steam, and air conditioning sectors have the highest FDI stock of Rs86.8 billion (32.8 percent of the total) followed by the manufacturing sector (Rs77.9 billion) and financial and insurance services sector (Rs67.8 billion).

In line with the global trend, gross FDI inflows decreased by 3.5 percent to Rs19.2 billion in 2021-22, according to the survey report.

The divestment of foreign investment (repatriation of investment) during 2021-22 remained at Rs658.7 million which is around 3.4 percent of gross FDI inflows.

Net FDI inflows to Nepal decreased 4.9 percent to Rs18.6 billion in 2021-22.

There is a significant gap between approved FDI and actual net FDI inflows in Nepal.

Between 1995-96 and 2021-22, the total actual net FDI inflow stood at around 36.2 percent of total FDI approval. The FDI approval may simply indicate an intended investment (the approved investment may not actually take place) or there may be a significant time lag between approval and actual investments, the central bank said.

In some instances, the realisation of the approved investment may take place over several years as usually seen in projects with longer gestation periods. As a result, there exists a gap between FDI approval and actual FDI inflows, the report said.

In 2021-22, Rs.15.7 billion was approved for dividend repatriation by companies with foreign investment. The highest dividend repatriation approval was for the manufacturing sector followed by the information and communication sector.

The FDI stock of transport and storage decreased due to the significant decline in the reserve position of the companies within the sector.

In terms of paid-up capital, India also ranked first with Rs53.4 billion followed by China (Rs24.3 billion), South Korea (Rs10.5 billion), and Ireland (Rs9 billion).

According to the report, as of mid-July 2022, the outstanding foreign loans (excluding direct loans from foreign direct investors) of FDI companies stood at Rs68.7 billion. Such loans were Rs40.7 billion a year ago. The companies in the hydropower sector have utilised more foreign loans as the outstanding loans of this sector stood at Rs28.4 billion in mid-July 2022.

The survey also includes data on sales from the operation of FDI companies.

The total sales of surveyed companies during 2021-22 stood at Rs445.4 billion which was Rs381.5 billion a year ago.

Similarly, the average return on equity of surveyed FDI companies stood at about 14.3 percent for 2021-22, which was around 14.7 percent a year ago.