Donors, investors voice concern over lack of reform and corruption ahead of investment summitAs the government intensifies its preparation for another high-profile investment summit, key development partners have expressed concerns over the country’s investment climate, red tape, and lack of policy reform hindering businesses.
As the government intensifies its preparation for another high-profile investment summit, key development partners have expressed concerns over the country’s investment climate, red tape, and lack of policy reform hindering businesses.
The government, which is holding its second Nepal Investment Summit on March 29 and 30 in Kathmandu, has been reaching out to investors and development partners abroad in hopes of inviting big names and making the summit a success. But unless it can assure the investors of a safe investment climate, the mega-summit could also meet the fate of the earlier summit held in 2017, where commitment worth Rs 13.5 billion was made but only a fraction was translated into actual investments.
Corruption has been the biggest bane of Nepal, which makes investors wary. A day after Transparency International released its Corruption Perception Index 2018, in which Nepal has slipped two places, British Ambassador to Nepal Richard Morris wrote on Twitter: “#Nepal isn’t moving up the anti-corruption indices. This matters. Investors care about it.”
Besides corruption, the international community have repeatedly asked the government to work on a host of areas, including bureaucratic hassles and investment-friendly policies. The United States, a key development partner, has long been calling for creating an investment-friendly climate and ending labyrinthine red tape.
“The United States is pleased that the government of Nepal is focused on attracting foreign direct investment and recognizes the need to reform laws, policies, procedures, and corrupt practices that continue to keep investment away,” Andie De Arment, a spokesperson for the US Embassy in Nepal, told the Post via email.
“However, the embassy is concerned that holding this forum before real, bold, and tangible reforms are made, both to laws and practices, is premature and risks undermining Nepal’s credibility and investment prospects when investors see the reality on the ground,” she said.
Many potential investors are also concerned about profit repatriation procedures. There are also concerns regarding how the foreign investors and international staff would be treated while doing business in Nepal.
Development partners have also explicitly raised issues like the government’s confiscation of the passports of Italian officials working for the Melamchi Drinking Water Project.
During an interaction hosted earlier this month by Investment Board Nepal, the main body which will organise the summit on behalf of the government, representatives had expressed in clear terms that the overall investment climate has to be improved, along with tangible policy reforms to woo the prospective investors.
During the interaction, two officials at the Board told the Post that a US representative said Nepal needed to create an investment-friendly climate and urged to end bureaucratic hassles at multiple levels.
The US representative, according to one investment Board official who attended the programme and asked for anonymity, was critical of the barriers in the government system. “The US representative said they receive frequent concerns from their partners about bureaucratic hassles and red tape,” said the Nepali official. Another issue flagged by the US representative was frequent transfers of government officials.
In an interview with the Post on Thursday, senior leaders at the Board said they have made notes of the development partners’ concerns.
“We will be addressing the issues raised by them during an interaction at the Finance Ministry by bringing new legislation and amending the existing ones,” said Maha Prasad Adhikari, the Board’s chief executive officer. “Our effort is to complete these policy reforms ahead of the summit.”
The World Bank’s Doing Business 2019 report, released in October last year, said Nepal slipped five places in ease of doing business index largely because of its cumbersome tax payment process—one of the key areas the government has yet to focus on.
Board officials said the government is serious on policy reform, and a number of new laws will be enacted and the existing ones amended before the summit.
“We’re expediting works on introducing new Foreign Investment Act and Private Public Partnership and Investment Act,” said Uttam Bhakta Wagle, joint secretary at the Board. “There will be amendment on Intellectual Property Rights Act and Special Economic Zone Act.”
The government is planning to amend and introduce at least 23 new acts and policies.
For some donor countries, the timing of the investment summit may not be up to their liking.
For the United Kingdom, its priority will be Brexit when Nepal hosts the investment summit.
During the interaction held early in January, according to a senior Nepali official, a British Embassy representative expressed doubts about the number of British investors who may participate in the summit as the entire country’s focus will be on Brexit at the end of March—the scheduled exit deadline for Britain.
The British Embassy in Kathmandu told the Post the participation of UK companies would depend on several factors, including progress on key investment legislation.
“The UK companies have been invited and are deciding whether to come. This will depend on a number of factors, including [their] availability, the likelihood of investing in Nepal, and the progress made by the government on key investment legislation,” said Tom Haswell, head of political and public affairs at the British Embassy in Kathmandu.
“The UK is supporting the investment conference and the Investment Board of Nepal; we are encouraging other countries to think about how they can make the conference a success.”
Investment Board officials, who said they would be showcasing around two dozen ready-to-invest projects at the summit, however, did not lay out the detailed plans on policy reforms targeting the foreign investors.
“We believe if we can showcase such projects, coupled with policy reforms, the summit could be a success. When we hosted the summit in 2017, we didn’t have such projects to show,” Wagle told the Post, but would not clarify if lack of such projects were to blame for not turning the commitment dollars into real investments.
As the summit approaches, the Board has also started what it calls “outreach initiatives.” On Wednesday, the government body organised a one-day Indo-Nepal Investment and Business Conclave in New Delhi.
According to a senior Nepali official at the Nepali Embassy in New Delhi, Indian investors also pointed out various bureaucratic hurdles and other logistic hassles in injecting investment in Nepal.
During the conclave, the Indian investors told the visiting Nepali officials, including Board’s CEO Adhikari, that they have been facing problems regarding land acquisition, tax process as well as lack of clarity on policy and laws.
A foreign diplomat based in Kathmandu who only agreed to speak on condition of anonymity told the Post that only concrete positive movements on part of the Nepal government would ensure foreign investment.
“The investment norms and conditions have been made very intrusive and crude,” the diplomat said, warning, “Therefore by having the summit now, Nepal will only be opening its can of worms before the entire world.”
During the interaction on January 15, a representative of one of the donor countries also raised the issue of confiscation of passports of officials of Cooperativa Muratori e Cementisti di Ravenna, the Italian contractor overseeing Melamchi Drinking Water Project. “This passport seizure by the government authorities and barring them from flying out of Kathmandu doesn’t give a good impression about Nepal,” the official from the Investment Board Nepal who attended the meeting recalled the representative saying.
For Nepal, support of some key partners, especially the United States, will be crucial as it strives to receive more foreign direct investment. “The United States wants to see Nepal succeed, and we believe that can best be achieved by real, bold, and tangible reforms in place to woo prospective investors,” said Arment.
US officials say cumulative American investment in the Indo-Pacific region reached $940 billion as of last year and the US Embassy would love to attract a large portion of that to Nepal. “Once reforms are made to law and practice, the embassy would be pleased to be the loudest champion for a Nepal that is open for business,” Arment added.
It has been two years since Nepal hosted its last investment summit, but the country is yet to see large-scale investors and officials admit that there have been some policy inconsistencies and practical difficulties.
“If Nepal needs to attract foreign investment,” Adhikari, the Investment Board’s CEO said, “the practical difficulties that foreign investors face in Nepal should be addressed—once and for all.”