Nepal: Investing

FDI in Figures

According to UNCTAD's 2021 World Investment Report, FDI inflows to Nepal declined by 32 per cent from USD 185 million in 2019 to USD 126 million in 2020, due to the economic and health crisis triggered by the Covid-19 pandemic and the subsequent effects on the tourism sector. The decline in tourism had a significant effect on the economy through the industry's multiple linkages with other economic activities, including FDI inflows. The stock of FDI has been estimated at USD 1.7 billion in 2020. India, China, Singapore and Ireland are the country's leading investors. The services sector accounts for more than 70% of total FDI (mostly in communication, financial intermediation, education, hotels and restaurants), while the manufacturing, mining and quarrying subsectors received 15.1%, slightly more than the energy sector (13.9%) (Nepal Rastra Bank).

The UNCTAD expects Nepal to receive more FDI in future years thanks to the improvement of the business climate. As a member of WTO and the Multilateral Investment Guarantee Agency (MIGA), Nepal has signed the Bilateral Investment Protection and Promotion Act (BIPPA) with six countries - including India - to encourage FDI inflows. Foreign investment in Nepal is regulated and administered by the Foreign Investment and Technology Transfer Act and Industrial Enterprises Act. FDI is subject to approval by the Nepalese authorities. The nation is facing several challenges in the FDI sector, which is mainly due to the lack of transparency, haphazard selection of projects and the neglect of their possible impacts on the national economy. The law provides for an independent judiciary, but courts remain vulnerable to political pressure, bribery, and intimidation. Furthermore, the country has untapped hydropower and tourism potential, and its geographical location between India and China can be a strategic asset. On the other hand, corruption, political instability, bureaucracy, weak infrastructure, an unskilled workforce, and reduced transparency in its legal and regulatory systems act as investment deterrents. Climate hazards also pose a threat to FDI flows. Nepal ranks 94th out of 190 countries in the last World Bank's 2020 Doing Business report, up by 16 spots compared to the previous year. The country made considerable progress with regards to getting credit and dealing with construction permits on the year. Even amidst the growing influence of China in the FDI sector, Indian investment companies are no less important. More than 150 Indian ventures have been operating in Nepal, which accounts for over 30 percent of the country’s total FDI. Indian firms have been working in all such areas as manufacturing, banking, insurance, education, telecom, power, tourism and various other sectors.

In a bid to facilitate FDI, Nepal Rastra Bank rolled out the Foreign Investment and Loan Management Bylaws 2021 which freed foreign investors from having to take the central bank’s prior authorisation to transfer foreign currency into Nepal after obtaining approval from the foreign investment sanctioning body. During the period mid-July 2021 to mid-January 2022, the country received promises from potential investors to spend Rs30.56 billion (250,6 million USD) on 129 projects, according to the department. In the same period of the last fiscal year 2020-21, investment commitments amounted to Rs23.47 billion (192,46 million USD) for 123 projects. FDI pledges during the whole of fiscal 2019-20 stood at Rs37.80 billion (319 million USD) before dropping by 15.29 percent to Rs32.02 billion (262,6 million USD) in fiscal 2020-21 as the coronavirus pandemic took hold. China topped the list of foreign investment pledges in Nepal in the first half of the fiscal year, with investment commitments amounting to Rs23.37 billion (191,64 million USD) in 107 projects (Nepalese Department of Industry, 2022).

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Latest Update: February 2023