On one hand the government aims at increasing more foreign direct investment (FDI) and on the other, it has increased minimum threshold for FDI surprising the foreign investors.
The government has – two weeks ago – decided to revise the minimum threshold upward for FDI to Rs 50 million from Rs 5 million. With the increment of minimum threshold for FDI, the foreign investors could shy away from Nepal as the minimum threshold for FDI in other South Asian countries is much lesser than in Nepal. The private sector, has however, asked the government to increase minimum threshold to Rs 100 million.
Increasing the minimum threshold, the government has claimed that it aims at attracting large amounts of foreign capital to bridge the resource gap, and also safeguards small domestic industries.
The private sector, however, claimed that upward revision of minimum threshold to at least Rs 100 million will help support large-scale projects and also facilitate the import of modern technology. “A lower threshold, on the other hand, could affect local small industries,” it claimed, adding that a lower threshold means foreign investors will crowd in only in small businesses including restaurants, coffee shops and hotels but not in mega projects.
The foreign investors have been, however, surprised by Nepal’s move to increase the minimum threshold by 10 times. “It will discourage the foreign investment,” chief of the one of Nepal’s long term bilateral development partner said, adding that they have been expecting the Nepal government to make the foreign investment more easier especially after the Nepal Investment Summit 2019 – in March – where the government promised moon. “The Nepal government has failed to walk the talk as promised in the summit also because it has increased the negative list in the Foreign Investment and Transfer of Technology Act (FITTA) claiming to protect a number of domestic products.”
The government is drafting a regulation for the FITTA (Amendment 2019) aiming at protecting a number of domestic products by prohibiting FDI in certain sectors including travel, mass communication, and farm products.
Likewise the draft of the regulation – which is in the final stages and be forwarded to the Cabinet for approval immediately – is also not going to attract the FDI, he said, adding that prior to Nepal Investment Summit in March, Nepal government had promised to bring the Acts and regulations to encourage the FDI. “Though private sector has been advocating for a higher threshold, some in the private sector still believe that the threshold should be minimal.”
The restrictive threshold will discourage the investors as they might find investing in other South Asian countries is much easier than in Nepal, according to chairman and CEO of Business Oxygen – Nepal’s first private equity fund – Siddhant Raj Pandey.
Calling the government’s decision ‘irrational’, Pandey said that the government should have – rather than focusing on the size of capital – prioritised on the import of innovative technology and efficient management.
The domestic private sector has been lately asking the government to be more restrictive rather than being competitive. Instead the private sector should have asked the government to make the business comparatively competitive by policy intervention in key issues including market operation, labour shortages in manufacturing and agriculture, small basket of goods with high comparative advantage, poor infrastructure, and bureaucratic hassles. “The private sector should also improve its efficiency and transparency in business operation,” Pandey added.
The government has – two weeks ago – decided to revise the minimum threshold upward for FDI to Rs 50 million from Rs 5 million. With the increment of minimum threshold for FDI, the foreign investors could shy away from Nepal as the minimum threshold for FDI in other South Asian countries is much lesser than in Nepal. The private sector, has however, asked the government to increase minimum threshold to Rs 100 million.
Increasing the minimum threshold, the government has claimed that it aims at attracting large amounts of foreign capital to bridge the resource gap, and also safeguards small domestic industries.
The private sector, however, claimed that upward revision of minimum threshold to at least Rs 100 million will help support large-scale projects and also facilitate the import of modern technology. “A lower threshold, on the other hand, could affect local small industries,” it claimed, adding that a lower threshold means foreign investors will crowd in only in small businesses including restaurants, coffee shops and hotels but not in mega projects.
The foreign investors have been, however, surprised by Nepal’s move to increase the minimum threshold by 10 times. “It will discourage the foreign investment,” chief of the one of Nepal’s long term bilateral development partner said, adding that they have been expecting the Nepal government to make the foreign investment more easier especially after the Nepal Investment Summit 2019 – in March – where the government promised moon. “The Nepal government has failed to walk the talk as promised in the summit also because it has increased the negative list in the Foreign Investment and Transfer of Technology Act (FITTA) claiming to protect a number of domestic products.”
The government is drafting a regulation for the FITTA (Amendment 2019) aiming at protecting a number of domestic products by prohibiting FDI in certain sectors including travel, mass communication, and farm products.
Likewise the draft of the regulation – which is in the final stages and be forwarded to the Cabinet for approval immediately – is also not going to attract the FDI, he said, adding that prior to Nepal Investment Summit in March, Nepal government had promised to bring the Acts and regulations to encourage the FDI. “Though private sector has been advocating for a higher threshold, some in the private sector still believe that the threshold should be minimal.”
The restrictive threshold will discourage the investors as they might find investing in other South Asian countries is much easier than in Nepal, according to chairman and CEO of Business Oxygen – Nepal’s first private equity fund – Siddhant Raj Pandey.
Calling the government’s decision ‘irrational’, Pandey said that the government should have – rather than focusing on the size of capital – prioritised on the import of innovative technology and efficient management.
The domestic private sector has been lately asking the government to be more restrictive rather than being competitive. Instead the private sector should have asked the government to make the business comparatively competitive by policy intervention in key issues including market operation, labour shortages in manufacturing and agriculture, small basket of goods with high comparative advantage, poor infrastructure, and bureaucratic hassles. “The private sector should also improve its efficiency and transparency in business operation,” Pandey added.
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