US sees significant barriers to investment in Nepal

 Nepal is still considered vulnerable investment destination by one of the development partners and investors, despite the stable and stronger government in the country.

According to a report of the US State Department, there are significant barriers to investment in Nepal. Though, the government has been claiming that it has brought investment-friendly laws and regulations to create investment-friendly environment, it seems the talks do not match government’s action sending the wrong signals to the investors.

The report – ‘2020 Investment Climate Statement: Nepal’ – released by the US Department of State reads that corruption, laws limiting the operations of foreign banks, limitations on the repatriation of profits, limited currency exchange facilities, and the government’s monopoly over certain sectors of the economy like electricity transmission and petroleum distribution, undermine foreign investment in Nepal.

“However, the country offers opportunities for investors willing to accept inherent risks and the unpredictability of doing business in the country, the report reads, adding that the Foreign Investment and Technology Transfer Act (FITTA) and other new pieces of legislation, however failed to resolve many long-standing institutional and procedural impediments to improved business practices. “As the Government of Nepal (GoN) struggles to confront the economic and social effects of the Covid-19 pandemic, it is unlikely a concentrated effort to improve the investment climate will be a high priority.”

The statement also notes that the intraparty feuds and competition for power within the ruling Nepal Communist Party (NCP) government have not delivered to investors the political certainty for which they had hoped. 

“In policy pronouncements, the Government of Nepal welcomes foreign direct investment (FDI) and has passed several laws during the past three years that modestly improve the investment climate,” the report reads, adding that persistent corruption and bureaucratic hindrances remain unaddressed, however, impeding the smooth conduct of business. “While the Government of Nepal’s stated attitude toward FDI is positive, this has not yet translated into practice.”

The report also cites trade unions as a risk to businesses. “Cartels and syndicates masked as business and industry associations actively seek to suppress new market entrants,” it reads, signaling that the industry associations like Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and Confederation of Nepalese Industry (CNI) are creating cartels and syndicates.

The Investment Climate Statement provide country-specific information on the business climates of more than 170 countries and economies. They are prepared by economic officers stationed in embassies and posts around the world and analyse a variety of economies that are or could be markets for US businesses of all sizes, according to the State Department.

While the current government that enjoys a two-thirds majority has pushed through several laws and regulations in recent months, they have failed to attract increased foreign investment.