ForeignDirectInvestmentandAssociatedEnvironmentalIssuesinNepal

GunaRajBhatta LecturerofManagement*

Thecontinuousglobalizationoftheworldeconomyposesnewchallengesforthe governance of economic activities. Investment and trade liberalization have provided greater freedom to transnational corporations to organize their production activities across borders in accordance with their own corporate strategiesandthecompetitiveadvantagesofhostcountries.Thereisalargeand ever growing literature dealing with foreign direct investment (FDI) into developingortransitioneconomies(Dietrich,2004).Countriestodayviewinward foreign direct investment as an important means of integrating their economies andnaturalresourceswithinternationalmarketsandexpectittocontributetothe environmental conservation and economic development. The private investor from an industrially advanced country not only brings with him capital, technologyandmanagerialexperience,butalsointroducesanewbusinessconcept which helps to revolutionize the thinking and practice of the area. Economic growth is a part of sociological phenomenon to spread through out the economically backward areas by socially responsible foreign investors (Miksell, 1974). At present, the trend of delivery of services and goods through foreign direct investment has exceeded the exports to minimize the cost, and also due to the availabilityofnatural andhumanresources,inhostcountries. Theestablishment of international investment rules has often been regarded as an agenda, which maybringpositiveeffectstobenefitmultinationalfirmsanddevelopedcountries but may adversely affect the status of natural resources and beauty of the host country leading to environmental degradation. Even though globalization of capital markets present developing countries with unlimited opportunities, the new opportunities and constraints may affect the least developed countries like Nepal differently from the developing ones. A careful analysis and empirical research is needed so that a tangible gain from the foreign direct investment to both the investor and the host country can be ensured especially in the conservation of the environment of the host country and ultimately focusing on sustainable development. Thus, the mobility of international capital flows has gained importance not only from a development point of view but also from a point of sustainable development, especially from their environmental aspect. In thecontemporaryglobalizedeconomy,theirenvironmentalimpactisappreciably reinforced by the driver factors of globalization, primarily by foreign direct investmentasatoolfortherealizationofthemultinationalcorporationinvestment activities(PetroviRandjelovi,2007).
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National Integrated College and REHDON College, Kathmandu

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Environmentandeconomicdevelopmentwereconsideredtwoseparateaspectsin thepast,andtheeconomicbenefitsfromthebusinessoperationswerecalculated ignoring the adverse impacts on the environment. Poverty reduction must take accountofenvironmentalpolicyneeds,andenvironmentalprotectionshouldnot conflictwithdevelopmentgoals.Theaimmustbetodrawfullyonthesynergies generated by coupling the two realms, but also to identify and resolve goal conflicts at an early stage (WBGU, 2005). In recent days, the issues on environmental impacts of any development activity are raised to maintain a balancebetweeneconomicdevelopmentandenvironmentalconservation.Aslong astheresourceutilizationofthehostcountrywillnotbeconsideredaspartofthe investment cost, the overexploitation of the natural resources may lead to unsustainability of the development in pursuit of profits from FDI. As competition becomes more global, people are concerned that relatively lenient environmentalregulationandlaxenforcementindevelopingcountriesgivethem acomparativeadvantageinpollutionintensivegoods.Loweringtradebarriermay encourage a relocation of polluting industries from countries with strict environmentalpolicytothosewithlenientpolicy(Liang,2006).People,wholive in absolute poverty and are highly dependent on natural resources for their survival,aremostvulnerabletoenvironmentalchanges.Itcaneasilybeseenthat variousdimensionsofpovertyarecloselylinkedtothestateoftheenvironment. Globalhumaninducedenvironmentalchangesimpactonthenaturallifesupport systems of a significant proportion of humankind and intensify global poverty. Developing countries bear the brunt of this environmental change, and will continuetodosoinfuture(WBGU,2005). As this trend came into practice, policymakers in host countries started to ask whatimplicationssuchFDIswouldhaveontheirenvironmentalconservation.As the traditional theory holds that FDI is always harmful to the natural resource managementanditcannotsupportthepovertyalleviationmeasures,thereisnow an increasing need to assess this claim by conducting empirical studies. Case studies need to focus on the investigation of the crossborder environmental management systems within the TNCs integrated production networks, and on the identification of the actual level of technologies employed, be it at home country level, host country level or the level in between (Guoming, Cheng,, 1999). Least developed countries like Nepal are struggling to overcome their economic and social problems and they accept the different forms of assistance from developedcountries.Insomecasestheyarealsocompelledtoaccepttheoutdated technologieswhichareharmfultotheenvironment,andmaydamagethenatural beauties. Developing countries could be persuaded to become partners in global environmental protection, if this is underpinned by development policy which focuses on the sustainable development and poverty alleviation. The investors should also consider the environmental conservation, poverty alleviation and
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economic growth and prosperity. To ensure that FDI does not cause significant environmental damage it is necessary to build up the host countrys regulatory capacity so it is in a position to enforce and adhere to higher national and internationalenvironmentalstandards(MabeyandMcNally,2000). Nonetheless, openness alone is not always sufficient for the expected benefits to materialize. The question is whether it is sustainable in the longterm relations. The application of potential positive environmental effects of foreign direct investments is determined by the operation of the multiple factors, special attentionshouldbepaidtotheregulationofforeigndirectinvestmentsinsucha waythatsustainableeconomicdevelopmentismaintained.Inordertonarrowthe gapbetweenthedevelopmentandenvironmentaldegradation,governmentsusea variety of policy measures, bilateral and multilateral agreements. To draw investment in bilateral and multilateral projects, certain requirements of both investor and host country must be met for a sustainable economic development withinthelimitsofenvironmentalrulesandregulationsofthehostcountry. SinceNepalhasyettoinvestalottodeveloptheinfrastructurefordevelopment, especially in transportation, hydropower, irrigation, education, etc., it needs to attract the foreign investors by providing the business friendly environment. Focus on development without considering the environmental consequences of development activities is very often found to induce the natural disasters jeopardizinglifeofpeople.Nepalhasthetremendouspotentialityofhydropower developmentandexport;theinvestmentinthisareamaybequickreturngiving, andthesectortobeobservedfortheenvironmentalpreservation. Several studies in the past were found to deal with the relationship between the degree of economic development and the level of pollution to this sector. It is important to identify the factors that may have adversely affected the socio economicenvironmentendangeringthelifeofpoorpeople.Here,thepolicyofthe investorstoenhancesocioeconomicenvironmentandtheemergingissuesinthis sectorneedtobecriticallyexaminedsothatwecanattracttheforeigninvestorsin development sector. Since the policy of Government of Nepal is also taking into consideration that sustainable development could be achieved from the inseparable interrelationship between the economic development and environmentprotection;thelimitedstudyandtheinadequatestatisticaldatahave createdconfusionsamongtheinvestorsandthegovernmenttosolvethisproblem and frequent halt of the construction and operation of the project needs to be stopped. Government has recently reviewed the provisions of Environmental Impact Assessment of Environment Protection Regulation, 1997 and upgraded the thresholdoftheHydropowersector.Aspertheprovision,EIAshouldbecarried
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out only for above 50 MW capacity of the hydropower taking into account the current energy crisis. This can be the conducive environment for the investors to invest in the hydropower sector. However, we should have focused on its long term impact regarding the sustainable development and environmental conservationbecauseinvestorsalwayshaveprofitableinterestintheresources.In turn,itmaycreatedifferentsocioculturalandeconomicproblemsinthelongrun. Furthermore, because of lacking the legal obligations to be created through EIA mechanism, local people may go against in any stage of project development whichmightbequestionedinsuccessfulimplementationandtheoperationofthe project. Lastly, it is obvious that Nepal needs to attract maximum investments from abroadtothedevelopmentsector.Ontheotherhand,weshouldnotbeliberalized more than the expected. There should be the proper check and balance between government policy and development partners since investors always seek profitableinterestratherthanbalancedandsustainabledevelopment. References
Dietrich,Diemo(2004). FinancingFDIintoDevelopingEconomiesandtheInternational Transmission of Business Cycle Fluctuations. An article published in Schweizerische Zeitschrift fr Volkswirtschaft und Statistik 2004, Vol. 140 (4) 449 481p.p.450,Germany. Guoming, X., Cheng, Z., Yangui, Z., Shunqi, G. & Zhan, J. X. (1999). The interface between foreign direct investment and the environment: The Case of China. Report as part of UNCTAD/DICM Project Cross Border Environmental ManagementinTransnationalCorporations.p.30 Mabey,N.andMcNally,R.(2000).FDIandtheEnvironment:FromPollutionHavensto Sustainable Development: A Framework for Regulating International Investment. WWFUK. Mikesell, R. F. (1974). Promoting United States Private Investment Abroad. Wiley and Sons.Inc,NewYork Mugele, Christian (2007). Foreign Direct Investment and the Organization of Firms. A PhD Thesis,LudwigMaximiliansUniversittMnchenp.p.13,Germany PetroviRandjelovi,M.(2007)ForeignDirectInvestmentandSustainableDevelopment: An Analysis of the Impact of Environmental Regulations on Investment Location Decision. S FACTA UNIVERSITATIS Series: Economics and Organization Vol. 4, No2,pp.183190,Servia. UNCTAD/ITF/IIT/6 UN (1998). Handbook on FDI by Small and MediumSized Enterprises,LessonsfromAsia.NewYorkandGeneva WBGU(2005).Developmentneeds EnvironmentalProtection:Recommendationsforthe Millennium + 5 Summit. German Advisory Council on Global Change, Berlin, Germanyp.p3.