Foreign Direct Investment (FDI) entails the procurement of business or other com mercial holdings in a host country by multinational
ventures, other foreign ente rprises or individual foreign residents with an object to supervise the business or commercial reserves in the host country. FDI flows embody equity investment by multinational enterprises earnings reinvested in foreign subsidiaries, and sh ort-term and long-term borrowing and lending of funds between parent multination al enterprises and their associates in foreign countries. FDI is repeatedly considered as an instrument in promoting industrial growth and foreign trade, especially in host countries, that foster comparatively open eco nomies, durable macroeconomic situations, controlled regulations on foreign exch ange proceedings and custody for private property rights. It habitually spurs co mpetition, productivity, and innovation by domestic suppliers, as they compete f or well-paid deals with multinational enterprises that strive to assimilate thei r foreign operations in host countries. Furthermore, FDI has a more penetrating significance on growth in countries that engage in schemes stimulating exports. The exposition may be that foreign-owned companies aspiring for international co mpetitiveness and global markets have a more significant inducement to bring in technology and training with the concomitant spillover gains. Nepal has been acc entuating foreign investment by dislodging the control on foreign investment and furnishing a number of facilities. The Foreign Investment and Technology Transf er Act 1992, which was amended in 2000, enacted in line with open and liberal ec onomic strategies. The intent of the Act was to invite and bring in foreign inve stment in the form of equity participation, direct investment in domestic produc tion, reinvestment of the earnings gleaned from such investment and transfer of technology, inter alia. Additionally, the Act stipulated that industries established with foreign invest ment were also qualified to enjoy all the services and inducements plus income t ax facilities provided to domestic investors under the Industrial Enterprises Ac t 1992. Generally speaking, notwithstanding, Nepal does not possess much inducement for foreign investors. One conventional attraction, that is, inexpensive labor, is b ecoming less meaningful in investment decisions. The country can no longer hinge on cheap labor costs alone but also requires high-quality, productive labor to uphold its comparative advantages. Multinational corporations looking to invest not only take for granted the existence of state-of-the art FDI policy groundwor ks and a gamut of business facilitation schemes but also follow a composite of c ost truncation, larger markets, and created assets that can assist them keep a c ompetitive edge. Created assets encompass communications infrastructure, marketi ng channels, technology and innovative scope and are critical for empowering fir ms to maintain their competitiveness in a rapidly changing world. A gargantuan c hunk of these facilities are unavailable in Nepal. FDI in small economies typically focuses on production for export. Nonetheless, in the case of Nepal, this is trammeled by a paucity of natural and human resour ces (as regards the latter, a dearth of educated manpower and shortages of advan ced managerial, accounting and technical skills). With respect to infrastructure , as adumbrated earlier, Nepal does not compare propitiously with many other dev eloping countries in terms of power and water supply, telecommunications and tra nsportation. What is more, the country is geographically disadvantaged, being la nd-locked and cannot provide the low-cost and efficient transportation connectio ns with other countries needed by foreign corporations. Another quandary in Nepal originates from the fact that amendments have been ski mpy. The reform systems need to be undertaken efficiently and speeded up as incr eased international competition has put companies under tremendous pressure and they are reacting by investing only in most opportune venues.
and the nat ion s power woes continue unabated. This is just one example of the kind of challenge Nepal is confronted with. do not really see too much of it. Till s
. The grossly inadequate supply of power is a deterrent for any potential foreign investor looking to set up an industry in Ne pal. The state of the hydro-electricity sector in Nepal today is both a cause and a s ymptom of low levels of FDI inflow. duration of visas and proces ses of renewal should be streamlined. And hydroelectricity potential is undoubtedly its mo st commonly used phrase. managerial emolument and capital should be m ade more patent and investors suitably apprised. and standar ds that ebb the expenses of doing business. Let us hope that this task is jointly undertaken successfully by the Nepal Inv estment Board formed a couple of years ago and the forthcoming Government. because there is such little foreign investment coming in to Nepal. ============================================== For several years now. The results have not been flattering thus far. For t oo long. i t has become crucial for the country to induce additional efforts to attract FDI . It is hence imperative f or the government to create conditions conducive to the inflow of capital. On the flip side. more than half of all Nepal s households today do not have access to electri-city.The country has to rivet on standards that expedite business. To conclude. The intention to promote FDI is evident. with just USD 95 million of FDI alent to 0. The government could start at home. but it has rarely been accompanied with concrete steps to the same effect. the word potential is perhaps the most commonly used word in Nepal s econom ic development lexicon today. and economic incentives. we have relied on potential and have hoped and even expected members of t he global investment community to park capital in Nepal. entrepreneurs in Nepal have cried hoarse over the need fo r greater foreign direct investment (FDI) into the country. an d yet. One window strategy should be fortified and has to be made a bona fide one windo w system in practice. one of the most seemingly comp elling arguments in favour of greater FDI into Nepal is its location between eco nomic behemoths China and India and its potential to serve as the natural tradin g corridor between these two economies. For instance. visa prerequisites. after-investment options. consultancy remuneration. Far from servicing a large part of India s demand for power (as hoped for). uncertai nty in the labour market and the poor infrastructure we see today. the days ahead are tough and challenging for the Government given t he complications identified with the internal condition and the nearly complete shortage of enforcement of investment-friendly methods. Increased economic activity domestically is potentially the biggest catalyst for increased FDI inflow into Nepal. the country s hydroelectri-city potential remains just that. In fact. These encompass in vestment promotion. b y encouraging domestic entrepreneurs to invest locally with assurances of stabil ity in policy. It w ould be foolish to believe that with the kind of political instability. we have not really seen much being done to realise this potential. foreign inves tors will be willing to take a risk investing in Nepal. and of those that do. Hydro-electricity has been Nepal s biggest potential for several years now. Correspondingly.5 per cent of GDP flowing into the country in 2011. investment incentives. It is an argument that is often made. equiv
Different approaches have to be tried now. Moreover. These years of effor t on the part of the private sector have been matched with years of inability on the part of successive governments (whenever we have had one) in convincing the world to seriously consider investing in Nepal. Under such situations. repatriation processes fo r income.
but it is also worth remem bering that several of these challenges are of their own making. it would be imprudent to hope for increased FDI inf lows. As important as political consensus is. It is true that Nepal s leaders are simultaneously grappling with a number of othe r challenges that some would argue are more pressing. economic initiatives have ta ken a backseat. bec ause potential is enough only to pique the interest of investors. In trying to re solve the continuing political crisis in Kathmandu. economic development can not be forgotten.uch time Nepali entrepreneurs themselves are not convinced about investing great er sums of capital in Nepal.
. and not much m ore. Nepal is competing with several other late developers for the same capital and it is essential to provide investors with compelling reasons to invest. (The author specialises in the political economy of South and Southeast Asia and is a co-founder of StoneBench Research and Communications.