Foreign Direct Investment in Nepal

Rabindra Ghimire
Assistant Professor
School of Business
Pokhara University
Kask, Nepal

rabindra.pusob@gmail.com

Abstract

The paper aims to explore the current scenario of foreign direct investment in Nepal. Nepal is
passing through transitional economy. Being least developed countries it has been facing huge
resources gap which to be fulfilled attracting capital from private sector. Foreign investment is
most important resource for the economic development of the country. It helps to stimulate
competition, productivity and innovation. Further, it generates income and employment
opportunities resulting in higher wages, competitive price, more revenue, skills and technology
transfer and increased foreign exchange earnings. There is no debate that FDI plays
significantly vital role for the country like Nepal. To attract the foreign investment in Nepal,
government should pay proper attention to create investment friendly environment through
revision of acts, rules and policies in one hand and maintain law and order in another hand.

Key words: Foreign Direct Investment, Economic Liberalization, Economic Growth,

Capital Formation

1. Background

Over the last four decades poor countries have been received trillions of dollar of fund from
external sources. The fund was received in different modes like foreign grants, foreign loans and
Foreign Investment. Due to the low saving, low investment and low capital formation process is
the characteristics of Least Developed Countries (LDCs). Most of these countries, the level of
domestic savings is generally very low, the financial sector is significantly underdeveloped.
There are controversy opinions on FDI and economic development. In favorable policy
environment exist FDI plays positive role (Burnside and Dollar 2000), relationship between FDI
and economic growth is ambiguous (Jyun-Yi and Chih-Chaing 2008), enhanced the sectoral
economic growth (Alam 1999 and Hossain 2008), positive influence on development (BOI
2008). According to Blomström & Kokko (2003) and Borenzstein, De Gregorio & Lee (1998),
FDI has played a significant role in globalization, has enabled many developing countries to
accelerate their development.

LDCs require external capital for their economic development. Advantages of FDI to the
development of a country are widely recognized as filling the gap between desired investments
and domestically mobilized saving, increasing tax revenues, and improving management and
technology, as well as labor skills in host countries. These could help the country to fight its

Electronic copy available at: http://ssrn.com/abstract=2376093

Ghimire, R. (Jan 2011) Journal of Finance and Management Review, 2 (1), Pp 208-220

way out of poverty.

FDI itself alone not helps the host country's economic growth. There are some prerequisites such
as the host country must have achieved a minimum threshold level of development in
education, technology, infrastructure, financial markets, and health (Borenzstein, De Gregorio,
and Lee 1998). Thus, FDI contributes to economic growth only when the host country has
reached a developmental level capable of absorbing the advanced technology. FDI
contributes to total factor productivity and income growth in host economies, over and above
what domestic investment would trigger. These studies find, further, that policies that promote
indigenous technological capability, such as education, technical training, and research and
development, increase the aggregate rate of technology transfer from FDI and that export
promoting trade regimes are also important prerequisites for positive FDI impact. Using data
on FDI received by developing countries tested the effect of FDI on economic growth in a cross-
country regression framework. They found some indications that FDI has a positive effect on
economic growth, but this impact was dependent on the human capital stock in the host economy.

There is genuine debate amongst academics and policymakers whether or not countries should
attract FDI to how countries can attract and reap the full benefits that come with FDI. Before we
can start analyzing the benefits of FDI or how FDI is linked to development we have to ask
ourselves this question “Why is FDI important to a country?” For a landlocked Least Developed
Country (LDC) like Nepal, FDI is a source of capital and employment. This indicates that FDI is
essential to the country.

There is growing empirical evidence suggesting that the impact of FDI on economic
growth is not automatic. The benefits of FDI include serving as a source of capital, employment
creation, technology transfer, to mention a few.

2. Theoretical Foundation

FDI is regarded as a free movement of capital from one country to another country. Until the
1950s, international direct investment was entirely explained within the traditional theory of
international capital movements. Like other forms of international investment, FDI was seen as a
response to differences in the rates of return on capital between countries.

i. Market Failure Theory:

Structural Market Imperfection Theory is regarded as a dominant theory of FDI which was raised
by Hymer and subsequently explicated by Kindelberger. So, it is called the „Hymer-
Kindleberger Theory‟. The theory proposes that the structure of imperfect competitive market
makes the prerequisites for multinational corporations to foreign direct investment. This
imperfect competitive advantage results in a monopoly market for MNEs (such as knowledge
assets, economies of scale, etc.). And this advantage will access higher profits than the local
businesses of the host country to cover higher production cost and organization cost than local
enterprises when implementing overseas business commitments.

In this respect, the Natural Market Imperfection Theory of Internalization by P. J. Buckley, M.

Carson, and A. M. Rugman is also important. This theory holds that the failure of the market
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Foreign Direct Investment in Nepal Page 2 of 15

Electronic copy available at: http://ssrn.com/abstract=2376093

transaction caused the rational allocation of its resources through the internal market when
alienating products in order to ensure the enterprises to obtain the largest economic benefits. The
determining factor for the internalization of market is transaction costs. If the advantages from
the process of internalization can be offset or more than the costs charged, the company will
decide foreign direct investment; otherwise choose exports.

ii. The Eclectic Paradigm

The „OLI‟ or „Eclectic‟ approach to the study of foreign direct investment (FDI) was developed
by John Dunning. OLI stands for three potential sources of advantage that may underlie a firm‟s
decision to become a multination O for "Ownership", L for "Location", and I for
"Internalization". Ownership advantages can be understood as the capabilities for businesses to
meet their current or potential customers‟ demand. Ownership that is firm-specific advantage
includes patent and trade market, technology, brand recognition, core competency of a firm or an
ability meeting with the potential customers‟ demand.

Location advantage is external advantages to the firm and is mainly characteristic in three
aspects: the immovable factor and endowment of the host country, such as natural resources,
convenient geographical location, a large population; the host country's political system, policies
and regulations with flexible, concessive, and other favourable conditions (i.e., free tariff
barriers), as well as the formation of good infrastructure and gathered economy. It is not owned
by enterprises but by the host country; therefore, enterprises cannot control discretionally, but
adjust and take this advantage. Dunning had his view that the enterprises having the ownership
advantages of intangible assets, through the expansion of their own organizations and
business/management activities and the use of internalizing these advantages, will obtain more
than non-equity transfer potential or real profits.

The fundamental premise of Dunning's eclectic paradigm or the OLI model is that returns on
foreign investment as a basic motive for FDI can be explained by three groups of factors: the
ownership advantage of the firm (O), location factors (L), and by internalisation of transaction
costs (I). Since assuming that foreign investors already posses certain competitive (ownership)
advantage, and they are able to internalize transaction costs, the key remaining factor in decision-
making process are the location advantages of the host country. Ownership advantages address
the question of why some firms but not others go abroad, and suggest that a successful MNE has
some firm-specific advantages which allow it to overcome the costs of operating in a foreign
country. Location advantages focus on the question of where an MNE chooses to locate. Finally,
internalization advantages influence how a firm chooses to operate in a foreign country, trading
off the savings in transactions, holdup and monitoring costs of a wholly-owned subsidiary,
against the advantages of other entry modes such as exports, licensing, or joint venture. A key
feature of this approach is that it focuses on the incentives facing individual firms.

iii. Diamond Model

As Dunning‟s Eclectic Paradigm explains about how Ownership and Location advantages are
coined for the internalization by means of FDI, the MNCs decision for investing in a host
country depends on how competitive and conducive environment is prevailed in a particular
country. This concept was developed by Michael Porter in his Diamond Model. He has
Ghimire, R. (Jan 2011) Journal of Finance and Management Review, 2 (1), Pp 208-220

incorporated four components like factors conditions, demand conditions, strategy, structure and
rivalry and related and supporting industries to explain the competitiveness of a host country for
attracting FDI.

iv. Double Diamond Model

The Conventional Theory of FDI or Porter‟s Diamond Model was a masterpiece in explaining
the upward flow of FDI but the explanatory power of the Diamond Model came into question as
the current trend of FDI from less developed countries to more developed countries could not be
explained by this model. Therefore, Moon Hwy Chang and Jeffrey Alan Roehl extended the
Diamond Model into Double Diamond Model explaining that the motivation factor for foreign
investment by the Multi National Corporations is not only the potential advantages but also
disadvantages. They explain if an MNC realizes some deficiencies in terms of competitiveness
compared to its competitors, then it goes to invest abroad so that it could get access with high
skills, technology and be able to fix its disadvantages. Therefore, Double Diamond Model
explains more clearly about the current trends of FDI flows.

FDI can be categories into three components: equity capital, reinvested earnings, and intra-
company loans. Equity capital comprises the share capital of the companies in foreign country
which is 10% or more of the ordinary shares or voting power in an incorporated entities.
Reinvested earnings means earning not distributed to shareholders and not remitted to parent
organization, and intra-company loans is provided by parent company to subsidiaries. FDI may
take many forms like purchase of existing assets in a foreign company, investment in fixed assets
like land, building, plant and machinery and mergers and acquisition activities.

FDI is an investment made to acquire a permanent management interest (normally 10% of voting
stock) in a business entity operating in a country other than that of the investor defined according
to residency (World Bank, 1996). Such investments may take the form of either “greenfield”
investment (also called “mortar and brick” investment) or merger and acquisition (M&A), which
entails the acquisition of existing interest rather than new investment. In corporate governance,
ownership of at least 10% of the ordinary shares or voting stock is the criterion for the existence
of a direct investment relationship. Ownership of less than 10% is recorded as portfolio
investment. FDI comprises not only merger and acquisition and new investment, but also
reinvested earnings and loans and similar capital transfer between parent companies and their
affiliates. One of the most salient features of today‟s globalization drive is responsive
encouragement of cross-border investments, especially by transnational corporations and firms
(TNCs). Many countries and continents (especially developing) now see attracting FDI as an
important element in their strategy for economic development. This is most probably because
FDI is seen as an amalgamation of capital, technology, marketing and management.

3. Policy Overview

For the first time, the Sixth Plan (1980/81-1984/85) incorporated a policy for utilizing foreign
capital and technology as a useful supplement. The Plan mentioned that foreign investment and
technology was primarily required in large-scale industries and mineral industries. As an
outcome, the Foreign Investment and Technology Transfer Act, 1982 was introduced. Presently,
however, Nepal‟s foreign investment rules and regulations have been formulated on the basis of
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Foreign Direct Investment in Nepal Page 4 of 15
the Foreign Investment and Technology Transfer Act, 1992 that was amended in 1996 in line
with open and liberal economic policies. The main objectives of foreign investment include
raising of the foreign investment level by broadening the industrial base, seeking foreign aid to
supplement resources needed for a sustainable high economic growth and employment
generation, and augmenting technology and management skill transfer.

According to Foreign Investment and Technology Transfer Act, 1992, foreign investors are
equally treated as local investors and the same act prevails regarding incentives and facilities to
foreign investors. Incentives and facilities are designed to make investment viable and products
competitive. Some of them include the following: a) foreign investors are allowed to hold
100 percent ownership in industries, except the cottage scale enterprises and a few restricted
activities such as security related ones; b) technology transfer is allowed in all types of
industries even in the areas where foreign investment is not allowed; c) full repatriation of the
amount received from the sale of equity, profits, or dividends and interest on foreign loan and the
repatriation of the amount received under an agreement for the transfer of technology is
permitted; d) foreign investors will be granted a business visa until their investment is
retained; e) the resident visa will be provided to foreign investors, who at a time, makes an
investment in excess of US $ 100,000 or equivalent; and f) only nominal import duty is
levied on raw materials. (FITTA, 1992)

After the restoration of multiparty system the agenda of FDI was seriously held by then
government and included in constitution. "The state shall, for the purposes of national
development, pursue a policy of taking measures necessary for the attraction of foreign capital
and technology, while at the same time promoting indigenous investment" (Constitution of the
Kingdom of Nepal, 1990: 19). Special emphasis had been given in the Ninth Plan to mobilize
foreign investment to meet the increasing investment need of the country through the
creation of investment-friendly environment (Ninth Plan, 1997-2002). The Tenth Plan (2002-
2007) also aims to meet increasing investment requirements and invite modern technology and
management (Tenth Plan, 2002-2007). FITTA, 1992 tried to be a investor friendly act which
provided up to 100 per cent equity participation by foreigners is allowed into almost all the
sectors except those in cottage industry, arms and ammunition industries, energy, real estate
business, security printing, currency and coinage, retail business, travel and trekking agencies,
consultative services. Policy of non-discriminatory treatment for foreign investment has been
adopted. Investors have right of full repatriation of equity, profits or dividends and interest on
loans, and there is guarantee against nationalization of the foreign investment. Most of the
industries can enjoy five year tax holiday with attractive income tax allowances. Tax is exempted
on earning dividend, export earnings and interest on foreign loans, corporate tax rate of 33 per
cent and income from royalty and technical management services is taxed at a standard rate of 15
per cent, only 1 percent duty on import of capital goods, residential and business visa is provided
for foreign investors and their dependants; bonded warehouse and duty-draw back facilities on
export also provided. The act encouraged foreign investment in the form of joint ventures in
hydropower production; components of tourism development such as airport construction
and its management; airlines, star hotels and recreational facilities construction; agriculture and
non-timber based high value products; development of education and health related
facilities. Financial services, information technology, and biotechnology related industries.
According to the act, medium and large-scale production industries, 100 per cent share-based
Ghimire, R. (Jan 2011) Journal of Finance and Management Review, 2 (1), Pp 208-220

investment would be permitted. Similarly, that list would also comprise export-oriented
industries, natural resources excavation, construction of toll roads and construction of goods
management terminal. Individuals wishing to invest in the development of the basis
for the dissemination of employment technology making compatible with the existing
economic structure would be encouraged. Investors that seek to invest in joint venture with the
Nepalese, with management skills and technology transfer package, would also be
welcomed. Suitable policy would be formulated to attract capital, skills, efficiency and
technology of the non-resident Nepalese. Nepalese diplomatic missions abroad would be
mobilized for the promotion of foreign investment. A high-level investment promotion board
would be set up to facilitate foreign investment. This board would operate as a "one window"
shop for satisfying the requirement of project approval, licensing, tax facilities and infrastructure
management as necessary, for the large-scale investors.

Nepal has concluded relatively few Bilateral Investment Protection Treaties (BITs) with
countries, but not with India, a major trade and investment partner of Nepal. Treatment and
protection of foreign investors could be classified into: (a) National treatment (b) Non -
discrimination (c) Expropriation (d) Funds‟ transfer and (e) Dispute settlement.

The BITs do provide for national treatment except in the area of fiscal incentives. An example of
non-national treatment of foreign investors in Nepal includes: the assets of electricity
operations owned at least 50 percent by foreign investors must be transferred to the
Government after an agreed period under build-operate-transfer (BOT) scheme. The
foreign investor may buy back the assets and continue to operate them. Asset transfer is not
required of operations that are less than 50 percent foreign-owned. The operator need only
renew the operations‟ license. And also that foreign investors pay double rate to register a
trademark.

The investors facing problems with third parties or with the government would resolve them
through negotiation and reconciliation. International arbitration to settle a dispute with
government is available to foreign investors protected by a BIT or those (larger investors) with
the power to negotiate with government an investment agreement providing the right to
international arbitration. The foreign investment regulations are strongly interventionist
concerning disputes between a foreign investor and a national. It appears to be mandatory for
the Department of Industries to be present at talks between the parties aimed at resolving a
dispute. “More significantly, where a dispute is referred to arbitration it is conducted under
UNCITRAL rules but must be held in Nepal with Nepalese governing law for all investments
under about $ 7 million” (UNCTAD, 2003). This provision is intended to protect national parties
who might be disadvantaged by arbitration held abroad. Larger investors can choose their own
preferred mode of arbitration.

Nepal encourages foreign investment as joint venture operations with Nepalese investors or as
100 percent foreign owned enterprises. Foreign investment are permitted up to 100 percent
equity share holding in medium and large scale industries. A medium industry is defined as an
industry with fixed capital investment between Rs. 10 million and Rs. 50 million. In large scale
industries fixed capital investment will be in excess of Rs. 50 million. In cottage and small
industries permission may be granted to use foreign technology in the form of investment.
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Foreign Direct Investment in Nepal Page 6 of 15
FITTA and Foreign Investment Policy don't permit foreign investment in Cottage Industries. (
cottage industries are Handloom, Pedal Loom, Warping, Dyeing and printing, tailoring ( other
then readymade Garments), Woolen carpet, etc, Service (Business such as Hair Cutting, Beauty
Parlour, Tailoring, Driving Training, etc.), Arms & Ammunition Industries, Gunpowder,
Explosives, Industries related to Radio-Active Materials, Real Estate Business (excluding
Construction Industries), Film Industries (National Languages and other recognized languages of
Nation), Security Printing., Bank notes &Coins, Retail Business, Travel Agency. Trekking
Agency, Water Rafting, Pony Trekking. Horse Riding. Cigarette, Bidi (Tobacco), Alcohol
(excluding those exporting more than 90% ). Internal Courier Service, Atomic Energy, Tourist
Lodging, Poultry Fisheries, Bee-keeping, Consultancy Services such as Management,
Accounting, Engineering and Legal Services, Technology transfer is possible even in areas
where foreign investment is not allowed.

According to FITTA, 1992, to get approval from DOI in Foreign Equity Investment in new
industries due procedures should follow with proper documentation. It requires project report,
Joint Venture Agreement (JVA), in case of more then one investors, Citizenship certificate of
local party/or certificate of incorporation including Memorandum of Association and Articles of
Association, if local party is a company, Copy of Passport or foreign party or certificate of
incorporation, including Memorandum of Association and Articles of Association, if participant
is a company, bio-data/company profile of the foreign party, financial credibility of the foreign
Investor provided by a home country Bank or domiciled country bank, authority letter from the
concerned companies or individuals to carry out any necessary work on their behalf, if
applicable. Foreign investors may invest their part of the equity capital either in the form of
convertible foreign currency acceptable to the Nepal Rastra Bank, the Central Bank of the
Kingdom through proper banking channel or in the form of plant machinery and equipment
required for the approved industry. For the investment in the form of plant and machinery, prior
approval of DOI must be taken. However, Indian nationals can invest in Indian Currency as well
through proper banking channel.

Similarly, to get approval from DOI in technology transfer in an existing Nepalese industry
certain documents to be submit, these are technology transfer agreement, citizenship certificate
of local party or certificate of incorporation including Memorandum of Association and Articles
of Association, if local party is a company copy of Passport or foreign party or certificate of
incorporation, including Memorandum of Association and Articles of Association, if participant
is a company. Bio-data or company profile of the foreign party Industry registration certificate
copy of the minute of the Board of the recipient company authority letter from the concerned
companies or individuals to carry out any necessary work on their behalf, if applicable.

In current fiscal year budget, GoN committed to reduce the tax payment period by 12 days,
provide infrastructure like black topped road, drinking water, electricity facilities, provide sub
health post facilities, armed force security with five policemen to the industries whose
employment capacity is more than 500, to the manufacturing industries, provide incentive and
tax exemption on the basis of foreign currency earnings.
Ghimire, R. (Jan 2011) Journal of Finance and Management Review, 2 (1), Pp 208-220

4. Data
FITTA, 1992 empower to Department of Industries (DOI) to register, administer, implement
administer, implement and evaluate all foreign investment projects. Major responsibility of
collecting the data goes to DOI. The DOI approves direct investment applications and the
Foreign Exchange Management Department of the Nepal Rastra Bank (NRB) approves
principal and interest repayments by these enterprises. All FDI-related enterprises has to submit
their financial statements every three months, but this practice has not been followed.(Pant,
2010). We have to rely on the data available from different sources which is not accurate due to
several reasons. Worldwide FDI figure available in the official websites of UNCTAD from 1990
to 2009. Data of FDI ( approved projects, license received project, under construction and
operating projects till April 2010 ) obtained from DoI. Data from different sources are
contradicted each other. So analysis has been made on the basis of data received from DoI.
.
5. Direction of FDI in Nepal
After pursuing an inward-looking development strategy for over three decades, Nepal embarked
on outward-oriented policy reforms in the mid-1980s. The Industrial Policy and Industrial
Enterprise Act, promulgated in 1987, marked the beginning of Nepal‟s attempt to attract FDI.
The Act provided a legal framework for facilitating FDI in medium and large-scale ventures in
every industry with the exception of environment and defense-related activities. The Act
contained a new set of incentives that were similar to – or even more attractive than - those in
other developing countries. For instance, full remittance of profits from FDI ventures in
convertible currency was permitted and employment of foreign workers was allowed if domestic
workers were not available. A Five-year tax holiday was introduced for export-oriented projects.
According to Department of Industries Statistics 2010 regarding FDI, 782 projects from 54
countries are approved, 122 projects from 25 countries already received license, 422 projects are
from 43 countries are under construction and 401 projects from 46 countries are in operation.
Table 1 shows that $36,352.39 millions of FDI is already approved, $ 13,040.53 millions of FDI
is granted license, $ 36,352.39 of FDI is under construction and $ 47062.28 millions of FDI is
now in operation.

Table 1: FDI up to April 2010

FDI Project No. of No. of Total Project

Countries Industries Cost
( US $ Million)

Approved 54 782 36,352.39

Licensed 25 122 13,040.53
Under construction 43 422 36,352.39
Operating 46 401 47,062.28
Source: Department of Industries, 2010

Table 2 shows that most of the projects are related to manufacturing industries which is followed
by energy based industries. Service related business is in third position and agro based industries
is in least priority. The area of investment includes manufacturing, services, tourism,
construction, agriculture, minerals and energy. Out of total 401 projects, 9 agro based
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Foreign Direct Investment in Nepal Page 8 of 15
industries, 4 construction industries, 6 energy based, 194 manufacturing, 1 mineral, 91 service
and 96 tourism industries are operating. Out of total 782 approved projects, manufacturing
industries are 249, service industries are 263, tourism industries are 207, construction industries
are 22, energy based industries are 18, agro based industries are 14 and mineral industries are 9.

Table 2: Area of FDI, No. of projects and total project cost

( Amount in USD million)

Types of Approved Licensed Under Operating
Industries Project Project Construction Project
Project
No. Amount No. Amount No. Amount No. Amount
Agro based 14 722 1 47 9 118 9 264
Construction 22 2245 2 40 13 887 4 231
Energy based 18 8429 3 3013 12 12889 6 12510
Manufacturing 249 10674 59 4798 94 6394 194 19280
Mineral 9 1927 1 3 19 2272 1 827
Service 263 10501 27 3019 133 3176 91 7313
Tourism 207 1855 29 2121 142 3702 96 6638
Total 782 36352 122 13040.5 422 29437 401 47062.3
Source: Department of Industries, 2010

Out of 66 countries, amount of FDI from India is the highest, followed by USA, China in third
position, Ukrine in fourth position, Norway in fifth position. South Korea, Canada and UK are
in Sixth, Seventh and Eighth position. Project of 54 countries have been approved for FDI, 16
countries have been invested more than $10 million each, 6 countries' FDI amount is more than
$ 1000 million each and 32 countries' FDI amount is in between $10 to $1000 million. Smallest
project's cost is $3 million and largest project's cost is $2085. The overall scenario of FDI as a
least developed country is not seemed satisfactory.

As per the study of 183 economies of the world by World Bank and the International Finance
Corporation, the business environment of Nepal is not so good. It is concluded by measuring
various criteria and given the rank among the economy. The study concluded that Nepal is in
116th position in Ease of Doing Business, 96th position in Starting a Business, 130th position in
Dealing with Construction Permits, 25th position in Registering Property, 89th position in
Getting Credit, 74th position in Protecting Investors, 123rd position in Paying Taxes, 164th
position in Trading Across Borders,123rd position in Enforcing Contracts and 107th position in
Closing a Business. Being higher the rank, more worse the situation to do business, Nepal is
regarded as a difficult economy to do the business whereas Singapore is most easy economy
doing business in 201. (WB and IFC: 2011). The study suggests that we have to revise some
rules and regulation and prepare business friendly policy to attract the foreign investment.

Nepal has great potential of investment in different sectors. Nepal is one of the richest country
having 44,000 MW hydropower potential with 66 projects. Currently there is 500MW power
Ghimire, R. (Jan 2011) Journal of Finance and Management Review, 2 (1), Pp 208-220

shortage and in per year the demand is increasing by100 MW. The revised Hydropower
Policy now allows private sector entry into the full range of power sector activities:
generation, transmission and distribution with the objective of facilitating improved access to
underserved areas. Similarly, agro based, minerals, construction, tourism, and infrastructure
are the potential sectors for the foreign investment.

6. Conclusion

Economic development is need of every country but it is very crucial matter. Capital is one of the
prerequisites of economic development which have to either provide from the internal sources or
to be managed by the external sources. FDI is one of the external sources to fulfill the capital
gap. LDCs like Nepal should attract the FDI for the development of the economy. Nepal, being a
neighbor of two giant economies India and China, she should be benefitted from these
economies attracting FDI. FDI from India is in leading position in Nepal which is not
astonishing.

After 1980s Government of Nepal realized the importance of the liberalized economic policy and
welcomed to private sector to invest in business. But the pace of development in this sector was
very slow till 1985. After promulgate FITTA, 1992, the government open the door for foreign
investment. Nepal being one of the most favourable place for tourism and water resources,
millions of dollar of FDI can invest in high return sector. Government should initiate to make
investor friendly environment through changes in relevant Acts and Regulations avoiding
bureaucratic hassles and maintain law and order. Due to the unstable and unpredicted political
situation and fragile security condition, attraction of FDI is quite difficult. Government should
pay proper attention to create business friendly environment.

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Foreign Direct Investment in Nepal Page 10 of 15
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Annex 1

Joint Venture Industries as of Chaitra 2066 (Mid April 2010)

Millions of dollar

SN Country Under Operating Approved License

Construction
Australia 105.63
1 65.33 162.19 36.65
Austria 18.00
2 104.47 32.98 47.61
Azerbaizan
3 9.90
Bangladesh 15.71
4 199.91 222.16 12.28
Belgium 4.50
5 7.00 23.77
Bermuda
6 1,989.13 1,516.40 6.12
Bhutan 17.16
7 10.10
Brazil
8 521.07
British V. Island
9 415.15

_____________________________________________________________________________________
Foreign Direct Investment in Nepal Page 12 of 15
SN Country Under Operating Approved License
Construction
Canada
10 4,222.95 576.76 170.26 78.40
Chad
11 2.50
China
12 3,169.99 2,361.98 3,795.57 2,469.87
Columbia
13 2.40
14 Croatia 2.50
Cyprus
15 1,000.00
16 Czech Republic 3.50
Denmark 20.00
17 299.62 108.47
18 Egypt 10.00
Finland
19 10.00 12.50
France 54.42
20 145.98 108.91 78.94
Germany 171.27
21 346.58 1,562.28 62.80
Ghana
22 6.50
Guatemala
23 10.00
Holand
24 7.00
Hong Kong 230.00
25 545.26 367.15 425.64
India
26 11,678.14 16,644.97 17,479.31 4,210.86
Iran 2.50
27 5.00 14.20
Ireland 2.50
28 700.00 12.40
Israel 633.80
29 3.00 27.60
Italy 26.64
30 150.80 193.05 1,050.70
Japan 161.46
31 1,573.27 754.22 430.14
Kyrgystan 35.00
32 1.50
Ghimire, R. (Jan 2011) Journal of Finance and Management Review, 2 (1), Pp 208-220

SN Country Under Operating Approved License

Construction
Kazakastan
33 3.40
Lebnon 2.00
34 5.00
Libiya
35 5.00
Malaysia 12.00
36 3.67 523.47
37 Mauritius 500.00
Mexico
38 17.93
Netherlands 95.47
39 64.43 60.89 998.22
New Zealand 13.00
40 278.63 5.00
North Korea
41 44.82 20.00
Norway 65.00
42 8,033.58 2.00
Pakistan
43 1,843.70 165.73 63.40 86.61
Philippines 3.43
44 912.94 230.45 19.30
Panama
45 83.28
Poland
46 99.72
Portugal
47 2.50
Russia 11.16
48 26.67 105.90
South Africa 4.80
49 42.50
South Korea
50 2,747.00 609.68 3,875.28 809.24
Singapore 627.40
51 58.90
Slovenia
52 4.19
Spain 24.80
53 5.00 100.50 13.72
Sri Lanka
54 13.00 66.15
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Foreign Direct Investment in Nepal Page 14 of 15
SN Country Under Operating Approved License
Construction
Sweden 2.50
55 15.50
Switzerland 8.00
56 176.17 252.70 35.23
Singapore
57 628.34
Taiwan 63.12
58 266.51 75.11 10.00
Thailand 3.25
59 134.07 142.00
Turkey 12.00
60 8.70 5.00
Thailand
61 3.00
UAE 500.00
62 923.20 178.54
United Kingdom
63 1,726.30 451.68 1,091.87 1,288.09
Ukraine
64 9,579.21 6.40
USA 562.09
65 47,062.28 534.57
66 Vietnam 24.60
Total 29,437.29 94,124.56 36,352.39 13,040.53
Source: Department of Industries:2010, calculation by author