2. Introduction to FDI in Nepal
• Overview of the significance of FDI for a least developed
country like Nepal: Foreign Direct Investment (FDI) plays a
crucial role in the economic development of developing
countries like Nepal. FDI brings in valuable resources,
technology, and expertise, which can help Nepal achieve its
development goals and improve its standard of living. Moreover,
FDI can create employment opportunities, enhance productivity,
and contribute to the overall growth of the economy1
• Historical background: FDI legislation and the initial challenges
in attracting foreign investment: Nepal has a history of liberal
investment policies and openness to foreign investment.
However, the country has faced challenges in attracting FDI,
such as a lack of adequate infrastructure, bureaucratic delays,
and unclear investment regulations. These challenges have led
to a relatively low level of FDI inflows compared to other
countries in the region1
4. Current Scenario of FDI in
Nepal
• Analysis of the flow of foreign investment in Nepal:
Nepal has experienced a steady increase in FDI inflows
in recent years. However, there is a discrepancy
between the approved FDI and the actual net FDI
inflows. This discrepancy could be due to various
factors such as project delays, lack of implementation,
and changes in government policies.
• Recent trends and challenges in FDI flows to Nepal:
Nepal has been making efforts to improve its
investment climate by implementing new policies and
regulations. However, the country still faces challenges
such as inadequate infrastructure, bureaucratic delays,
and unclear investment regulations. These challenges
can deter potential investors and affect the overall flow
of FDI.
5.
6. Factors Affecting
FDI in Nepal
• Macroeconomic conditions and their impact on
FDI inflows: Factors such as the stability of the
Nepalese economy, inflation rates, and the overall
business environment can significantly influence FDI
inflows. Investors are more likely to commit to a
country with a stable and growing economy.
• Infrastructural challenges and their influence on
attracting FDI: Inadequate infrastructure, including
transportation, energy, and telecommunications, can
be a deterrent to FDI. Improvements in infrastructure
can make Nepal a more attractive destination for
foreign investors.
• Legal and institutional reforms to promote FDI in
Nepal: The legal and regulatory framework, including
investment laws, intellectual property protection, and
contract enforcement, plays a crucial role in attracting
FDI. Reforms in these areas can enhance the ease of
doing business and encourage foreign investment.
7.
8. Policy Reforms and Their
Impact
• Impact of the Foreign Investment and Technology Transfer Act (FITTA) on FDI flows: The introduction of FITTA in
2019 increased approved FDI by 51.3% and net FDI inflow by 49.2% in the fiscal year 2019/20 compared to the
previous year. This indicates that the FITTA has had a positive impact on FDI inflows in Nepal.
• Institutional and legal reforms to facilitate FDI inflows: Nepal has initiated institutional and legal reforms in recent
decades with the aim of promoting FDI. Some of these reforms include the establishment of One Stop Service Center to
facilitate foreign investors, Public-Private Partnership and Investment Act, 2019, and Industrial Enterprises Act, 2020.
These reforms have contributed to the growth of FDI in the country.
• Comparison of global FDI trends and their impact on Nepal: The World Investment Report 2023 published by
UNCTAD shows that global FDI inflows decreased by 12.4%. However, the impact of this decline on Nepal's FDI inflows
may not be significant, as the country has been experiencing growth in FDI inflows in recent yearsThe key is to
continue implementing reforms and improving the investment climate to attract more FDI in the future.
