Nepal ranks 134th on FDI Inflow Index
Nepal is no more on foreign investors’ radar. And, foreign investors are shying away from investing in the country. This is what the United Nation’s body on trade, investment and development issues, UNCTAD’s latest World Investment Report (WIR) revealed. Such is Nepal’s condition that even among the least developed countries (LDCs), it is at the bottom of the heap in attracting foreign capital.
Even among the South, East and South-East Asian countries, Nepal lies at the bottom with Afghanistan, North Korea and Bhutan when it comes to attracting foreign direct investment (FDI).
There has been no change in Nepal’s ranking in UNCTAD’s FDI Performance Index in 2010. UNCTAD’s WIR 2011 has placed Nepal at 134th position in the Inward FDI Performance Index. According to WIR, FDI inflow to the country in 2010 was same as that in 2009. The report says Nepal received $39 million in FDI in 2010.
Nepal’s worsening image as FDI destination is further illustrated by the latest statistics of the Department of Industry (DoI). As per DoI statistics, FDI commitment has declined by 48.35 percent in 2010-11.
With FDI inflow to India and Pakistan declining by 31 percent and 14 percent, respectively, in 2010, it was understandable that Nepal would not witness an increase in foreign investment. If delays in the approval of large FDI projects along with other macroeconomic concerns were responsible in the slide in FDI inflow in India, protracted political transition played a key role in the slowdown in FDI commitments in Nepal.
Interestingly, more than half of global FDI inflows were into developing countries and transition economies. The report says FDI inflows to Bangladesh increased by nearly 30 percent to $913 million with the country becoming a major low-cost production location in South Asia.
Accroding to UNCTAD report, global FDI flows recovered from the post-meltdown $1.19 trillion to $1.24 trillion in 2010, with the United States being the largest recipient ($228 billion), followed by mainland China ($106 billion) and Hong Kong ($69 billion).
The new report tells the same story about Nepal which the 2010 report had told. The 2010 report had said FDI to almost all LDCs increased during the 1990-2008 period, with the exception of Nepal, Burundi, Eritrea, Samoa and Timor-Leste.
Nepal, after success of 1990s, has not been able to attract foreign investors in recent years. Although Nepal got FDI commitments worth Rs 9.81 billion in 2007-08, the highest in the last two decades, Nepal’s image as FDI destination is eroding fast.
Businessmen and economists attribute this erosion to growing militancy of trade unions, absence of the rule of law and the part of political parties’ apathy towards the economy.
In the last few years, questions have been raised over state’s commitment for free market economy. The new budget’s top priority to the cooperative sector has further dented investors’ confidence.
Former Industry Secretary Bhola Chalise says the government’s failure to implement polices announced is one of the key reasons behind investors shying away from the country. “Physical security, political stability and policy implementation are the main factors to attract FDIs,” said Chalise, a key official behind the 90s economic reform.
Trade Expert Posh Raj Pandey agrees with Chalise. “Even though our policies are relatively good, problem lies in their implementation,” says Pandey.
The last two years saw increasing obstructions at the local level against hydropower projects and labour unrest in manufacturing units, which in return alienated potential investors. The obstruction of the Upper Karnali project by UCPN (Maoist) activists and recent clash at Surya Nepal’s garment unit in Biratnagar are some examples. Surya Nepal’s factory has remained closed since June 15. “These incidents illustrate the fact that the government’s hold at the grassroots level has weakened,” said a businessman.
Pandey and Chalise both said if Nepal has to attract large FDIs, it has to address key issues like infrastructure and labour. “There should be better energy availability and road network to attract foreign investors,” said Pandey. “Given the energy crisis, possibilities of running industries at full capacity are slim which further is further keeping away potential investors,” said Pandey.
Posted on: 2011-07-28 09:36
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