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April 2016 Cover Story

Published on: 2016-05-02 13:52:22     1581 times read    0  Comments
Investment in Nepal .. Why, Where & How ?

The Investment Board and the Ministry of Industry of Nepal have jointly brought out a new guide for investment in Nepal. This follows earlier guide that UNCTAD and ICC had jointly brought out in 2003. 

Though the basic reasons for investing in Nepal and the processes for the same are almost similar in 2003 and now, there is fundamental difference in the context. The UNCTAD-ICC guide was brought out when the Maoist insurgency was gaining further momentum. Proper environment for investment was not restored even after the peace deal of 2006, subsequent first elections to the Constituent Assembly (in which the Maoists emerged as the largest party) and the integration of the Maoist armed force into the Nepal Army in 2012. The first Constituent Assembly (CA) was dissolved in May 2012. 

The situation started to change after the second elections to the CA held in 2013 that relegated the Maoists to the third position in the new CA while the centrist Nepali Congress came out as the largest party and centre-left Communist Party of Nepal (UML) as the second largest. Formation of a coalition government of Congress and UML with a pledge to bring out the constitution within one year, gave a positive message across the business community within the country as well as abroad who started their initiatives to increase investment in Nepal. Though there were some hurdles in the process to finalise the constitution, it was indeed promulgated on September 20 with more than two-third majority of the CA members. Though the new constitution has some provisions that make it not good as the best in the world from investors perspective, it is regarded by the entire business community as 'far better than feared', given the sizable majority of left-leaning politicians in the CA. 

As more than a decade has already passed since the previous Investment Guide was published, and the overall socio-political situation has undergone a sea-change during the interlude, it was the right time to bring out a new Guide. 

But how about the details of the new Guide? 

The guide has presented a table summarizing the strategic advantages of investing in Nepal and given brief overview of current situation as well as investment prospects in some eight or nine sectors such as hydropower, transport, agriculture, tourism, information and communication technology, mines and minerals, financial institutions, health and education. Under hydropower, it says, there is investment opportunity not only on power generation, but also on transmission line. Under transport, the Guide says there are opportunities under public-private partnership for roads and mass public transport systems such as RBT and monorail. What is felt missing is a table with data about imports of major items so that the potential investor could assess the opportunities of import substitution.  Similarly, a brief overview of about what sort of educational institutions are operating in Nepal and what sorts of technical human resource they are developing (and in which number) could have helped them to assess the local availability of human resource they may need in their respective areas of business. 

Major Areas of Investment 
(as listed prominently by the new Guide)

1. Hydropower
2. Transport
3. Agriculture
4. Tourism
5. Information and Communication Technology
6. Mines and Minerals
7. Financial Institutions
8. Health and Education

Another section is about how to invest in Nepal. This deals about how to start and operate a business and explains the existing laws, regulations and processes regarding such matters as feasibility study, visa, company registration, tax compliance, export-import, labour issues, environmental issues, industrial districts and special economic zones, dispute resolution mechanism etc.  

Silent about Problems
The guide seems to be prepared in a haste leaving some quite visible gaps. One major gap in the new Guide is that it has chosen to remain silent about the potential problems in investing in Nepal.  It talks about only the opportunities. There is no separate chapter about the Weaknesses and Threats. Therefore, there is no mention anywhere about what is being done to remove such problems or a promise relevant about it. As the potential investors, at least the Indians, already know about those problems, they naturally seek such points in the Guide. 

Yes, it does mentions that Nepal Electricity Authority is the only buyer of electricity generated by private sector projects. That clearly is a threat to potential investors in power projects. But there is no mention about the remedies to this problem. 

Another gap is the absence of some case studies – of successes and failures - of foreign investment in Nepal. Such cases would have provided some additional insights in the potential problems and the would-be investor would be able to assess whether it would be able to tackle such problems due to its own special strengths. Foreign investors are probably watching with suspicion how the episode of TeliaSonera exiting Nepal’s telecom sector unfolds. To assure them, they need to be informed how a number of other investors had exited Nepal without any hassle in the past.  And there are many of such examples. 

The foreign investors may also have some doubts about some provisions of the new constitution, such as the state policy One interesting point to note is that while the guide has listed opportunities in all the sectors included, there is nothing listed as opportunities under the financial institutions sector.
 
Another gap in the Guide is that it does not mention the proposed changes in the Industrial Enterprises Act (IEA) and Foreign Investment and Technology Transfer Act (FITTA). The rules, regulations and processes mentioned in the Guide are based on the IEA and FITTA of 1992. New Industrial Policy is already approved by the Council of Ministers some six years ago in 2067 BS. And the new Acts in accordance with this Policy are already drafted. 

The new guide was the main paper that Nepal Investment Board presented to the Indian and Chinese private sector during the official visit of these countries by Prime Minister KP Sharma Oli in February and March respectively this year. But we will have to see how effective this guide has been to encourage the Indian and Chinese to invest in Nepal.


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