Nepal: Investing

FDI in Figures

According to UNCTAD's World Investment Report 2023, FDI inflows to Nepal declined by 66.8% in 2022, totaling USD 65 million. At the end of the same period, the stock of FDI was estimated at USD 2 billion, representing only 5% of the country’s GDP. India, China, Singapore, and Ireland are the country's leading investors. The services sector accounts for more than 70% of total FDI (mostly in communication, financial intermediation, education, hotels, and restaurants), ahead of the manufacturing, mining and quarrying, and energy sector (Nepal Rastra Bank, 2023). During the first four months of the 2032-24 fiscal year, FDI pledges to Nepal surged by 89% year-on-year. According to the Department of Industry, Nepal secured FDI pledges amounting to Rs21.88 billion for 178 projects during this period. Out of these projects, 170 were small-scale, 5 were medium-sized, and 3 were large-scale. From a sectoral perspective, the majority of pledges, 86.48%, were directed towards the tourism sector, followed by 69.39% for the service sector, 12.7% for manufacturing, 5.3% for information, communication, and technology, 4.2% for infrastructure, and 1% for agriculture.

UNCTAD expects Nepal to receive more FDI in future years thanks to the improvement of the business climate. As a member of WTO and the Multilateral Investment Guarantee Agency (MIGA), Nepal has signed the Bilateral Investment Protection and Promotion Act (BIPPA) with six countries - including India - to encourage FDI inflows. Foreign investment in Nepal is regulated and administered by the Foreign Investment and Technology Transfer Act and Industrial Enterprises Act. The nation is facing several challenges in the FDI sector, which is mainly due to the lack of transparency, haphazard selection of projects, and the neglect of their possible impacts on the national economy. The law provides for an independent judiciary, but courts remain vulnerable to political pressure, bribery, and intimidation. Furthermore, the country has untapped hydropower and tourism potential, and its geographical location between India and China can be a strategic asset. On the other hand, corruption, political instability, bureaucracy, weak infrastructure, an unskilled workforce, and reduced transparency in its legal and regulatory systems act as investment deterrents. Climate hazards also pose a threat to FDI flows. FDI is subject to approval by the Nepalese authorities. On October 2, 2023, Nepal's Government introduced streamlined procedures for approving foreign investments up to NPR 500 million (around USD 3.7 million) via the automatic route, under Section 42 of the Foreign Investment and Technology Transfer Act, 2019. This initiative simplifies the process to attract foreign investments by enabling investors to receive initial approval online upon application submission. Foreign investors, regardless of their nationality, can now apply from abroad to invest up to NPR 500 million, receiving automatic pre-approval through the online system. Eligible investment areas include energy production, agriculture and forest production, infrastructure, tourism, information technology-based industries, service, and manufacturing. Additionally, it clarifies that there is no minimum investment requirement for information technology-based industries under the automatic route. The sectors ineligible for foreign investment are detailed in the annex of the FITTA 2019, comprising primary agricultural sectors like animal husbandry, fisheries, beekeeping, and oil-processing, with an exception under review by the Supreme Court regarding potential opening for FDI if 75% of products are exported. Also excluded are small and cottage enterprises, personal services (such as haircutting and tailoring), arms and ammunition industries, real estate (excluding construction), retail businesses, domestic courier and catering services, money exchange and remittance services, as well as various tourism-related activities and mass media operations. Additionally, management, accounting, engineering, legal consultancy, language, music, and computer training services, along with consultancies with over 51% foreign investment, are also restricted from foreign investment. Overall, Nepal ranks 108th among the 180 economies on the 2023 Corruption Perception Index and 130th out of 184 countries on the latest Index of Economic Freedom.

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Latest Update: May 2024