FDI in Nepal increased by 14.8 percent to Rs.228 bn at the end of 2020/21

KATHMANDU: Nepal Rastra Banks survey shows stock of FDI in Nepal increased by 14.8 percent to Rs.227.9 billion at the end of 2020/21. Paid-up capital is the major component in FDI stock as it accounts for 53.9 percent of total FDI stock whereas the reserves and loans in total FDI stock accounts for 31.6 percent and 14.5 percent respectively.

The attraction of foreign investors in Nepal is seen in energy and manufacturing industry in comparison to the other sectors Nepal.

According to the survey conducted by Nepal Rastra Bank about foreign investment in Nepal, the total foreign investment has reached Rs 227 billion till the financial year 2020-21. The survey showed that foreign investment has increased by 14 percent in one year and has reached the threshold level.

Foreign Direct Investment (FDI) has become a significant source of private external finance in many countries. It is more important in developing economies because it allows transfer of technology, skills and access to global markets, in addition to financial resources. Nepal has also been striving to increase FDI to promote domestic production.

The central banks report presents the latest data of FDI stock in Nepal and provides the estimates of inward direct investment position or the FDI stock at book value and country-wise as well as sector-wise distribution of FDI stock at the end of 2020/21.

The survey covers 197 firms out of 604 companies that have taken FDI approvals from Nepal Rastra Bank at the end of 2020/21. The details on FDI stock are obtained from the financial statements of the surveyed companies as well as from standard questionnaire.

The FDI stock is valued using the company’s value appearing in the statement of financial position as shareholder’s equity and debt from foreign direct investors.

Nepal has received foreign investment from 55 different countries as of mid-July 2021. In terms of total FDI stock, India ranks top position with Rs.75.8 billion followed by China (Rs.33.0 billion), Ireland (Rs.16.5 billion), Singapore (Rs.15.5 billion) and Saint Kitts and Nevis (Rs.14.5 billion).

Industrial sector accounts for about 60.5 percent of total FDI stock. Of which, electricity, gas, steam and air conditioning sector constitutes 30.8 percent and manufacturing sector 29.5 percent of total FDI stock.

About 39.4 percent of total FDI stock is in service sector. Of which, financial and insurance services sector constitutes 26.9 percent, accommodation and food services sector 5.7 percent, and information and communication sector 4.8 percent of the total FDI stock.

The electricity, gas, steam and air conditioning sector, particularly hydropower sector, in Nepal has been a preferred sector for FDI in recent years. The latest survey shows that 30.8 percent of FDI stock and 40.0 percent of total paid-up capital is in this sector.

Moreover, hydropower sector has also attracted other sources of external financing such as foreign loans in addition to FDI; the electricity, gas, steam and air conditioning sector accounts for 50.1 percent outstanding foreign loan at the end of 2020/21.

The capacity utilization of FDI based manufacturing companies stands at 64.9 percent, while the profitability of FDI companies remains at 14.7 percent in the review year.