Nepal’s foreign investment survey reveals manufacturing sector at 71% capacity utilization

KATHMANDU: A recent survey conducted by Nepal Rastra Bank (NRB) has shed light on the utilization of capacity among manufacturing companies operating with foreign investment, revealing a rate of approximately 71 percent. This comprehensive foreign direct investment (FDI) survey report, released by the National Bank for the fiscal year 078/79, delves into the state of FDI in Nepal.

Key findings from the survey include:

The capacity utilization of manufacturing firms with foreign investment stands at 71.1 percent.
Foreign direct investment has originated from 57 countries across various regions in Nepal.
The average rate of profit among foreign-invested industries is approximately 14.3 percent.

By the end of fiscal year 078/79 BS, the total foreign direct investment in Nepal had increased by 16 percent, reaching NPR 2.64 trillion. This foreign investment is divided into paid-up capital (53.7%), reserves (31.7%), and loans (14.6%). As of mid-June 2079, Nepal boasts 57 active foreign direct investments.

Notably, the highest foreign direct investment comes from India, amounting to NPR 88.59 billion, followed by China with NPR 33.45 billion, Ireland with NPR 20.9 billion, Singapore with NPR 16.7 billion, and St. Kitts and Nevis with NPR 15.9 billion. The industrial sector captures the majority of foreign investment at 62.6 percent, while the service sector accounts for 37.3 percent.

Within the industrial sector, foreign investment is distributed as follows: 32.8 percent in the hydropower sector and 29.5 percent in manufacturing. Additionally, the service sector sees 25.6 percent of total foreign direct investment allocated to banks, financial institutions, and insurance companies.

In a notable shift, the survey revealed that, for fiscal year 078/79, foreign investment inflows exceeded outflows in dividends. Companies with foreign investments withdrew NPR 15.675 billion for dividends, while receiving NPR 18.563 billion. Although commitments of foreign investment reached NPR 54.089 billion, only 34.3 percent of that amount has materialized as foreign direct investment.

Comparing previous fiscal years, the survey showed that in 077/78, dividends distributed amounted to NPR 26.076 billion, and in 076/77, it stood at NPR 12.090 billion. The manufacturing industry dominated dividend withdrawals for the surveyed fiscal year, with NPR 7.315 billion, followed by the information technology sector with NPR 5.028 billion, and the electronics sector with NPR 1.067 billion.

This comprehensive survey underscores that foreign investment in Nepal has come from 57 countries, totaling NPR 2.64 trillion to date. Foreign direct investment is primarily concentrated in the industrial sector (62%) and the service sector (37%).

Historically, Nepal has experienced more dividends flowing out of the country than foreign direct investment coming in. Experts suggest that when considering the returned foreign investment and the dividends annually sent abroad, the net foreign currency outflow can be substantial. This trend is attributed to dividends being distributed from the cumulative foreign investment pool, while FDI recorded is only for the current year.

In the previous fiscal year, foreign investment witnessed a significant decline each month, with a year-on-year decrease of approximately 68 percent, reaching NPR 5.96 billion. The net foreign direct investment for the year stood at NPR 18.563 billion, while the first month of the current fiscal year reported positive foreign investment of NPR 2.65 billion, compared to negative net foreign direct investment of NPR 1.4 billion in the same period the previous year.

The publication of this report follows an annual on-site survey aimed at collecting essential data related to foreign direct investment and facilitating policy formulation based on sectoral conditions and investment trends. For the fiscal year 078/79, the report was compiled using data gathered from a sample of 231 companies operating under direct foreign investment in Nepal.