KATHMANDU: Nepal has experienced a significant shortfall in realizing its foreign direct investment (FDI) commitments, with only 14.99 percent of the promised funds materializing between mid-July 2023 and mid-May 2024. Data from the Department of Industry (DoI) and Nepal Rastra Bank (NRB) indicate that the country received less than 15 percent of the committed FDI during this period.
FDI Commitments and Realizations
During this fiscal year, the DoI recorded FDI commitments totaling Rs 54.86 billion. However, NRB data shows that only Rs 8.16 billion of FDI was actually received. In contrast, NRB reports that while Rs 8.24 billion in foreign investment entered the country, investors withdrew Rs 73.9 million. The NRB’s monthly report highlights that the FDI received during this period is 75.6 percent higher than the corresponding 11 months of the previous fiscal year.
Monthly FDI Trends
In mid-May alone, Nepal received FDI commitments amounting to Rs 11.294 billion. The highest commitment recorded was Rs 13.44 billion in mid-April, whereas the lowest was Rs 345 million in mid-January. The data underscores significant fluctuations in monthly FDI commitments and realizations.
Impact of the Third Investment Summit
Following the third investment summit in April, the DoI implemented a system for foreign investment approval through an automatic route. This system allows both domestic and foreign investments in industries with total capital up to Rs 500 million to proceed without any bureaucratic hassles via an online system. There is no minimum investment limit for information technology-based industries. In mid-May, Rs 8.279 billion in commitments were received through this automatic route. The DoI noted an increase in foreign investment commitments since the introduction of this system.
Economic and Policy Analysis
Despite the rise in FDI commitments following the investment summit, actual FDI inflows remain low. Economist Keshav Acharya commented that although the investment summit initially boosted confidence among traders and businessmen, this confidence has since waned. NRB’s data reveals that the highest FDI inflow was Rs 2.65 billion in mid-July, while the lowest was Rs 271 million in mid-October. In mid-May, the country received FDI of Rs 1.18 billion.
Disparity Between Commitments and Realizations
The significant disparity between foreign investment commitments and actual inflows is a cause for concern. Stakeholders point out that there is no policy requiring all committed foreign investments to be realized within the same period, contributing to the gap between commitments and realizations.
The current scenario underscores the need for effective policies and strategies to bridge the gap between FDI commitments and actual inflows, ensuring that the potential benefits of foreign investments are fully realized.