Surge in foreign direct investment in Nepal: Rs 61.78 billion pledged in FY 2023-24

KATHMANDU: Nepal witnessed a significant surge in foreign direct investment (FDI) commitments in the fiscal year 2023/24, with a total of 402 foreign firms pledging to invest Rs 61.78 billion. This notable increase reflects growing confidence in Nepal’s economic potential and investment climate.

FDI Commitments Breakdown

The Department of Industry’s (DoI) annual progress report reveals that foreign firms constituted 92.6 percent of the total firms registered in the last fiscal year. These firms have proposed to create employment opportunities for 19,565 individuals, showcasing the potential for substantial job creation alongside financial investment.

Historical Context of FDI in Nepal

The pledged FDI amount for FY 2023/24 stands as the second largest in Nepal’s history. The highest FDI commitment was recorded in 2014/15, amounting to Rs 67.45 billion, following the devastating earthquakes that hit the country. Subsequently, the FDI commitments dropped significantly, hitting Rs 15.25 billion in 2015/16 and Rs 15.20 billion in 2016/17.

However, the commitments rebounded to Rs 55.76 billion in 2017/18 during Nepal’s first investment summit. The second investment summit in 2019/20 saw pledges amounting to Rs 37.80 billion. In the post-Covid period, FY 2021/22, Nepal received FDI commitments of Rs 54.15 billion.

Policy Changes and Their Impact

To attract more foreign investors, particularly in small and medium-sized enterprises, the government lowered the minimum threshold for FDI to Rs 20 million from Rs 50 million in the annual budget for FY 2022/23. Despite this policy change, FDI commitments dropped to Rs 30.69 billion in FY 2022/23 due to political instability and resulting policy uncertainties, as noted by analysts.

Realization of FDI Commitments

According to the recent report “Foreign Investment in Nepal-2024,” published by the DoI, Nepal has received foreign investment commitments totaling Rs 425.72 billion over the past 13 years. However, only Rs 148.87 billion has been realized, which is just one-third of the committed amount. This discrepancy highlights the challenges in translating investment commitments into actualized investments.

Increase in Firm Registrations

In the last fiscal year, the government registered a total of 434 firms, marking a 34.78 percent increase compared to the previous fiscal year. These registrations included both domestic and foreign firms. Out of the proposed firms, 333 were categorized as small industries, 49 as large industries, and 52 as medium industries. Collectively, these firms have earmarked job opportunities for 25,551 individuals.

Industrial Sector Developments

Under the Industrial Enterprises Act 2020, businesses with fixed capital up to Rs 150 million are classified as small firms, those with capital investment between Rs 150-500 million are medium firms, and those with capital investment exceeding Rs 500 million are categorized as large firms.

In the last fiscal year, 6,051 products registered their trademark, 11 new designs, and two goods took their patent marks. Additionally, 113 cases were filed against trademark violations, indicating active regulatory enforcement in the industrial sector.

Economic Outlook

The surge in FDI pledges and firm registrations underscores a positive outlook for Nepal’s economic growth. With continued policy support and efforts to stabilize the political climate, Nepal aims to further attract and realize foreign investments, driving sustainable economic development.