The Benefits And Challenges of Foreign Direct Investment In Nepal


Foreign direct investment in Nepal has always been playing a major role since its introduction in the year 1992.  It has been a significant source of finance in developing the economy and Nepal has worked hard to boost FDI in order to encourage indigenous industry. Agro-forestry, information technology, service, energy, and tourism are FDI-approved industries for investment here in Nepal. India is the highest Foreign Direct Investor in terms of paid capital.

With a huge market potential, the Nepalese industry is an attractive destination for investors to invest due to its unexploited market. If we can reap the benefits from FDI, Nepal can develop in a smooth and sustainable way. Some benefits can be listed below:

  • ·         Boost the economic growth and development of a county
  • ·         Make international trade simpler and easier
  • ·         Creation of job opportunities
  • ·         Human Resource Development
  • ·         Increase in exports
  • ·         Improved capital flow
  • ·         Technology advancement

In the current status, Nepal's FDI fell by 32.8 USD in January of 2023. Unfortunately, even with the government’s tactics to lure foreign investors in the years 2017 and 2019, the FDI has continued to remain low. The main issue is due to Nepal being a landlocked country with low-level labor productivity. Other shackle includes limited currency exchange facilities, the government’s monopoly over specific sectors such as electricity transmission, and petroleum distribution, and mainly political instability.

How to resolve the current FDI status?

Foreign Direct can be increased by various means including:

·         Streamlining of regulations:

The regulatory framework can be streamlined by the government to make it simpler for foreign investors to conduct business in the nation. This entails cutting administrative red tape, eliminating pointless bureaucratic obstacles, and establishing an open and clear regulatory framework.

·         Improving infrastructure:

By enhancing logistics and lowering costs, investment in infrastructure including highways, ports, airports, and telephones may increase the country's appeal to international investors.

·         Offering incentives:

Governments may provide financial incentives, such as tax cuts and subsidies, to foreign investors who make investments in certain industries or geographical areas.

·         Developing human capital:

Creating a workforce that is educated and talented can draw in international investors who are seeking a talent pool with the required qualifications.

·         Enhancing political stability:

Foreign investors may feel more secure and more inclined to make investments in a country if the political climate is stable.

·         Promoting entrepreneurship:

Promoting innovation and entrepreneurship can draw in international investors who are eager for fresh concepts and cutting-edge products.

Through positive implementation and continuity of the above-specified strategies, a developing country like Nepal can reach potential foreign investors. Foreign direct investment may be a significant instrument for businesses to broaden their reach, enter new markets, and get access to new resources. To succeed, however, rigorous preparation, attention, and a long-term commitment are required.