prospects of foreign direct investment in nepal kathmandu

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Prospects of foreign direct investment in nepal kathmandu non traded investment

Prospects of foreign direct investment in nepal kathmandu

The filed visits at Kakarvitta-Panitanki and Biratnagar-Jogbani border points too revealed that roads are too narrow on the Indian side and there are no truck yards. Added to these is the fact that trucks carrying export and import cargos have to compete with pedestrians, horse carts, rikshaws and tempos for space on the road, leading to further congestion. That said, there is a move afoot to expand the width of the road on the Nepal side in Birgunj, although this may not prove extremely helpful without commensurate expansion on the Indian side.

Another factor that affects transportation costs in Nepal is the prevalence of cartel among truck operators, who have formed a syndicate and rotation system for the operation of trucks. Due to the market power possessed by such syndicates, they are able to charge near-monopoly fares for the transportation of both import and export cargoes. What is surprising is the fact that despite their actions being illegal as per the provisions of the two Acts Consumer Protection Act and Competition Promotion and Market Protection Act as well as denounced by the Supreme Court, the government has failed to bring them to book.

This is not only because of the presence of weak government ensuing lack of political will, but also because of the physical threat exerted by transport entrepreneurs and their goons to those who try to disobey the system. Human resources There are several levels at which the issue of human resource constraints should be looked at. First, Nepal does not have enough educated human resources endowed with skills required for being productively employed in manufacturing and services sectors.

Although there has been some improvement in the general level of literacy as well as education in the country due to higher levels of investment made in the education sector, Nepal has a long way to go before achieving the quantitative as well as qualitative targets on education.

This is vindicated by the fact that Nepal has the highest incidence of brain drain in South Asia, followed by Bangladesh, as revealed by the Global Competitiveness Report. It also states that most firms rely on internal funds to finance the bulk of their investments and their working capital needs. While there is little problem in terms of access to finance in particular obtaining credit from banks for relatively large companies and companies of foreign origin, according to a survey of small and medium enterprises conducted in , it is highly restricted in the case of micro, small and medium enterprises.

First, foreign investors—particularly multinational corporations—are generally considered cash rich and having deep pockets. The whole idea of investing in another country is to utilize the excess funds they have to access foreign markets or exploit other comparative advantages of the host country. Second, as noted above, banks and financial institutions in Nepal are generally more inclined to offer loans to foreign investors at cheaper rates as compared to local entrepreneurs.

This is admittedly due to risk perception, as Nepalese bankers believe that foreign investors are less likely to default due to their generally well-established reputation and credibility in the national as well as international markets. However, there could be occasions when foreign investors would like to make use of the local financial market for financing their projects as well as meet their working capital requirements.

In such a situation, the Nepalese market is not considered attractive for those investors because the capital market in the country is relatively under-developed, and when it comes to obtaining large amount of loan, even banks and financial institutions are constrained due to the single borrower limit imposed by the Central Bank of the country.

This amount is not at all enough for large infrastructure projects such as hydropower for which cost of generating one kilowatt of power on average is NRs. Technological resources As for the issue of technology, based on various indicators prepared by international organizations, such as the Global Competitiveness Report at the macro level, or the IFC Enterprise Survey at the micro-level, Nepal ranks the lowest in the region.

For the macro level analysis, we take two indicators included in the Global Competitiveness Report. Table 3 provides a comparative picture of these indicators for South Asian countries. Note The table shows that two developing countries of the region, namely India and Sri Lanka, are well placed in the technological frontiers because they have better indicators than many other developing countries outside the region not shown here.

However, two LDCs in the region—Bangladesh and Nepal—lag far behind other countries, but Nepal is the worst performer in the region along both the indicators presented in the table. In terms of innovation, Nepal ranks 11th from the bottom, although it is marginally better placed in terms of technological readiness on which it ranks 15th from the bottom.

Similarly, at the micro-level, based on the data compiled by IFC, Adhikari b provides four indicators of technological sophistication for South Asian countries and compares them with global as well as East-Asia and the Pacific averages87 Table 4. While the table paints a bleak picture for South Asian countries in general, it shows that Nepal is a laggard in all the categories but one relating to the percentage of firms using e-mail to interact with client suppliers.

Although it does not perform well on the indicator relating to firms having their own website, its figure is slightly better than Bangladesh and Pakistan. Although FDI is used as a means to transfer technology, this too has not been encouraging in the context of South Asia in general, and Nepal in particular. For example, as provided for in the Global Competitiveness Report , Nepal and Pakistan, with a score of 3.

However, these were only commitments and whether or not they have been realized is not clear because the DOI does not have any mechanism in place to monitor whether the commitments made by foreign investors were actually materialized or not. One such fruit is the establishment of special economic zones SEZs that will help alleviate the constraints relating to power shortage, conditions of other infrastructure such as road infrastructure, militancy of trade unions, and restricted access to credit.

However, constraints such as absence of requisite human capital and technology, which are equally necessary to attract foreign investment in Nepal may not be resolved merely through the establishment of these zones. While separate incentive mechanism should be put in place to overcome these latter constraints, SEZs can become powerful new route to enhancing productivity as well as competitiveness of export-oriented manufaturing enterprises, where foreign investors tend to be attracted.

First, mean wages of workers in SEZs or export processing zones EPZs globally are higher than their counterparts working in industries catering mainly to the domestic market. Similar to wages, reports of benefits generally show that EPZs are more likely to provide benefits, such as health care and social security, than other sectors of the economy. It is perfectly logical, within the ambit of the SEZ, for workers and their employers to enter into a compact whereby workers would be provided with decent wages, benefits as well as social security measures in return for their contribution to enhancing productivity of the factory and refraining from resorting to harsh measures such as strikes to make their greivances redressed, should they occur.

Conclusion and recommendations The above analysis shows that despite the growing salience of FDI, not only for traditional business- related activities but also for financing development, LDCs in general have not been able to tap this opportunity.

South Asia as a whole has been receiving reasonably good amount of FDI, although the total FDI received by the region represents a meager 2. Even within this, 80 percent of FDI went to India, leaving other seven countries in the region with a share of remaining 20 percent. It is disheartening to note that despite a recent growth in FDI achieved by Nepal, the country still receives the lowest amount of FDI in the region.

Besides, due to favourable market access opportunities it has received, particularly in the European and Indian markets, market-seeking investors should find it worthwhile to invest in Nepal. Resource-seeking investors can invest in Nepal to tap the immense hydropower potentials. Besides, those foreign investors, who are now mature enough and can take long-term risk, could make investment in other infrastructure projects such as road, rail and airport construction. On the flip side, however, Nepal does not seem to offer a hospitable investment climate for foreign investors.

Although there are several reasons that could deter investors from making long term investment in Nepal, three problems stand out. First, the political instability and resultant policy and legal uncertainty means foreign investors would think twice before investing in Nepal. Third, militancy of trade unions, which have become emboldened particularly in the aftermath of the declaration of Nepal as a republic, has created havoc for the overall business climate of the country.

The SEZs should, at a bare minimum, provide required infrastructure facilities and strictly implement flexible labour laws that allow for adherence to strict disciplines, including linking of wages with productivity, imposing no-work no-pay system, and imposing ban on strikes.

A market-based mechanism should be fixed for the adjustment of fuel prices. Contradictory provisions in various legislation should be streamlined and ambiguities corrected so as to provide predictability to investors. A system should be devised such that facilities provided by laws are automatically granted to investors. The author is grateful to Chandan Sapkota for his research assistance, James Mackey and Posh Raj Pandey for their comments on the Case Study, and Puspa Sharma for his comments and suggestions on this version of the paper.

The author is fully responsible for all the remaining errors. New York and Geneva: United Nations. Kathmandu: Department of Industry, Government of Nepal. The indices are provided upto two decimal points for the sake of accuracy whereas the shares of various sectors in FDI value and employment have been rounded up. Interview with Dr. Navin Dahal 24 June , Kathmandu. Maria Ane 6 July , Kathmandu. Paper presented at the 31st National Management Convention, 10 February Kathmandu: Management Association of Nepal.

Washington, D. Kathmandu: Institute of Foreign Affairs. Dhruba Rajbamshi 28 June , Kathmandu. Dhruba Rajbamshi 28 June , Kathmand and Mr. Kehab Prasad Acharya 30 June , Kathmandu. Qiu, Larry D. Purushottam Ojha 23 June , Kathmandu ; Mr. Navin Dahal 24 July , Kathmandu ; Mr. Dhruba Rajbamshi 28 June , Kathmandu ; Mr. Export Diversification Strategy for Nepal. Export Potential Assessment in Nepal. Geneva: International Trade Centre.

Trade Policy Nepal: Foreign Investment Opportunities. Nepal Trade Integration Strategy. Manila: Asian Development Bank. Kathmandu: Central 29 Bureau of Statistics. Paper submitted to Commonwealth Secretariat, London. Geneva: World Economic Forum. A study on Nepal-India Trade. Both—the bilateral trade agreement with China, and the market access it has provided as a part of the commitment it made at the Hong-Kong Ministerial Conference of the WTO—have not been terribly helpful for Nepal to tap the Chinese market.

Biswambher Pyakuryal 1 July , Kathmandu. Yackee, Jason Webb. Some 46 Hints from Alternative Evidence. Nepal Enterprise Survey. Nepal Economic Outlook Kathmandu: Institute for Integrated Development Studies.

See The Himalayan Times. Sometimes they are given Government Bond instead of cash, which may be of no value to the foreign investors. Kathmandu: Economic Policy Network. He further mentioned that there were complaints from investors that their visas had not been renewed despite them having fulfilled all the formalities, thereby sending wrong signals to foreign investors. PhD Thesis. Coventry: Warwick University.

Global Competitiveness Report. World Bank. Rajkarnikar, Pushpa Raj. Nepal Business Climate Survey: Report. Baluwatar: Nepal Rastra Bank. Technological capacity and technology transfer issues in South Asia. Geneva: International Labour Organization. See section 8. Industrial Policy Kathmandu: Ministry of Industry, 91 Government of Nepal. Related Papers. By Dhruba Gautam.

Regional economic integration: Challenges for South Asia during turbulent times. By Paras Kharel. By md alamgir. By Akash Shrestha. Although agriculture, hydropower and tourism are the areas with the most potential for FDI, other opportunities exist as well. A variety of manufacturing activities already have some foreign investment in Nepal, with the ready-made-garments industry being the most prominent. There is also considerable interest on the part of both the Government and certain sections of the private sector in developing information-technology-based services for export and in attracting FDI to help the country do so The fact that English is the medium of higher education and is widely used in business and the professions is a strong plus in this context.

FDI flows to Nepal have historically been very low. In the s, there was significant improvement. The trade treaty with India signed in and renewed in undoubtedly helped, as did the policy liberalization of The decline probably reflects the uncertainty caused by frequent changes of Government and the insecurity created by the Maoist insurgency. It also did not help to be a landlocked country in a slow-growth region.

FDI is expected to grow sharply since the insurgency problem has been solved. Onemight say that it was only some 50 years ago that Nepal, a country with a long history and great cultural depth, really entered the modern world. It was in that the telephone exchange in Kathmandu, the capital, first handled as many as lines.

There has been much development since then, especially over the past decade. Speeding up economic growth and bringing a wider range of the population within its ambit is clearly the top priority for the Government. FDI could play a crucial role here by supplying capital and know-how and enhancing employment prospects for Nepali workers.

It is worth noting in this context that the main areas in which the country is trying to attract investment could all make a substantial and positive difference to the livelihoods of people in the remoter regions of Nepal who have benefited the least from development focused on the Kathmandu valley, namely agriculture, hydropower and tourism. In , the growth rate was 4. This was further exacerbated by the events of 11 September in the United States and the heightened Maoist insurgency in Nepal.

The Government has taken a number of initiatives to reduce its intervention in the economy and to encourage exports. Trade liberalization, foreign exchange and banking-sector deregulation, and privatization have been the major planks of economic liberalization. Convertibility on the capital account is under consideration. As a result of these policies, Nepal's foreign trade is growing significantly. In November , of the approved projects were operational, 49 were under construction and were approved but not operational.

The major area of FDI has been manufacturing, followed by services and, in particular, tourism More specifically, FDI is concentrated in manufacturing products for export to India e. This is followed by hotels. More recently there has been significant FDI in hydropower, taking advantage of the further policy liberalization in this sector.

The past decade was a period of rapid expansion in road and telecommunication facilities in Nepal. In hydropower generation, Nepal experienced rapid expansion towards the end of the last century, which has continued since. According to one estimate, some manufacturing establishments have a captive generation capacity of about 11,, kwh approximately 1.

The country also exchanges power with India, importing it into towns bordering India and exporting in bulk to India from some large plants. Though the period of frequent power cuts is over, now that the MW Kali Gandaki project has been completed and has started supplying electricity to the central power grid, Nepal still does not have sufficient capacity to meet its future domestic demand.

A number of additional projects have been commissioned since by offering incentives for private sector investment. Labour, rental and electricity costs in Nepal are relatively low. Costs are revised time to time. Rental costs can vary from one locality to another within the same town. Labour costs are very low in Nepal. This is a significant advantage for investors even when the low productivity is taken into account, for Nepali workers are trainable.

Wages, once negotiated, generally need not be changed for two years. Since this is quite low, given the cost of living in urban areas, companies usually pay more than this amount.

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INVESTMENT ANALYSIS EXAM 2

Skip to content Nepal Country Commercial Guide. Open Articles. Equipment imported for hydropower projects is assessed a special lower customs duty of only 1 percent. This is a best prospect industry sector for this country. Includes a market overview and trade data.

Pick a Board. Total Local Production. Total Exports. Total Imports. Imports from the US. Investors will also want to consider the potential for more specialized tourism, for example health tourism, adventure tourism, and convention and sports tourism. Nepal's neutral status in the region might offer a real advantage here.

Although agriculture, hydropower and tourism are the areas with the most potential for FDI, other opportunities exist as well. A variety of manufacturing activities already have some foreign investment in Nepal, with the ready-made-garments industry being the most prominent. There is also considerable interest on the part of both the Government and certain sections of the private sector in developing information-technology-based services for export and in attracting FDI to help the country do so The fact that English is the medium of higher education and is widely used in business and the professions is a strong plus in this context.

FDI flows to Nepal have historically been very low. In the s, there was significant improvement. The trade treaty with India signed in and renewed in undoubtedly helped, as did the policy liberalization of The decline probably reflects the uncertainty caused by frequent changes of Government and the insecurity created by the Maoist insurgency.

It also did not help to be a landlocked country in a slow-growth region. FDI is expected to grow sharply since the insurgency problem has been solved. Onemight say that it was only some 50 years ago that Nepal, a country with a long history and great cultural depth, really entered the modern world.

It was in that the telephone exchange in Kathmandu, the capital, first handled as many as lines. There has been much development since then, especially over the past decade. Speeding up economic growth and bringing a wider range of the population within its ambit is clearly the top priority for the Government.

FDI could play a crucial role here by supplying capital and know-how and enhancing employment prospects for Nepali workers. It is worth noting in this context that the main areas in which the country is trying to attract investment could all make a substantial and positive difference to the livelihoods of people in the remoter regions of Nepal who have benefited the least from development focused on the Kathmandu valley, namely agriculture, hydropower and tourism.

In , the growth rate was 4. This was further exacerbated by the events of 11 September in the United States and the heightened Maoist insurgency in Nepal. The Government has taken a number of initiatives to reduce its intervention in the economy and to encourage exports. Trade liberalization, foreign exchange and banking-sector deregulation, and privatization have been the major planks of economic liberalization.

Convertibility on the capital account is under consideration. As a result of these policies, Nepal's foreign trade is growing significantly. In November , of the approved projects were operational, 49 were under construction and were approved but not operational. The major area of FDI has been manufacturing, followed by services and, in particular, tourism More specifically, FDI is concentrated in manufacturing products for export to India e.

This is followed by hotels. More recently there has been significant FDI in hydropower, taking advantage of the further policy liberalization in this sector. The past decade was a period of rapid expansion in road and telecommunication facilities in Nepal. In hydropower generation, Nepal experienced rapid expansion towards the end of the last century, which has continued since. According to one estimate, some manufacturing establishments have a captive generation capacity of about 11,, kwh approximately 1.

The country also exchanges power with India, importing it into towns bordering India and exporting in bulk to India from some large plants. Though the period of frequent power cuts is over, now that the MW Kali Gandaki project has been completed and has started supplying electricity to the central power grid, Nepal still does not have sufficient capacity to meet its future domestic demand.

A number of additional projects have been commissioned since by offering incentives for private sector investment. Labour, rental and electricity costs in Nepal are relatively low. Costs are revised time to time. Rental costs can vary from one locality to another within the same town. Labour costs are very low in Nepal. This is a significant advantage for investors even when the low productivity is taken into account, for Nepali workers are trainable.

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