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Country Highlights

Nepal: Foreign Investment – Opportunities and Challenges

Foreign direct investment (FDI) is of utmost importance in stimulating economic expansion in underdeveloped nations such as Nepal. The country has unique advantages, such as its location, natural resources, and skilled workforce, making it an attractive destination for foreign investors. However, for FDI to be truly beneficial, a conducive regulatory environment, political stability, and effective governance are essential to attract and retain foreign investors. The Nepalese government has been working on a new tourism policy to revive the sector, and the country’s infrastructure is improving. The government has also been working on improving the business environment, with the World Bank ranking Nepal 116th out of 190 countries in its Ease of Doing Business report. The country has also been working on improving its energy sector, with the government planning to increase its hydropower capacity to 10,000 MW by 2025. Despite these efforts, Nepal still faces challenges in attracting FDI.

One of the main challenges for Nepal is the lack of a conducive regulatory environment. The government has passed a new Foreign Investment & Technology Transfer Act (FITTA) in May 2019, but it also increased the minimum FDI threshold ten times to nearly $500,000, which has prevented many small- and medium-sized foreign investors from entering the Nepal market. New rules, regulations, and directives can be inconsistent with the larger, stated strategic goals of the country. Foreign investors must deal with a non-transparent legal system in which basic legal procedures are often not followed. The division of power and responsibility across the three tiers of government has created additional administrative and bureaucratic hurdles and delays likely to continue in the future. Corruption is also a significant obstacle to maintaining and expanding FDI in Nepal, with frequent allegations of corruption by government officials in the distribution of procurement of goods and services, and awards of contracts.

Despite these challenges, there are still opportunities for foreign investment in Nepal. The country has a growing middle class, a young and educated workforce, and a strategic location between India and China. The government has been working on improving the business environment, and the country’s infrastructure is improving. The government has also been working on improving its energy sector, with the government planning to increase its hydropower capacity to 10,000 MW by 2025. The country’s economy is expected to grow at a rate of 6.5% in the fiscal year 2021/22, and the government is working on a new economic policy to boost growth. Nepal’s unique advantages, combined with the government’s efforts to improve the business environment and infrastructure, make it an attractive destination for foreign investment. Nepal has unique advantages that make it an attractive destination for foreign investment. However, the country still faces challenges in attracting FDI, such as a lack of a conducive regulatory environment, corruption, and bureaucratic hurdles. The government has been working on improving the business environment and infrastructure, and the country’s economy is expected to grow. The government’s efforts, combined with Nepal’s unique advantages, make it an attractive destination for foreign investment.

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