Peaceful Transformation in Nepal: Implications for Foreign Investments

In the last couple of years, the Nepalese government has announced its openness for business, foreign one included, and begun to exhibit a more welcoming attitude towards foreign direct investment. In view of Nepal’s enormous potential for rapid development and the progressive transformations it has been undergoing since the beginning of its parliamentary crisis, the country is worth considering as a possible target for lucrative long-term investments.

This article provides an overview of how the current political and economic situation in Nepal affects the financial system in the country. We shall highlight various factors that can facilitate and hinder the country’s future economic development and constructive cooperation with foreign investors. We shall also review the most attractive sectors of the Nepalese economy for direct investments and emphasise the particularly lucrative opportunities provided by the country’s commercial property construction industry.

 

Sociopolitical Changes in Nepal

Before the current parliamentary crisis began a couple of years ago, the country’s FDI level was low, and the official attitude to private enterprise remained quite unfriendly. The Nepalese government tried to maintain strict control over all the financial and business activities, with its strategic policies based on the five-year plan economic principles.

Things seem to have started changing since then. The red tape over the entrepreneurial activity has become less tight. The government has also begun to exhibit a considerably more tolerant attitude towards an active presence of foreign capital in Nepal. Compared with zero FDI in 2004 and the reduction thereof by $7 million in 2006, a $0.5 billion contract was signed with MCC in 2017, and the minimum FDI threshold was raised to $415,000 in 2019.

The government has started openly declaring its keen interest in the mutually profitable cooperation with the foreign enterprise, and the latter reciprocated at once. According to the World Bank’s recent reports, Nepal ranks the third in the South Asia region on the FDI Inflow Index. Likewise, the official policies concerning the domestic enterprise have become more lenient, although, in this regard, the words and the deeds do not always match.

 

Reasons to Invest in Nepal

Several factors account for Nepal’s advantageous political and economic situation, compared with many Asian countries. in the following sections, we shall briefly review the most outstanding reasons for considering the country as a potential target for investment.

 

Geographic Location

Nepal can potentially benefit from its advantageous geographic position between India and China, the two economic dragons in the East. By opening its borders to foreign enterprise, the country becomes an ideal platform for the two largest economies in Asia to meet and cooperate.

In fact, India has already revealed its preferential attitudes towards Nepalese export commodities, mainly due to their favourable ratio of quality to price and the ease of transportation procedures. And China’s current preoccupation with the multi-billion Belt and Road Initiative turns Nepal into an invaluable asset for Beijing.

 

Human Resources

There are about 30 million people in Nepal, and the overall unemployment rate consistently remains above 50%. In other words, the country provides rich human resources not exploited to its full potential. Significantly, it is not the question of the multitudes of blue-collar workers failing to survive on the employment market.

The level of education in Nepal is impressively high, and the country is famous for its excellent doctors and IT specialists. There are plenty of well-qualified and experienced professionals, from medical personnel to construction workers, compelled to seek employment abroad, most commonly in China, India, Australia and the Persian Gulf states.

Given the current progressive trends in the Nepalese socioeconomic policies and the consequent growth and expansion of its professional fields, there will, most probably, be no shortage of adequate labour force, no matter what sector of the country’s economy one chooses for long-term investments.

 

Natural Resources

Moreover, Nepal is rich in natural resources of considerable commercial value, particularly in the hydropower and agricultural sectors. There are several thousand rivers in the country, providing over 40,000 megawatts of water-generated electricity potential. And the country’s ideal geographic and climate conditions make the opportunities in the Nepalese agricultural sector virtually unlimited.

 

Potential Obstacles to Future Development

The most commonly raised concerns are all related to the hybrid regime the Nepalese government seem to sustain. If last year, many people were not sure whether the peaceful transformation in Nepal would remain peaceful, many observers today wonder whether there will be any transformation, after all.

The government has seemingly taken a few steps back and is clearly intent on holding a fairly confident grip on the country’s economy and financial sector. But there are no objective grounds for anxiety concerning its foreign relations, foreign investors included. On the contrary, the Nepalese officials still exhibit a keen interest in mutually beneficial cooperation with the foreign enterprise.

The truth is, the Nepalese government has always been interested in such foreign relations, and it was primarily themselves that their officials were blocking by maintaining a severely tight grip over the market and strictly adhering to the Five-Year Plan. Current trends in the country’s political and economic development indicate that the government might have learnt the lesson.

 

Conclusion

Overall, Nepal seems to provide ample opportunities for potentially lucrative long-term investments and to possess enormous resources for progressive economic development. The hybrid regime as currently practised by the Nepalese government is not easy to tell from the good old Chinese principle of the Golden Mean. And while Kathmandu tries to draw our attention to its hydropower, IT and agricultural industries, the demand for commercial property will probably continue to rise in all these sectors of the Nepalese economy.