Nepal, a Himalayan country between India and China, envisages upgrading from a Least Developing country to a Developing country by 2022 and to Middle-Income country by 2030. As it now embarks on a path towards economic prosperity, it aims to achieve a GDP growth rate of 8% in the fiscal year 2018/19, with policies and programs focused on employment by entrepreneurship, doubling agricultural production in the next five years, generating energy by declaring 2019-2029 as the Energy Decade, developing physical and social infrastructure, developing tourism, and attracting FDI in sectors that promote export and value addition. At present, Nepal offers significant scope for investment across sectors. Numerous rules and acts have been amended, institutional mechanisms have been established, procedures are being simplified, and the government is keen to offer solutions to increase foreign investment in Nepal. The slogan is “Prosperous Nepal Happy Nepali”.
Nepal’s forex to GDP ratio vs. South Asian neighbours
The economy that suffered from the devastating earthquake in 2015 followed by supply disruptions at border points is now recovering. The GDP is estimated to have grown at nearly 6% in the fiscal year 2017/18. Per capita is estimated at US$ 1004, poverty is about 21%, and average inflation has been 6%. Based on the imports of the current 8 months, the forex reserve (which is approximately ~40% of Nepal’s GDP vs. ~18% in India, ~8% each in Sri Lanka and Bangladesh and ~6% in Pakistan) is sufficient to cover the imports of goods and services for about an 8 months period. With a stable government in place, continued supply of power for industries and services, regular supply of goods and services and an enabling environment for the private sector, a positive environment has been created to lead the country towards prosperity. However, the lag in the percentage contribution of industry to GDP, trade deficits due to high imports (especially non-asset creating imports), and negative BOP are issues that need to be addressed. Administratively, the bureaucracy needs to be strengthened.
Image Courtesy: Sourajit Aiyer
Improvement in Global Rankings
Nepal has improved its ranking in Global Competitive Index to 88 in 2018 and 122nd in Corruption Perception Index (CPI) 2017. It is believed that the three-tier government structure (federal, provincial and local) will decentralize decision powers and economic resources to the last-mile to help speed up the development process and improve the investment climate in Nepal. In the World Bank’s Ease of Doing Business ranking, Nepal’s ranking remained unchanged between 2014 and 2018 despite the political instability, earthquake and supply-side disruptions in 2015. In comparison, its South Asian neighbours like Sri Lanka, Pakistan and Bangladesh saw their ranking dip by 26, 37 and 47 places respectively in the same period, while India’s improved by 34 places.
Image Courtesy: Sourajit Aiyer
Sectoral Opportunities for Investment Abound
There is huge potential for investment in sectors like hydropower, agriculture, tourism, education, financial sector, physical and social infrastructure, telecom, etc. Nepal is rich in water resources. Out of total 83000 MW theoretical capacity of hydropower, 43000 MW is treated as economically feasible. Nepal has been able to produce only about 1045 MW currently, and several large hydro projects are in the process of establishment with support from both India and China. Bangladesh has also shown interest in investing hydropower in Nepal to meet their energy hunger of 20000 MW by 2021 and 34000 MW by 2030.
Agriculture is the main livelihood for two-third of Nepalese population and its contribution to GDP is around 28 percent. The government, through the budget for the fiscal year 2018/19, aims to double agricultural production in the next five years with strategies such as modernization, diversification, commercialization and marketing of the agricultural sector, introducing technology, promoting agro industries, run the Prime Minister’s Agricultural Modernization Project, etc. There exists tremendous scope for foreign companies to bring in new technology and develop the agro-business in Nepal.
Nepal, the home of Mount Everest- the highest peak in the world, possesses a variety of lakes, waterfalls, gorges, wildlife and cultures to attract tourists to Nepal. Lumbini, the birth place of Lord Buddha and Janakpur where Queen Sita (of the Ramayana epic) belongs to, holistic temples of Pashupatinath and Muktinath (where Prime Minister of India Narendra Modi recently visited); Humla district the gateway for pilgrims to Mansarovar in China’s Tibet; all serve as a great destinations for pilgrimages for Hindus, Buddhists and others. Nepal aims to welcome two million tourists in the next two years by developing 100 new tourist destinations, expediting airport constructions, initiating promotional activities and celebrating 2020 as the “Visit Nepal Year” to support the tourism industry in Nepal.
A significant number of Nepalese students go abroad for higher education. Creating world class educational cities, including for vocational education, is a priority for the government and calls for investment in Nepal. The government aims at making all payments through banking channels creating opportunities in the ICT and digitization of banking services. Development of such physical and social infrastructure is a priority for FDI attraction for the Nepalese government.
Image Courtesy: Quora/Nepal Investment Forum
A Boost to Private Sector Engagement
The government acknowledges the need for private sector participation in achieving economic prosperity. Nepal Infrastructure Bank Limited, under Public Private Partnership model (PPP), will be in operation in next six months for financing large infra projects and serve as a nodal bank for generating and managing domestic and international funds for investment in the infrastructure space in Nepal. Likewise, Emerging Nepal Limited was established as a Public Private Partnership (PPP) company to foster and help grow key infrastructural frameworks and offer solutions in the sectors of national priorities and programs in Nepal. Emerging Nepal offers consulting services to stakeholders and acts as a catalyst in the infrastructure space ensuring highest standard of transparency, accountability along with the efficiency of private sector management. These institutions are great examples of the PPP model in Nepal and they look forward for international collaboration in projects of mutual interest.
Image Courtesy: EKantipur/Share Sansar
In conclusion, Nepal offers a great opportunity for investors right now. A number of investment opportunities are open, as the country moves towards its strategy for stability and prosperity. In addition, Nepal has a young population, hardworking and result-oriented. Numerous rules have been amended, institutional mechanisms have been established, process and procedures are being simplified, and the government is keen to offer solutions to increase foreign investment in Nepal.