"The historical flow of
FDI in Nepal is very insignificant and low compared to some developing
neighboring countries. We need to improve our 'Doing Business' conditions to
attract FDI"
Government of Nepal has recently announced its
achievements for the exemplary increment of Foreign Direct Investment (FDI) in
the country. Ministry of Industry has shown 83 per cent increase in FDI in the
year 2014 relative to 2013. Attraction of FDI shows better ‘doing business’
conditions in the country for industrial, business and service activities. Nice
to hear that FDI in Nepal has increased to such a high amount. Does it indicate
improvement in the investment conditions or is it a government’s camouflage?
Nepal as perceived now is in a fragile state. The manufacturing sector is wrecked with energy problems, lack of skilled human resource and faulty industrial policies. In such conditions it is quite surprising to have such an upsurge in FDI.
As reported, the FDI we got in 2014 was worth Rs. 44.97 billions of which Rs 34.73 billion alone was for hydroelectric projects that accounted for about 77 per cent. Also, it should include Rs. 37 billions as the bilateral investment of India that was promised during the visit of Indian Prime Narendra Modi. If so, this accounts for 84 per cent of FDI.
Also probable is the FDI figure announced by the government is only based on promise such as that from the government of India and not the actually invested amount so it depends on future investment conditions. A recently conducted nationwide survey of the manufacturing industries by the Central Bureau of Statistics, shows almost all investment environment of the country are at the depths of despair.
The survey report published by CBS in November 2014 shows the Global Competitive Index, Competitive Industrial Performance Index and Per-capita Manufacturing Value Added are all at the lowest compared to world value and lowest among the South Asian countries, including Bangladesh and Pakistan. The CBS finding is a recent one and the working environment of the country has not been enriched since then rather it has deteriorated.
The energy crisis of the country has become an irreversible problem of the last two decades having impact on almost all sectors – manufacturing, service and business. Due to this, the foreign investors are highly allured to invest in hydro projects. Now, there is a flood of new hydro projects in the country from small to mega projects like West Seti with the capacity of 750 MW and Upper Karnali 900 MW. Such hydro projects cost a lot. For example, the largest running hydro project of the country which is Kaligandaki A that generates 144 MW used investments of Rs. 50 billion. So the current FDI is sufficient only for a single hydro project.
The amount of FDI obtained or promised to Nepal, however, is very insignificant when compared with the chunk brought by some of our neighboring countries. According to UNCTAD report of 2014, China which is one of the mega FDI country in 2013, dragged FDI worth USD 123,911 million and India brought USD 28,199 million. In the same year, Bangladesh got FDI of USD 1599 million and the Maldives got USD 325 billion when, according to the UNCTAD report, Nepal got USD 75 billion only.
This was quite natural for Nepal, as the flow of FDI mainly depends on ‘ease to work’ conditions of that country. The Global Competitive Index of Nepal in 2013-14 ranked 117th among 148 countries when Bangladesh ranked 110th, Pakistan 133th and India 60th. A country is considered better with lower ranking. World Economic Forum overviewed some major problems for doing better business in countries, according to which at the top are problems of instability in government, corruption, inefficient government bureaucracy, inadequate infrastructure, policy instability and restrictive labour regulations. All of these problems are thriving day-by-day in the country. In such situations how could one expect to have better FDI flow?
In conclusion, the historical flow of FDI in Nepal is very insignificant and low compared to some developing neighboring countries. We need to improve our ‘Doing Business’ conditions to attract FDI. Secondly, although the FDI figure of the current year as shown by the government is high compared to last years, the FDI is confined mostly to projects like hydroelectricity which is highly expensive and needed by Nepal but not very labour intensive by nature.
Such projects have less spillover impact in the overall economy that means the profit is less spread over other industries and businesses as their construction rely on materials of high technology not made in Nepal. They are not even using the cement produced in Nepal.
So we should go to get FDI for more diversified industries, businesses or services. Lastly, the figure as shown by the government is highly dubious under the existing adverse situations. Even so, such camouflaging will not be the first time it has been done by any government.
The current unemployment rate quoted by the government as estimated from the labour survey of CBS shows that in 2011 the unemployment rate of around 2 per cent which strange whichever way it was calculated, when we find every day about 1500 youths are departing from the country for foreign employment. Such statistics are generally produced by the government when they need to hide their weaknesses. The famous quote from British Prime Minister, Winston Churchill “Lies, dammed lies and statistics” had also originated from similar circumstances during World War II
Nepal as perceived now is in a fragile state. The manufacturing sector is wrecked with energy problems, lack of skilled human resource and faulty industrial policies. In such conditions it is quite surprising to have such an upsurge in FDI.
As reported, the FDI we got in 2014 was worth Rs. 44.97 billions of which Rs 34.73 billion alone was for hydroelectric projects that accounted for about 77 per cent. Also, it should include Rs. 37 billions as the bilateral investment of India that was promised during the visit of Indian Prime Narendra Modi. If so, this accounts for 84 per cent of FDI.
Also probable is the FDI figure announced by the government is only based on promise such as that from the government of India and not the actually invested amount so it depends on future investment conditions. A recently conducted nationwide survey of the manufacturing industries by the Central Bureau of Statistics, shows almost all investment environment of the country are at the depths of despair.
The survey report published by CBS in November 2014 shows the Global Competitive Index, Competitive Industrial Performance Index and Per-capita Manufacturing Value Added are all at the lowest compared to world value and lowest among the South Asian countries, including Bangladesh and Pakistan. The CBS finding is a recent one and the working environment of the country has not been enriched since then rather it has deteriorated.
The energy crisis of the country has become an irreversible problem of the last two decades having impact on almost all sectors – manufacturing, service and business. Due to this, the foreign investors are highly allured to invest in hydro projects. Now, there is a flood of new hydro projects in the country from small to mega projects like West Seti with the capacity of 750 MW and Upper Karnali 900 MW. Such hydro projects cost a lot. For example, the largest running hydro project of the country which is Kaligandaki A that generates 144 MW used investments of Rs. 50 billion. So the current FDI is sufficient only for a single hydro project.
The amount of FDI obtained or promised to Nepal, however, is very insignificant when compared with the chunk brought by some of our neighboring countries. According to UNCTAD report of 2014, China which is one of the mega FDI country in 2013, dragged FDI worth USD 123,911 million and India brought USD 28,199 million. In the same year, Bangladesh got FDI of USD 1599 million and the Maldives got USD 325 billion when, according to the UNCTAD report, Nepal got USD 75 billion only.
This was quite natural for Nepal, as the flow of FDI mainly depends on ‘ease to work’ conditions of that country. The Global Competitive Index of Nepal in 2013-14 ranked 117th among 148 countries when Bangladesh ranked 110th, Pakistan 133th and India 60th. A country is considered better with lower ranking. World Economic Forum overviewed some major problems for doing better business in countries, according to which at the top are problems of instability in government, corruption, inefficient government bureaucracy, inadequate infrastructure, policy instability and restrictive labour regulations. All of these problems are thriving day-by-day in the country. In such situations how could one expect to have better FDI flow?
In conclusion, the historical flow of FDI in Nepal is very insignificant and low compared to some developing neighboring countries. We need to improve our ‘Doing Business’ conditions to attract FDI. Secondly, although the FDI figure of the current year as shown by the government is high compared to last years, the FDI is confined mostly to projects like hydroelectricity which is highly expensive and needed by Nepal but not very labour intensive by nature.
Such projects have less spillover impact in the overall economy that means the profit is less spread over other industries and businesses as their construction rely on materials of high technology not made in Nepal. They are not even using the cement produced in Nepal.
So we should go to get FDI for more diversified industries, businesses or services. Lastly, the figure as shown by the government is highly dubious under the existing adverse situations. Even so, such camouflaging will not be the first time it has been done by any government.
The current unemployment rate quoted by the government as estimated from the labour survey of CBS shows that in 2011 the unemployment rate of around 2 per cent which strange whichever way it was calculated, when we find every day about 1500 youths are departing from the country for foreign employment. Such statistics are generally produced by the government when they need to hide their weaknesses. The famous quote from British Prime Minister, Winston Churchill “Lies, dammed lies and statistics” had also originated from similar circumstances during World War II
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