US points to corruption and political uncertainty as major obstacles to foreign investment in Nepal

Acknowledging that Nepal has ample investment opportunities, the 2023 Investment Climate Statements on Nepal released by the US Department of State mention several flaws plaguing investment climate.

NL Today

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Kathmandu: In its 2023 Investment Climate Statements on Nepal, the US Department of State has said that several factors pose obstacles in foreign investment in Nepal. While stating that Nepal’s location between India and China presents opportunities for foreign investors, and that Nepal’s natural resources have significant commercial potential, the State Department report says that significant barriers to investment still remain.

In the report, the State Department has described parliamentary ratification of MCC’s Nepal Compact in February last year as Nepal government “honoring its international commitments.”

“Nepal offers opportunities for investors willing to accept the inherent risks and unpredictability of doing business in the country and who possess the resilience to invest with a long-term mindset,” says the report. Attributing to the Nepali business community, the report has outlined the following factors as the barriers to foreign investment.

First, among others, are corruption, laws limiting the operations of foreign banks, lingering challenges in the repatriation of profits, controlled currency exchange facilities, prohibition of FDI in certain sectors as well as a minimum foreign investment threshold of NPR 20 million (USD154,000), and the government’s monopoly over certain sectors of the economy (such as electricity transmission and petroleum distribution).

Political uncertainty is presented as a continuing challenge for foreign (as well as domestic) investors. “Nepal’s ruling parties have spent much of their energy over the last years on internal political power struggles instead of governance,” says the report. “Political instability often engenders policy stagnation and uncertainty.”

Lack of understanding of international business standards and practices among the political and bureaucratic class, and a legal and regulatory regime that is not quite aligned with international practices also impede, hinder, and frustrate foreign investors, the State Department has said.

“Immigration laws and visa policies for foreign workers are cumbersome.  Inefficient government bureaucratic processes, a high rate of turnover among civil servants, and corruption exacerbate the difficulties for foreigners seeking to work in Nepal,” the report further says.

According to the report, Nepal’s mountainous terrain, land-locked geography, and poor transportation infrastructure increase costs for raw materials and exports of finished goods.

The report mentions that trade unions create business risks.  Besides, the potential use of intimidation, extortion, and violence–including the use of improvised explosive devices–by insurgent groups targeting domestic political leaders, government entities, and businesses remains a source of potential instability, according to the report.