Kathmandu: Five years after hosting the second Nepal Investment Summit (NIS), the government is gearing up to once again extend a global invitation to investors.
On November 26, the government announced its plan to organize the NIS 2024 in April in Kathmandu. In light of this, Pushpa Raj Acharya from the Investment Board Nepal sat down with Baikuntha Aryal, Chief Secretary & Ex-Officio Member of Investment Board Nepal. Aryal, who also serves as the chairperson of the Third Investment Summit Implementation Committee, shared about Nepal’s current investment climate, among other topics.
Below are the edited excerpts:
The fiscal budget 2023-24 has underscored the need to mobilize domestic and foreign investment (capital and technology) by developing an investment-friendly environment considering the sluggish growth of private investment and vowed to initiate reforms to attract private investment. What are the major initiatives of the government to create a conducive investment climate in the country?
The fiscal budget has announced the promotion of private investment, both domestic and Foreign Direct Investment (FDI), through reforms in legal, procedural, and structural (institutional) fronts. Legal reforms fall mainly within the jurisdiction of the Parliament; however, the government has been taking the initiative to submit amended Bills to the Parliament. Apart from laws, the government will make necessary amendments to policies and regulations, as well as procedural reforms. The government is set to convene the Nepal Investment Summit in April 2024, with the objective of attracting and mobilizing domestic and foreign investments. In this regard, the Implementation Committee, under my leadership, has been preparing a comprehensive report listing the required reform agenda and actions for implementation.
Also, prompt service delivery and gaining the confidence of investors (by ensuring returns on their investments) should go hand in hand. There needs to be an efficient platform, mechanism, and promotional activities for sharing information with investors. Investors should have access to all the required information regarding investing in Nepal through a single platform. We should, at the very least, be able to disseminate investment-friendly arrangements to investors. For example, company registration fees have been drastically lowered, exit provisions have been eased, and the One Stop Service (OSS) has been made functional and effective. Along with delegating authority to OSS, the authorized person shall be equally accountable.
We have One Stop Service at the Office of the Investment Board and Department of Industry. Could you briefly explain how these platforms will be made more effective?
We have established different organizations/operators, however, problems have surfaced due to the reluctance of the concerned people to delegate authority with regard to the Department of Industry. If a similar situation occurs at the Office of the Investment Board, Nepal, the OSS will not be able to function unless the concerned ministries and agencies act on this. These are some of the illustrations that legal reforms alone cannot push forward the desired change until we make some interventions at the functional level. Institutional reforms are equally important. We do not have to do big things; we can bring about a big change by tinkering with small things.
The government has already announced it will host the Nepal Investment Summit 2024 in April. What are the priority areas, projects and investors?
Different technical teams in various ministries are working on priority areas. As we are talking about mobilizing private investment, we are also onboarding the private sector to explore potential areas and projects. While talking about potential areas, traditionally, we used to speak about ‘TEA’ – Tourism, Energy and Agriculture. That has been further revised over the period of time as ‘ICETEA’ – Information and Communication Technology, Export-oriented products and services, Tourism, Energy and Agriculture. Some have also been talking about ‘HAT’ – Hydropower, Aviation and Tourism. We will not stick to only the aforementioned areas, for instance, Manufacturing is another priority area. We might invite more franchises and production of intermediary goods, among others. The Technical Committee, chaired by the Secretary of the Ministry of Industry, Commerce and Supplies, has been assigned to develop potential projects to be showcased at the summit. In addition, we might showcase some brownfield projects as well. Moreover, we will invite potential investors from around the world as well as encourage our private sector to invest in both Public-Private Partnership (PPP) and direct investment projects.
What are the plans to make the summit more outcome-oriented?
We are going to make the summit outcome centric by attracting investments in low hanging sectors and projects. We will not just take pledges. We want the commitments to be realized within a desired time frame from capable investors. We will be showcasing credible projects that are screened through proven practices for de risking them during their execution and operation.
Will we just showcase or carry out market sounding of the projects or also call for Expression of Interest?
We are yet to make any decision and we will discuss it in the Steering Committee meeting chaired by the Hon’ble Finance Minister. We will make a decision based on the preparations carried out by the Technical Committee. If we are able to make all necessary preparations to call for the Expression of Interest (EoI), that will be a lot better. I think all the necessary preparations of a few projects will be completed in the near term and we will be able to call for EoI and also Request for Proposal (RfP) for them.
Considering the expanded committed liability of the government and shrinking revenue base, when will the government come up with the concrete categorisation of projects to be executed through sovereign funds, PPPs and direct private investment?
I think that will not take much time and we have to do it. With regard to public expenditure, the government has been trying to avoid the situation of financing recurrent expenditure through borrowing. Borrowing should be mobilized for capital formation only and I have been consistently advocating this since long. Not only in private investment, but we must also have to distinctly outline which source of public expenditure namely, revenue, borrowing, foreign aid, can be mobilized on what. Similarly, we must categorize projects to be executed through sovereign funds, public-private partnership and exclusively from private sector investment. Otherwise, we will miss the opportunity to efficiently use the sovereign funds. PPP has different modalities and options, including blending the resources as well as viability gap funding (VGF).
Specifically, investments for public goods creation should be carried out through sovereign funds because the government’s investment is not always for profit, it could be for social benefits as well. Apart from that the private sector is more profit oriented but we can create public goods from private investment too, however, that requires the government’s strong support to harness the potential. Hydroelectricity development in Nepal is a successful example under PPP modality. The upcoming Investment Summit will be an opportunity to showcase the reform initiatives for PPP and direct investment projects to attract private investment including FDI, where investors can lodge their interests in different sectors.
The Public Private Partnership and Investment Act, 2019 has given authority to the concerned ministries and subnational governments to develop projects under public-private partnership. Why is PPP often ignored by the concerned ministries and subnational governments and what should be done to develop PPP culture?
I would like to reiterate again that the legal framework only is not sufficient to make things workable. Subsequently, it demands functionaries with understanding and expertise and we will take it forward.
How favorable is the macroeconomic situation of Nepal to attract FDI as far as the stability of the economy is concerned?
The macroeconomic situation is stable and improving. We have been able to contain inflation to below six per cent. The external sector is more stable though we’ve got to worry about deteriorating exports. The recent review of the Monetary Policy has eased out the ongoing complexities faced by the private sector, however, it requires improvement in government financing and private sector investment for stability as government expenditure stimulates private sector investment mobilization. The first quadrimester has given a sign of hope for further improvement in the economy. However, the government still needs to cautiously watch the situation to ascertain whether the current situation is cyclical, seasonal or sustainable. In spite of that we can confidently say that Nepal’s macroeconomic situation and more stable external sector are favorable for FDI.
As the Chief Secretary of the Government of Nepal, what message would you like to convey to investors across the world?
I would like to invite investors from across the globe to come and invest in Nepal, where they can earn better returns. We welcome feedback and suggestions from our valued investors. If they face any hassles, we will promptly take the initiative to resolve such issues. The Government of Nepal is committed to provide security to your investment and effective hand holding for the entire project lifecycle.
(This interview was first appeared in IBN Dispatch, bimonthly newsletter of the Investment Board Nepal)
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