INVESTMENT CLIMATE IN NEPAL
The Government of Nepal (GON) is highly supportive of all investments from abroad. It aims to create social and economic systems that can provide reliable access to good-quality, basic necessities such as education, health, and food that can generate jobs, protect the environment, and eradicate poverty.
The GON has placed a high priority on industrial development in the country. To that end, the GON is focused on creating an investment-friendly environment, increasing employment, production and productivity, and substituting imports and minimizing the trade deficit by promoting export-oriented industries.
The new Industrial Policy 2010 was created with the primary objective of attracting domestic and foreign investments by improving the industrial environment, increasing industrial production and productivity, creating more employment opportunities, substituting imports through the promotion of export-based industries, and improving Nepal’s balance of payment by minimizing the trade deficit.
SIZE OF THE MARKET
The principal attraction for foreign investors to Nepal is the size of the market. In 2012-13, Nepal had the gross national disposable income (GNDI) of NRs. 2,195,827 millions. At NRs. 95 to a dollar, this amounts to approximately $23113.968 million USD. Nepal’s GDP is NRs. 1,701,194 millions, per capita GNDI in 2012-13 was $926 USD, and per capita GDP was $717 USD (CBS National Account, 2013-14).
RETURN ON INVESTMENT (ROI)
Compared to other countries in South Asia, Nepal offers the lowest tax burden in the region. Some of the reasons for comparatively high ROI in Nepal include:
- Huge investment potential in tourism, hydropower, agriculture, and mine and mineral sectors;
- Abundance of natural resources;
- Maximum income tax rate of 25% and value added tax (VAT) of 13%;
- Income tax exemption on profits from exports and interest income on foreign loans;
- Tax rate of 15% on royalties and technical and management fees; and
- Customs, excise duties, and VAT levied on raw materials and auxiliary raw materials of export-oriented industries is reimbursed to the exporter on the basis of the amount of exports within 60 days of application.
INDUSTRIAL INFRASTRUCTURE DEVELOPMENT
The Industrial Infrastructure Development Program was brought into effect in 2008-09 in order to develop Nepal’s physical infrastructure, establish and operate feasible industries, and promote an investment-friendly environment for industrialists and entrepreneurs. Under this program, road construction and electricity transmission line expansion works are undergoing in Udaypur, Makwanpur, Dhading, Lalitpur, Dang, Rolpa and Palpa districts. Cement industries are also planned for these districts.
Labor practices of Nepal are guided by the Labor Act of 1992. The creation of a new labor law is in process, and is being drafted with inputs from regular bipartite discussions and consultations with trade unions and employers, and with tripartite consensus of the GON, employers, and trade unions.
15-Point Declaration on the Third National Labor Conference (9 – 11 July, 2012), Nepal
- Recognize that labor law is fundamental law
- Ensure social security to workers
- Amend labor and trade union law in a timely way
- Set times for collective bargaining
- Strengthen labor administration
- Build investment/industry-friendly atmosphere
- Build confidence among government agencies, employers and trade unions
- Set scientific criteria for minimum wage
- Improve industrial safety
- Promote gender-friendly environment at work places
- Abolish Child Labor
- Explore alternatives to foreign employment
- Develop integrated labor information system
- Endorse minimum wage agreement (March 24, 2011)
- Organize national-level labor conference every three years
SPECIAL ECONOMIC ZONES
The GON formed the Special Economic Zone Project (SEZP) on January 1, 2004 under the Ministry of Industry, Commerce and Supply (MOICS) to: formulate laws, rules and regulations; implement planning, design and construction of Special Economic Zones throughout Industrial Statistics 2010/11 Department of Industry Nepal; and to carry out relevant works.
FOREIGN INVESTMENT OUTLOOK
The World Investment Report 2011 indicated that Nepal’s total FDI inflows were valued at $1.243 trillion USD, whereas the outflows were at $1.323 trillion. The inflows in Nepal were only 0.003% of the total, or $39 million.
China is the largest contributor to foreign investment in Nepal, followed by India and the USA on the basis of registered company. Manufacturing, energy, service, tourism, minerals, construction and agriculture are the areas of greatest capital investment.
FOREIGN DIRECT INVESTMENT (FDI) IN INDUSTRY
A policy on FDI and technology transfer has been drafted to enhance FDI in the industrial sector and formulate investment-friendly environment. The approval process of the policy draft is in the final phase. The proposed policy focuses on providing a comparative advantage to the private sector and increasing competitiveness in the global market by simplifying procurement and technology transfer to increase the flow of FDI. Accordingly, a Bilateral Investment Promotion and Protection Agreement has been signed with India with the objective of promoting Indian investment in the industrial sector of Nepal, while preparations are being made to sign similar agreements with other countries. FDI and technology transfer is crucial in making the economy strong, consolidated, dynamic, competitive and self-dependent through maximum utilization of natural and human resources. FDI provides capital, advanced technology, management, technical skills, access to international market and helps in the development of competitive professional culture. In this course, among the industries approved in FY 2012/13, 43 were in agriculture sector, 1 in construction, 6 in energy, 84 in production, 5 in minerals, 89 in services, and 89 in tourism.