Investment Scenario

Business leaders analyze why investment is not growing and suggest what can be done to improve the situation

Investment has not been growing in the country for a considerably long period of time. First, it was blamed on the South East Asian troubles. Recently, the blame has been put on the security problems. But taking part in an opinion poll with Business Age, the leaders of the country’s business community have,by a majority of 55%, opined that rather than anything else it is policy instability which is primarily responsible for the situation.

Ranking five causes for slow investment growth in order of their importance, the respondents viewed that after policy instability, the next most important reason for slow investment growth is the problem in exports. While this refers on the one hand to the problems in export to India, it also refers to the transit problems in exports to overseas. Security problem is ranked third, while the lack of protection (i.e. liberal imports) is ranked fourth. This refers to the demand for anti-dumping duty that the business community has been voicing for some time. Labour problems figure at the bottom of the ranking, indicating that they are not so serious problems. Some respondents also pointed out the high cost of capital (high interest rate on bank loans), small size of the market and better opportunities available in other countries as responsible for Nepal not experiencing healthy growth in investments.

None of the respondents ranked export problem, liberal imports or labour problems as the most important one.

The proposal for setting up an industrial security force seems to have the support of the majority of business leaders. About 55% of the respondents viewed that setting up such a force would be a positive step.

For over six months, a fast track committee headed by the Prime Minister himself is in existence to speed up decision and remove obstacles faced in granting clearance to investment proposals. But while 60% of the respondents said that the committee has not been working effectively, the rest said they were not able to comment on it perhaps meaning that the committee is yet to make its presence felt. Without such a feeling spreading across the investor community, no one is linkely to be attracted to invest in Nepal. One respondent commented, "there is no such thing as fast track in Nepal."

One recent development that has repulsed the foreign investors from Nepal is the proposed review in the existing power purchase agreements signed with some independent power developers. The respondents of the poll viewed that such review will have a very negative effect on future investments. That is perhaps why some respondents suggested to ensure that policies should be stable, without changing them for at least, say, five years.

New Acts Needed

Industrial Rehabilitation Act
Bankruptcy Act

Policy Needed

Stability of laws and policies for at least five years

Promise not to revoke clauses of agreements once signed with the private investor

Clarification of existing rules to avoid arbitrary interpretations

Industrial exit policy

Encouragement to taxpayers

1. What is the most important of causes for investment not growing in Nepal?

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2. Do you think that setting up of the proposed industrial security force is going to be a positive step?

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3. Do you think that the fast-track committee set up under the Prime Minister has been working effectively?

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4. How will be the effect of the proposed review in the existing Power Purchase Agreements signed with Independent Power Developers, on the future investment?

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