NEPSE trading

FDI
DIPESH GHIMIRE
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By Dipesh Ghimire

Nepal Emerges as a Renewed Destination for Foreign Direct Investment

Nepal Emerges as a Renewed Destination for Foreign Direct Investment

Kathmandu — Nepal is gradually positioning itself as a promising destination for Foreign Direct Investment (FDI), with new opportunities opening across energy, tourism, agriculture, infrastructure, and information technology. A combination of political stability, policy reforms, and improving access to regional and global markets is strengthening the country’s appeal to international investors seeking long-term and sustainable returns.

In recent years, Nepal has intensified efforts to make foreign investment more transparent, efficient, and predictable. Two key institutions — the Investment Board Nepal (IBN) and the Department of Industry (DoI) — have taken leading roles in streamlining investment facilitation and project implementation.

Institutional Push for Investment Facilitation

Investment Board Nepal primarily facilitates large-scale projects exceeding NPR 6 billion or 200 megawatts in capacity, particularly in hydropower and other energy sectors. The board has gained recognition for its role in coordinating public–private partnerships (PPP), managing complex project structures, and directly engaging with international investors to ensure smooth implementation.

Meanwhile, the Department of Industry has operationalized a single-window service system for projects below NPR 6 billion and under 200 megawatts. This clear division of responsibility, combined with coordinated institutional efforts, has created a structured framework that supports investors throughout the lifecycle of their projects — from approval to operation and expansion.

Global Context and Nepal’s Policy Response

The COVID-19 pandemic and the subsequent global economic slowdown significantly reduced FDI flows worldwide, including in Nepal. Although global investment trends have gradually improved since then, Nepal’s recovery has been relatively modest. According to data from Nepal Rastra Bank, Nepal’s total stock of FDI stood at approximately NPR 264 billion in 2021/22, with about 62 percent concentrated in the industrial sector.

To reverse this trend, the government has introduced a series of legal, procedural, and policy reforms. These include the Foreign Investment Policy 2015, the Foreign Investment and Technology Transfer Act 2019, the Public–Private Partnership and Investment Act 2019, the Industrial Enterprises Act 2020, and updated foreign exchange and investment management regulations issued by the central bank. The introduction of single-window service centers has further reduced bureaucratic complexity.

A key reform allows automatic approval of foreign investments up to NPR 500 million, while the removal of minimum investment thresholds in the information technology sector has opened doors for small and medium-sized foreign investors and startups.

Investment Board’s Strategic Role

Investment Board Nepal has evolved into a central policy and institutional mechanism for attracting large, long-term investments. It prioritizes sectors such as hydropower, transport, agriculture, tourism, IT, mining, health, education, construction, and financial services.

To strengthen investor confidence, the board has established a project bank featuring investment-ready projects backed by pre-feasibility studies, risk assessments, and financial evaluations. These initiatives reduce due diligence costs for investors and improve transparency regarding risk–return profiles.

Nepal has also leveraged international investment summits as a platform to showcase opportunities. The first summit in 2017 led to key legal reforms and investment commitments in hydropower, transport, and tourism. The 2019 summit expanded participation from multilateral banks and private investors. Most recently, the 2024 summit highlighted investment opportunities in Sudurpaschim and other provinces, introduced refined PPP pipelines, and advanced digital and automatic approval mechanisms.

Major hydropower projects such as Arun III Hydropower Project, Lower Arun, Upper Marsyangdi, West Seti, and Upper Trishuli–1 are currently at various stages of development, demonstrating Nepal’s long-term energy potential.

Sectoral Distribution and Ongoing Challenges

Despite progress, Nepal’s FDI remains heavily concentrated in a few sectors. Hydropower alone accounts for around 32.8 percent of total foreign investment, driven by long-term power purchase agreements and relatively clearer regulatory frameworks. Manufacturing, mining, and agro-industries attract comparatively lower foreign capital due to infrastructure limitations, high logistics costs, and regulatory delays.

Industries also face challenges related to licensing, environmental approvals, skilled labor shortages, export competitiveness, and Nepal’s relatively small domestic market. Addressing these bottlenecks is essential to diversify foreign investment beyond energy.

The Role of the Private Sector

Nepal’s private sector has played a crucial role in sustaining investor confidence. Companies such as Dabur Nepal, Unilever Nepal, Standard Chartered Bank Nepal, and Ncell have demonstrated the viability of long-term foreign investment through consistent operations and reinvestment. Dabur Nepal’s reinvestment of nearly NPR 9.68 billion in 2023 sent a strong signal to global investors about Nepal’s potential as a reliable destination.

Business associations such as the Federation of Nepalese Chambers of Commerce and Industry, Nepal Chamber of Commerce, and Confederation of Nepalese Industries have actively advocated for investment-friendly reforms through public–private dialogue, policy consultations, and sector-specific forums.

Gaps in Economic Diplomacy and Implementation

Despite these efforts, Nepal continues to face weaknesses in economic diplomacy. Delays in signing bilateral investment protection agreements (BIPPA), double taxation avoidance agreements, and the lack of effective foreign exchange risk management instruments have slowed market expansion. Political instability and inconsistent tax administration have further affected investor confidence.

Data from Nepal Rastra Bank shows that between 1995/96 and 2022/23, only 35–36 percent of approved FDI commitments were actually realized. Post-approval delays, including administrative processes that can take 6 to 12 months, often discourage investors from proceeding. Dividend repatriation and foreign exchange approvals can take three to nine months, particularly affecting IT-sector investments that depend on timely capital movement.

The Way Forward

Investment summits alone cannot guarantee implementation. Nepal currently lacks a centralized investment pipeline management system or an official dashboard to track projects from commitment to execution and expansion. Without continuous follow-up and dedicated post-investment support mechanisms, approved projects risk stagnation.

To fully capitalize on emerging opportunities, Nepal must focus on policy stability, faster execution, digital tracking systems, and proactive economic diplomacy. Strengthening post-investment facilitation, simplifying foreign exchange procedures, and empowering diplomatic missions to actively promote trade and investment will be critical.

If these gaps are addressed, Nepal has the potential to transform its FDI landscape — moving from sporadic inflows to a competitive, sustainable, and diversified investment ecosystem that supports long-term economic growth and regional integration.

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