Diplomatic Eye-EP 19

Investment Summit: Ritual or Realistic Initiative? (Video)

Nepal is hosting the third edition of the Investment Summit in Kathmandu on April 28-29, 2024. An official in the Ministry of Industry, Commerce and Supplies, before recording this episode, notified me that the summit will be organized at the designated time.  Prior to discussing the Nepal Investment Summit, 2024, an impartial assessment of the shortcomings of previous summits- held in 2017 and 2019 is imperative.

Some experts believe that Nepal has improved the investment climate by amending labor and technology transfer regulations in the wake of the investment summit that took place four years ago. Nonetheless, a number of other regulations pertaining to the matters, such as those regarding intellectual property rights and repatriation protocols, remain in effect. Others argue that Nepal is not a suitable destination for foreign direct investment due to recurrence of reshuffle in the cabinet as well as frequent alternation of the government.

In the First Investment Summit held in 2017, Investors expressed a desire to invest in Nepal provided political stability and streamlined procedures were guaranteed, and government representatives gave assurances to this effect during the meetings.

According to media reports and experts’ views, to encourage foreign direct investment (FDI), the government hyped up two investment conferences that it held in 2017 and 2019. The outcomes were not promising, though.

Investing promises totaling USD 13.5 billion from six nations marked the successful conclusion of the 2017 Nepal Investment Summit. Still, only a small portion of these promises were fulfilled in practice. Only 15 agreements totaling USD 12 billion were inked at the 2019 Nepal Investment Summit, demonstrating the government’s quickness in amending several laws. The government presented 50 projects altogether. Among these were the promises made by international businesses as well as the Nepali private industry. But so far, just a small number of them have advanced noticeably.

Figure-Diplomatic Eye

Present Status of FDI
According to data provided by the Department of Industry, 241 new FDI permissions were granted between July 17, 2023, and February 12, 2024. A total of 31 Share Purchase Agreements (SPA) and Share Subscription Agreements (SSA) have also been completed up to this point. Additionally, 31 Technology Transfer Agreements (TTAs) in total were finished during this time frame. Likewise, 12,692 people committed to employment.

The government of Nepal has sent an invitation to wealthy and well-known individuals worldwide, including American billionaire, owner of SpaceX and Tesla Elon Musk; Indian billionaire Gautam Adani and Mukesh Ambani; and the founder of Meta (Facebook) Mark Zuckerberg, to take part in the Investment Summit, Third Edition.

In this regard, Dr. Dhirendra Koirala, a researcher at University of Kuala Lumpur and an expert on foreign direct investment (FDI), claims that one of the main advantages for a nation such as Nepal is the influx of capital brought about by increased globalization. Dr. Koirala continues, “It’s a good initiative to invite global leaders like Elon Musk, Zuckerberg, Adani, Ambani, etc. Foreign direct investment (FDI) stimulates capital development and infrastructure development.” We currently need to create more jobs, he says.

The Investments Board Nepal asserts that Nepal has a number of reasons to welcome foreign investment.   It does have a cheap labor cost, a working-age population of 57%, and membership in SAARC, BIMSTEC, WTO, MIGA, UNESCAP, UNCTAD, and BRI. Moreover, Nepal signed bilateral investment promotion and protection agreements or BIPPAs with 5 countries. By granting them the same rights as domestic investors in the host nation, a BIPPA agreement safeguards foreign investors. Protecting their investments from non-commercial losses like war, armed conflict, riots, terrorist attacks, insurrection, or emergencies is the goal.

According to the NBSM report, on January 18, 1987, Nepal and its neighbor, India, inked their first Double Taxation Avoidance Agreement (DTAA). After India, a second tax treaty was signed with Norway in 1996. Furthermore, bilateral tax treaties have already been struck with nine other nations: Bangladesh is the nation with which the agreement was most recently made, having been reached in March 2019; these nations include China, Bangladesh, Korea, Pakistan, Thailand, Sri Lanka, Mauritius, and Austria. Thus, Nepal has agreements with a total of eleven nations as of now. According to a report from the Inland Revenue Department (IRD), negotiations are currently underway with Singapore, Malaysia, the United Kingdom, and Oman, among other nations.

 IBN goes on to say that financial benefits for investors include allowing foreign investors to hold 100% of the company, repatriation, tax holidays for specific industries and regions, and the availability of competitive corporate income tax (CIT).

 Major Obstacles
With all the favorable factors at play, one would question why Nepal hasn’t been able to draw significant FDI.

Political risk is one of the main obstacles to foreign direct investment, according to Dr. Koirala. This speaks to the possibility of shifting governmental regulations, political unrest, and other political variables that can have impacts on the investment’s profitability. Another significant element affecting FDI is CORRUPTION.

 Speaking anonymously, a senior diplomat asked who would think that a nation run by power-hungry individuals could attract investors. All that exists here is the custom.

Experts believe that financial incentives, developed infrastructure (such as energy, internet, and a solid road link), favorable administrative and regulatory frameworks, investment in education, and political, economic, and legal stability are only a few of the essential components that the government must supply for ensuring tangible investment in Nepal.

 How do investors get along in Nepal? Do entrepreneurs receive recognition for creating jobs? Is the current labor legislation conducive to the expansion and advancement of industries? How do industrialists and other businesspeople see political leaders and vice-versa? How do their sister organizations obtain the political backing to sabotage startup bids in Nepal?

What political promises exist for Nepali indigenous business to prosper? Without addressing these questions seriously, the government-led Investment Summit won’t be a practical endeavor; it will just be a formality.