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FDI in Nepal: KISS (Keep it Simple Stupid)

A couple of months ago, Nepal held a huge investment summit that made headlines for its unprecedented investment commitments. China alone made commitments above USD 8 billion with total commitments going past USD 13 billion. Leaders from major political parties got on stage and promised their support as well as ‘political stability’ to attract foreign investments; while bureaucrats and the business community joined hands to talk on the virtues of investing in Nepal. All in all, there were many positives coming out of the Investment Summit.
 
However, there are a few things that the investment summit failed to discuss. While it is great that the Prime Minister, his ministers and other political leaders promised to support foreign investments, the summit failed to raise issues such as the archaic and needlessly long winded foreign investment approval process; which is currently one of the biggest bottlenecks.

For foreign investors, it almost always boils down to one thing when finalizing their investments - ease of entry and exit. How easily can they initiate a business and bring in their investment? How easily can they repatriate dividends and other earnings? How easily can they divest and exit as investors; should they need to do so? These are the most vital questions for a foreign investor  when they decide to invest in a different country.

As such, we need strong yet simple acts and regulations to ensure that such investors are not turned away at the onset. The Foreign Investment and Technology Transfer Act (FITTA) has been in need of a revision for a long time, and despite thousands of dollars spent by various donors and related government organizations, an acceptable draft is yet to be submitted to the government and parliament for discussions. It Nepal is able to make the investment process easier, it will subsequently be able to attract new investors as well as retain current ones.

While large investors; especially in infrastructure and energy, can rely on support from various bodies in obtaining the much-dreaded foreign investment approval, smaller investors are often left to fend for themselves at the Department of Industries and Company Registrar’s offices. The current acts and regulations provide a space where bureaucrats in these bodies are able to exploit anyone seeking FDI approval. From not moving files without any ‘tea/ coffee money’ (a typical South Asian practice) to not accepting project documents prepared by anyone other than their own people, malpractices are rampant. It is near impossible for anyone to obtain approval without any push factor in less than a couple of months; sometimes even 6 months. Once the Department of Industries has been tackled, investors need to obtain approval from Nepal Rastra Bank to bring in such investments. This process also takes anything from 15 days to 3 months, often dependent on the person handling the files.

This begs the question - why do we need such a complex and long winded approval process? Or, why do we even need an approval process in the first place? Countries like Rwanda allow businesses to register and start operations of a FDI company within 30 minutes. A simple registration process instead of the long winded approval process makes things much easier for smaller investors. Nepal Rastra Bank could also allow funds to enter quicker while also putting in place restrictions until their Anti Money Laundering requirements are met. This would at least allow investors to get started on their project more easily.

Nepal is ranked 107 in the ease of doing business index by the World Bank, 109 for starting a business and even worse when it comes to enforcing contracts. Unless we improve in these areas and make it easier for investors to come and do business, all the grand posturing by our political leaders and leaders of business houses will be for nought! The KISS principle - Keep It Simple Stupid - states that most systems work best if they are kept simple rather than made complicated, and should be adopted to improve the investment environment in Nepal and meet our investment objectives. While it will not make all investment related woes go away it will be crucial in making the investment environment m much more attractive for potential investors.
 
Suvash Thapa
Suvash Thapa is a management consultant previously with beed for 8 years since its foundation specializing in financial analysis, tourism and hospitality sector and foreign investment. He is currently CEO of Silver Lining Private Limited (www.silverlining.com.np), a data center and cloud services company.
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